LAO PDR – FACT-FINDING MISSION REPORT
Report prepared for UNCDF by:
LIST OF ACRONYMS
ADB Asian Development Bank
ASEAN Association of South East Asian Nations
AUSAID Australian Aid
CGOI Committee for Government Organisation Improvement
CPC Committee for Planning and Cooperation
CSO Civil Society Organisation
DPACS Department of Public Administration and Civil Service
FY Fiscal Year
GDP Gross Domestic Product
GPAR Governance and Public Administration Reform
GPAR/LP Governance and Public Administration Reform – Luang Prabang provincial pilot
GTZ German Technical Assistance
HRD Human Resources Development
IMF International Monetary Fund
IPF Indicative Planning Figure
JICA Japan International Cooperation Agency
CLCRD Central Leading Committee for Rural Development
LDC Least Developed Countries
LDF Local Development Fund
LDP Local Development Project
LPRP Lao People’s Revolutionary Party
MoAF Ministry of Agriculture and Forestry
MoF Ministry of Finance
NA National Assembly
NEM New Economic Mechanism
NORAD Norwegian Agency for Development
ODA Official Development Assistance
PDR People’s Democratic Republic
PER Public Expenditure Review
PIP Public Investment Programme
PM Prime Minister
PMO Prime Minister’s Office
PRSP Poverty Reduction Strategy Paper
RTM Round Table Meeting
RTP Round Table Process
SESMAC Strengthening Economic and Social Management Capacities project
SIDA Swedish International Development Agency
SURF Sub-Regional Resource Facility (UNDP-Bangkok)
TBG Towards Better Governance
TCP Tax & Customs Project
UDAA Urban Development Administrative Authority
UNCDF United Nations Capital Development Fund
UNDP United Nations Development Programme
UNV United Nations Volunteers
UXO Unexploded Ordinance
II. LAO PDR: GENERAL CONTEXT
1. A brief history
2. Land, society and livelihoods
4. Poverty, social development and ODA
III. LAO PDR: SOCIO-POLITICAL ENVIRONMENT AND POLICY DIMENSIONS TO
LOCAL GOVERNANCE AND DEVELOPMENT
1. Statutory frameworks
(i) The Constitution
(ii) Regulations on “decentralisation”
(iii) Urban administration
2. Key elements of the Lao PDR governance landscape
(i) The LPRP
(ii) The National Assembly
(iii) Mass organisations
(iv) Civil society and the press
3. The structure of government
4. Local administration
(i) Central-local relations in Lao PDR: a brief history
(ii) Current territorial organisation
(iii) Current local administration
5. Planning, budgeting, financing and delivery of public goods and services
(i) Planning and budgeting
(iv) Monitoring and control
6. Donor activities and experience
(i) UNDP and other UN organizations
(ii) Other donors
IV. ISSUES FOR LOCAL GOVERNANCE PROGRAMMING IN LAO PDR
1. Political will and policy evolution
2. Local government and “decentralisation” in Lao PDR
3. Government understanding of decentralisation
5. Planning and budgeting
6. Capacity issues
V. PROSPECTS FOR UNCDF LOCAL GOVERNANCE PROGRAMMING IN LAO
3. Next steps
- Terms of reference
- Mission calendar and persons met
- Documents consulted
LAO PDR: FACT-FINDING MISSION REPORT
1. This document is the report of a UNCDF-fielded fact-finding mission1 to Lao
PDR, the aim of which was to assess the extent to which current conditions in Lao PDR
are (or are not) suitable for new programming in the area of support to local governance.
UNCDF currently co-funds several projects in Lao PDR, either in the micro-finance or in
the broad rural development/infrastructure sectors; UNCDF does not, at the moment,
fund interventions in the area of local governance.
2. The mission was able to visit several provinces – Sayaboury, Luang Prabang,
Oudomxay, Bolikhamxay and Vientiane – as well as several districts within some of
those provinces, and a few villages in those districts. The mission was also able to
consult a wide range of national institutions and multilateral and bilateral donor agencies
in Vientiane. Meetings with national, provincial, district and village authorities, as well as
with representatives of the donor community, enabled the mission to build up a
reasonable picture of governance in Lao PDR. The mission was also able to access a
considerable amount of documentation, both general and specific.
