OECD Report Urges Laos to Focus on Human Capital and Green Sustainability
Transitioning from Commodity-Driven Growth to Inclusive Prosperity
Having achieved remarkable economic and social progress, the Lao PDR faces the challenge of shifting away from commodity-driven growth to a more inclusive prosperity model emphasizing human capital development and green sustainability, the Organisation for Economic Co-operation and Development (OECD) reported.
According to the Multi-dimensional Country Review (MDCR) of the Lao PDR launched today in Vientiane, the country has made significant progress in terms of development. Sustained economic growth of over 7 percent annually between 2000 and 2019 was led by booming commodity exports and substantial inflows of external financing, notably from large investment projects in hydropower, mining, and transport.
The country experienced an impressive increase in foreign direct investment (FDI) inflows between 2006 and 2017, from 187.4 million US Dollars to 1.69 billion US Dollars. Extreme poverty fell from 25 percent to 7 percent, household income increased, and many important development gains in education and health were achieved.
After three successful decades, the Lao PDR is now grappling with the shortcomings of its current development model, recently exacerbated by COVID-19 pushing up food and energy prices. While debt-financed investments, including public-private partnerships (PPPs), have supported growth, government revenue has progressed more slowly, hindering the country’s capacity to meet a growing debt service burden and limiting its ability to invest in human capital.
Growth and investment have been concentrated in a few sectors and dominant state-owned enterprises (SOEs). Ninety percent of workers are still employed in primarily informal sectors, and past development has dented natural wealth: Lao PDR has lost nearly 23 percent of its tree cover since 2000 and grapples with high levels of air pollution.
Focusing on human capital and green sustainability, and reforming public finance and taxation can help the Lao PDR overcome these challenges. To this end, the MDCR of the Lao PDR recommends reducing the debt burden to free up fiscal space while improving spending efficiency. Managing fiscal risks related to PPPs and SOEs involves auditing existing entities, enforcing strict criteria for government guarantees, and implementing quick-win reforms in the SOEs with the highest risk profiles.
According to the Multi-dimensional Country Review (MDCR) of the Lao PDR launched today in Vientiane, the country has made significant progress in terms of development. Sustained economic growth of over 7 percent annually between 2000 and 2019 was led by booming commodity exports and substantial inflows of external financing, notably from large investment projects in hydropower, mining, and transport.
The country experienced an impressive increase in foreign direct investment (FDI) inflows between 2006 and 2017, from 187.4 million US Dollars to 1.69 billion US Dollars. Extreme poverty fell from 25 percent to 7 percent, household income increased, and many important development gains in education and health were achieved.
After three successful decades, the Lao PDR is now grappling with the shortcomings of its current development model, recently exacerbated by COVID-19 pushing up food and energy prices. While debt-financed investments, including public-private partnerships (PPPs), have supported growth, government revenue has progressed more slowly, hindering the country’s capacity to meet a growing debt service burden and limiting its ability to invest in human capital.
Growth and investment have been concentrated in a few sectors and dominant state-owned enterprises (SOEs). Ninety percent of workers are still employed in primarily informal sectors, and past development has dented natural wealth: Lao PDR has lost nearly 23 percent of its tree cover since 2000 and grapples with high levels of air pollution.
Focusing on human capital and green sustainability, and reforming public finance and taxation can help the Lao PDR overcome these challenges. To this end, the MDCR of the Lao PDR recommends reducing the debt burden to free up fiscal space while improving spending efficiency. Managing fiscal risks related to PPPs and SOEs involves auditing existing entities, enforcing strict criteria for government guarantees, and implementing quick-win reforms in the SOEs with the highest risk profiles.
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