3. The report is structured as follows: a first, short. section on the overall context; a
second, much longer, section describing contextual elements of direct relevance to local
governance and development in Lao PDR; a third section, discussing potentially
important local governance issues; and a fourth, and final, section analysing
opportunities for and constraints to local governance programming in Lao PDR and
making recommendations for future UNCDF orientations.
4. The mission would like to take this opportunity to thank the many people, both in
government and elsewhere, who patiently described and explained a range of issues, as
well as providing answers to the many questions posed by the mission. In particular, the
mission is very grateful to the entire UNCDF team in Laos for its efficient organization of
travel and meetings, and its assistance in obtaining documents.
II. LAO PDR: GENERAL CONTEXT
1. A brief history
5. A powerful and centralised Lao state – the Kingdom of Lan Xang Hom Khao, with
its capital in Luang Prabang – was to emerge during the 14th century. However, by the
end of the 17th century, this single Lao kingdom had disintegrated into three smaller
states (Luang Prabang, Vientiane and Champassak), all of which were subject to de
facto Thai hegemony. In the late 19th century, moving out from its initial colonial base in
Vietnam, France wrested control of the three Lao kingdoms from Thai domination,
the mission was composed of an independent consultant, Mike Winter, and ably assisted by
UNCDF’s programme officers in Lao PDR – Ms. Helle Buchhave and Mr. Viengsamay
uniting them under the royal house of Luang Prabang. From then until the Second World
War, Laos was administered as a part of French Indochina.
6. During the Second World War, Japan replaced France as Laos’ colonial overlord.
In the political vacuum created by Japanese surrender in 1945, Lao Itsara nationalists –
who had declared independence a few months earlier – seized power. However, France
had regained control of its former colony by 1946. The more radical Lao nationalists,
strongly influenced by and allied to the Vietminh, established Pathet Lao and began a
communist-inspired, anti-colonial insurgency. Post-war colonial rule effectively came to
an end in the aftermath of the Vietminh’s military defeat of the French at Dien Bien Phu
in 1954. A year later, elections were held in Laos. The resulting Government of National
Union (which included 2 members from Pathet Lao) collapsed in 1958 and was replaced
by a right-wing, US-backed government. As Laos was drawn into the Vietnam War,
Pathet Lao, driven underground, resumed its liberation struggle.
7. In 1973, as US involvement in the Vietnam War began to fade rapidly, the Royal
Government of Laos and the Pathet Lao agreed to a ceasefire and formed a coalition
government. Conflict, however, soon resumed. Following communist victories in Vietnam
and Cambodia, Pathet Lao forces entered Vientiane in August 1975, proclaiming the Lao
People’s Democratic Republic (PDR).
8. Since 1975, Lao PDR has been ruled by one party, the Lao People’s
Revolutionary Party (LPRP), which has retained a firm grip on power. Immediately
following Pathet Lao victory, the country was managed on the basis of revolutionary
socialist principles – collectivisation, nationalisation, “re-education”, and the like. By the
early 1980s, however, it was clear to the national leadership that such orthodox policies
were not delivering the results that had been hoped for. National policy was therefore
gradually altered, culminating in 1986 with the New Economic Mechanism (NEM),
signalling Lao PDR’s commitment to free market economic principles and to incremental
economic reform. Since 1986, much has been done to transform the economy (with
apparently reasonable results) – and although the Party remains committed to a socialist
political system, economic liberalisation has inevitably resulted in a limited degree of
2. Land, society and livelihoods
9. Lao PDR, with a surface area of 236,800 km2, is land-locked. It is surrounded by
larger (and, in most cases, politically and economically more powerful) neighbours –
Thailand, Myanmar, China, Vietnam, and Cambodia. Some 70% of the country is
considered mountainous (with altitudes varying between 1,500 and 3,000 metres); the
rest of the country consists of the Mekong floodplains and other river valleys. Forest
covers an estimated 45% of Lao PDR, making it one of the most heavily forested
countries in SE Asia. The climate is monsoon-tropical, rainfall being limited to a single
10. The population of Lao PDR is currently estimated to be about 5.1 million people.
Average population density – roughly 21 persons per km2 is, by Asian standards, very
low. Population densities vary considerably – from highs of 32 persons/km2 in some of
the southern and central provinces to lows of less than 10 persons/km2 in the northern
and eastern provinces. The population is composed of a large number of distinct ethnic
groups, with the Lao Lum (or “lowland” Lao) being the largest (making up a little over
50% of the total population). Ethnic diversity is highest in the more mountainous areas of
the country, where linguistic diversity thus serves to compound the problems of
11. With over 80% of its population living in rural areas, Lao PDR is an
overwhelmingly agrarian society. In the fluvial lowlands, livelihood systems are
dominated by paddy rice cultivation, either rainfed or irrigated. In the more mountainous
areas, on the other hand, upland rice farming (usually based on a form of shifting
cultivation) is dominant, complemented (where possible) by paddy cultivation in river
valleys. There is some cash cropping (of cotton, coffee, tobacco, sugarcane, ..).
Throughout Lao PDR, livestock raising (of cattle, buffaloes, swine, small ruminants and
poultry) makes a significant contribution to rural livelihoods. Finally, many rural Laotians
rely, to varying degrees, on the harvesting of non-timber forest products (NTFPs), both
as marketable commodities and as directly consumed items; this is particularly so in the
more mountainous areas of the country.
12. In macro-economic terms, Lao PDR remains strongly dependent on agriculture,
which makes up just over 52% of GDP. Rice farming, which accounts for 78% of the
total area under cultivation, is easily the most important component of the agricultural
economy. Cash crops, of which coffee and tobacco are the most important, account for
the remaining share of farmland. Forestry, although of declining importance, remains a
significant export sector. Industrial development has been largely limited to small-scale
industries, overwhelmingly concentrated in and around Vientiane, the capital and largest
Lao city. Hydro-electric power has emerged as a growth sector in recent years, with
electricity being exported to Thailand. Tourism is also emerging as a growth sector.
13. Prior to the Asian financial crisis, the Lao economy witnessed fairly rapid rates of
growth – between 1992 and 1996, the average annual rate of growth was 7%. Although
this average rate of economic growth was sustained in 1997, by 1998 the full effects of
the region’s downturn resulted in a much slower (4%) rate of growth. However, since
1999, annual economic growth has resumed at a rate of around 6%.
14. In recent years, the Government has consistently run a fiscal deficit – as high as
14.8% of GDP in 1997-98, when Lao PDR tried to spend its way out of the Asian crisis.
This deficit was brought down to 4% of GDP in 1998-99 (mainly through stricter control
over expenditure), but has since risen to 5% or more of GDP in the last two years,
largely because of shortfalls in revenue collection and a relaxing of controls over
expenditure. The extent of this fiscal deficit has clear (and worrying) implications for
inflation. Government expenditure generally accounts for around 20% of GDP, and
revenues for 9-12% of GDP.
4. Poverty, social development and ODA
15. Lao PDR is one of the poorest countries in South East Asia. Annual per capita
GDP is estimated at US$ 350, with considerable inter-regional, inter-ethnic, and gender-
based disparities. In terms of human development, Lao PDR is ranked 140th out of 174
countries – the country is therefore classified as being an LDC.
16. Poverty-related statistics on Lao PDR make for relatively sombre reading. Life
expectancy at birth is 59 years, with the under-5 mortality rate estimated at 107 per
1,000. Only 53% of the population has access to potable water, and health conditions –
in general – are poor. Although the adult literacy rate is estimated to be about 73%, it is
clear that the overall quality and level of education remain inadequate. The incidence of
poverty is high – in 1998, almost 40% of the population was considered to be poor.
17. Economic growth does appear to have contributed to poverty reduction in Lao
PDR. Between 1992 and 1998, the proportion of the poor in the total population declined
from 45% to 38.6%, providing the government with some comfort. However, there is
increasing evidence that disparities and inequalities have become more, rather than
less, pronounced. In the mountainous, ethnically diverse, provinces, the incidence of
poverty has remained high; on the other hand, Vientiane city and the central provinces –
more favourably located in the Mekong corridor – have seen a much greater reduction in
poverty. In a country where national unity remains a key political issue and where official
ideology retains its distinctly socialist flavour, these growing disparities are an obvious
source of concern.
18. The Government’s recently completed Participatory Poverty Assessment (PPA)
has further highlighted such problems, underlining the extent to which the majority of the
poor are usually to be found in remote and mountainous areas and among the ethnic
19. Official development assistance to Lao PDR has been, and continues to be,
significant. The following table summarises available ODA data.
Table 1: Net ODA (US$ m) to Lao PDR
Source 1994 1995 1996 1997 1998 1999 2000
Bilateral 123.8 170.0 147.5 164.8 165.7 n.a. 285.4
- Japan 60.7 97.6 57.4 78.6 85.6 n.a. n.a.
- Sweden 13.2 13.4 17.7 15.5 12.0 n.a. n.a.
- France 14.3 8.4 16.4 14.8 11.7 n.a. n.a.
- Australia 10.7 13.1 12.1 14.3 10.4 n.a. n.a.
Multilateral 92.1 138.5 184.6 163.1 115.7 n.a. 100.3
- ADB 24.0 61.4 83.6 85.6 63.5 n.a. n.a.
- IDA 26.2 27.1 59.0 40.9 23.7 n.a. n.a.
- IMF 8.5 15.9 5.5 3.3 - n.a. n.a.
Total 218.4 215.9 308.5 332.1 281.4 354.5 385.7
Source: EIU (2000), UNDP (2002) and Government of Lao PDR
As can be seen from the table, annual per capita ODA levels are relatively high, varying
from US$ 40 to as much as US$ 75, representing between 10% and 20% of per capita
III. LAO PDR: SOCIO-POLITICAL ENVIRONMENT AND POLICY DIMENSIONS
TO LOCAL GOVERNANCE AND DEVELOPMENT
1. Statutory frameworks
(i) The Constitution
20. When the Pathet Lao took control of the country in 1975, one of its first acts was
to abrogate the 1947 constitution. Between 1975 and 1991, Lao PDR was governed by
Party resolutions. In 1991, however, in the context of new, market-oriented, economic
policies and a push to restore centralised control over the machinery of government, the
Supreme People’s Council voted in favour of a new Constitution. The 1991 Constitution
– which remains operative – provides the official over-arching framework for governance
in Lao PDR.
21. According to the provisions of the Constitution, Lao PDR is “.. a unified and
indivisible country belonging to all ethnic groups” (Art. 1). The political system is
the National Assembly (NA), “.. the legislative organ, which has the right to
decide the fundamental issues of the nation. It is the organ that supervises
and oversees the functioning of the executive and judicial organs” (Art. 39).
The constitution provides the NA with broad legislative powers, as well as the
power to elect (and remove) the President of the Republic, the right to
approve Government appointments and the power to make key appointments
in the judiciary. Members of the NA are elected for a five year term of office
and according to “,, the principles of universal, equal and direct suffrage, and
secret ballot.” (Art. 4).
the President of the Republic and Head of State, with – inter alia – the
powers to promulgate laws approved by the NA, to appoint or remove (with
NA approval) the Prime Minister (PM) and members of the Government, and
to appoint provincial Governors and municipal Mayors on the
recommendation of the PM. The President is elected by the NA for a term of
the Government, headed by the PM, with broad executive responsibilities and
a five year term of office. The PM appoints deputy ministers and deputy
chairmen of ministry-equivalent committees, as well as deputy Governors,
deputy Mayors and district Chiefs.
the Local Administrations – provinces, municipalities, districts and villages,
headed respectively by appointed Governors, Mayors, Chiefs2, and
Headmen. Provincial Governors, municipal Mayors and district Chiefs are
o ensuring the implementation of the constitution, laws and decisions of
the Government or “higher levels”;
although district heads are officially called Chiefs, they are more commonly referred to as district
o “guiding” and supervising the functioning of all services within their
o considering and “resolving” (in accordance with existing laws and
regulations) local level complaints, petitions and proposals.
Village headmen are responsible for ensuring the implementation of laws,
decisions and orders, for keeping the peace in their villages, and for
developing their villages.
the judiciary, made up of:
o the People’s Courts, present at national, provincial, municipal and
district levels. The Supreme People’s Court is at the apex of the
o the Offices of Public Prosecution, which also operate at all levels.
22. The Lao Constitution also includes a number of provisions aimed at defining and
protecting the basic rights of citizens. These include, among others:
the equality of all ethnic groups;
the equality of all Lao citizens in the eyes of the law;
the right to education;
freedom from arbitrary arrest without warrant (except in cases as
prescribed by the law);
“.. freedom of speech, press, and assembly; of associations and of
demonstrations, which are not contrary to the law.” (Art. 31).
23. Presented as such, the Lao Constitution approximates to an “orthodox”
republican constitution. However, a closer reading of the Constitution reveals a number
of significant features and provisions which radically distance it from “orthodox”
in the first place, the only popularly elected constitutional body is the National
Assembly; all other positions in the political system are filled either by NA
selection or by appointments made by the President (himself elected by the
NA) or the PM (appointed by the President with NA approval). Control over
the National Assembly is therefore a fundamental issue.
secondly, there is no provision for political pluralism. Instead, the Constitution
– in one key article – provides for “democratic centralism”: “The National
Assembly and all other state organizations are established and function in
accordance with the principle of democratic centralism.” (Art. 5).
thirdly, the Constitution – in its only reference to the Party – states that: “The
right of the multi-ethnic people to be the masters of the country is exercised
and ensured through the functioning of the political system, with the Lao
People’s Revolutionary Party as its leading nucleus.” (Art. 3). Although the
phrase “leading nucleus” lends itself to some ambiguity, it is clear that the
Party is the key element of the political system.
24. The Constitution makes no provision for local government in the sense of locally
25. The Constitution has been under review since June 1998. As far as is known, the
main reason for the review is to examine ways of making provisions for urban
administrations, as a prerequisite for a new law on local administration and territorial
organisation (see below).
(ii) Regulations on “decentralisation”
26. Whilst the Constitution does provide for local administrations – in the form of
provinces, municipalities, districts and villages – it does little to spell out their functions,
other than as territorial units within which national laws are applied. Further definition of
local administrative functions has since been provided in 3 sets of texts:
Instruction 01/PM from the Prime Minister, dated 11 March 2000;
Recommendation 128/SPC, issued by the State Planning Committee (now
the Committee for Planning and Cooperation, or CPC) on the same date as
Recommendation 475/MF, issued on 22 March 2000 by the Ministry of
27. Instruction 01/PM sketches out a “new” planning and budgeting framework,
aimed at increasing the responsibilities of provinces, districts and villages, as well as at
increasing revenue collection at the local level. Provinces are to be built up as “strategic
units”, districts as “planning and budgeting units”, and villages as “implementation units”.
The Instruction goes on to specify, however vaguely3, provincial, district and village
responsibilities in the planning and budgeting process. The intent is nonetheless fairly
clear – devolving planning and budgeting to local administrations is expected to increase
local level participation, improve “ownership” of planned investments, ensure more
appropriate planning, and increase revenue collection.
28. Recommendation 128/SPC tries to build on Instruction 01/PM. Provinces are
expected to draft their own 5-year socio-economic development plans (in accordance
with national guidelines) and annual plans (including provincial public investments plans
– PIPs). Provincial plans, as far as can be understood, will be a synthesis of sectoral and
district plans, consolidated by the provincial Governor. Provincial plans will be integrated
into the national plan and approved by the National Assembly. District plans “.. are not
very different from the provincial plans ..” (128/SPC: 3), but do not include certain areas
which remain the responsibility of the province. District plans are expected to be based
on village plans. Village plans, in turn, are to be based on data collection and analysis at
the household and village-level, and a good understanding of local potential and
29. Recommendation 475/MF is almost entirely devoted to allocating revenue
collection and expenditure management responsibilities for the provinces, districts and
one of the constraints for donor agencies working in Lao PDR is that all legal and regulatory
frameworks are drafted, quite understandably, in Lao. Their subsequent translation into English is
often poor and, quite possibly, misrepresents their meaning as originally formulated.
villages. It lists the different revenue sources and the types of expenditure appropriate
for each level. It specifies quite clearly that villages can collect certain types of revenue
and are permitted to retain a certain proportion of such revenues depending on their
economic development (remote, under-developed villages can retain up to 15% of
collected revenues, while better-off villages can retain only 4% of collected revenues).
The Recommendation also introduces the (confusing) principle that only “.. districts
which have the economy in expansion, .. the capacity to equilibrate their expenditures by
their own revenues are able to be budgeting units to have competence, function and
responsibilities of their budget establishing [sic] and implementing [sic] by themselves.”
(475/MF: 2). It also states that the MoF, in collaboration with provincial authorities, will
select the districts that are to become “budget units”.
30. Several, non-exhaustive comments need to be made about this set of
firstly, because they are only ministerial instructions/recommendations (not
even Decrees) they are not endowed with a great degree of legal authority;
secondly, they do not constitute a comprehensive regulatory framework for
local level planning, budgeting and delivery of public goods and services;
thirdly, they appear to contradict each other in a number of ways, the most
important being the MoF’s definition of a district budgetary unit in terms of
fiscal surplus or equilibrium and the PM’s and SPC’s more general (and more
fourthly, they may be illegal. By explicitly stating that villages can have
revenue collection functions, 475/MF, for example, appears to contradict the
1996 Tax Law. It is also possible that the entire set of documents is not
consistent with the State Budget Law of 1994 (depending on one’s
interpretation of that law).
31. It should be noted that since 1998, the Government (with technical assistance
from the GPAR project – see below) has been preparing a new law on local
administration and territorial organisation. Although the precise content of this draft law
is not known, its adoption by the National Assembly would go some way towards
providing “decentralisation” with a sounder legal framework. However, before the new
law can be fully considered by the NA, the Constitution will need to be amended.
32. One of the innovations that was incorporated into earlier drafts of the new law on
local administration was a provision for the establishment of district development
councils, seen as platforms for dialogue between local authorities, civil society and other
community structures. It is not known whether this provision remains in later drafts of the
(iii) Urban administration
33. In recognition of the specific needs of urban areas, the Government has
established (by decree) Urban Development Administrative Authorities (UDAAs) in four
provincial towns (Thaket, Pakse, Khantaburi, and Luang Prabang) as well as the
Vientiane UDAA for the national capital. These UDAAs, although they remain under the
control of provincial and district authorities, are seen as being the forerunners of
municipal government in Lao PDR.
2. Key elements of the Lao PDR governance landscape
(i) The LPRP
34. Given its unique status and apparent monopoly over political power in Lao PDR,
it is somewhat paradoxical that so little is known about the Lao People’s Revolutionary
Party. For most outside observers (and, indeed, for many Lao) the inner workings and
functioning of the Party constitute a “black box”. It would be naïve to suppose that this
report will be able to add much to what little is known about the Party; it will, however, try
to spell out how the LPRP and the state apparatus are woven together and also, in a
highly speculative way, try to examine some important issues.
(a) Party structure and the State
35. Total Party membership is estimated (by the LPRP) to be around 100,000 –
which is a little less than 2% of the total population. Despite this relatively small
membership, the Party appears to be present at all levels in Lao PDR – from Vientiane
to the villages. Within each line ministry, and at national, provincial and district levels,
Party members are organised into committees. There are also “consolidated” Party
committees for the overall district and provincial levels.
36. At the national level, the Party Central Committee (with a current membership of
53) provides the LPRP with a form of national assembly. The Political Bureau (usually
referred to as the Politburo) – with a current membership of 11 – operates as the Party’s
executive body; the Politburo is, by all accounts, the most politically powerful body in Lao
PDR. Both the Politburo and the Central Committee are “elected” during the Party’s five-
yearly Congresses. Party Congresses are major political events, not only because they
choose (or, perhaps more accurately, endorse) the LPRP leadership, but also because
they determine policy goals and orientations4.
37. The LPRP’s structure is woven into the apparatus of the Lao state in a range of
ways, inter alia:
the General Secretary of the Party, head of the Politburo, is also the President of
the Republic and Head of State;
the Prime Minister is always a key member of the Politburo;
all provincial Governors are both members of the Party Central Committee and
the General Secretaries of their respective Provincial Party Committees;
all district Governors are the General Secretaries of their respective District Party
Ministers are frequently (but not inevitably) also members of the Politburo or the
most Ministers are Party members5;
as an indication of the importance of Party Congresses, it is worth noting that the 4th Party
Congress, held in 1986, endorsed major economic reforms, whilst the 5 th Party Congress, held in
1991, endorsed (and amended) the new Constitution.
many Lao assume that all Ministers must be Party members. This, however, is not the case –
the current Minister of Justice is not (and never has been) a Party member.
currently, seven of the eleven Politburo members are (or were) generals,
indicating the extent to which the Party and the Armed Forces are linked;
the current President of the National Assembly is a Politburo member.
In short, it is all but impossible to separate the State from the Party.
(b) Some comments
38. It seems clear that the Lao political system is dominated by a relatively small
leadership core, with close ties to the Armed Forces. The central leadership of the Party
directly or indirectly controls all important appointments – for example, provincial
Governors (nominated by the Prime Minister and appointed by the President of the
Republic – both of whom are Politburo members) in practice become the General
Secretaries of their respective Provincial Party Committees, with the latter thus providing
endorsement of decisions taken by the centre. What may therefore appear to be a
political process of local selection is, in reality, a provincial “rubber-stamping” of
decisions made by the central Party leadership. The same applies to the selection of
district Governors, although it is conceivable that their appointment takes into account
the need for them to be locally acceptable nominees.
39. All this would imply that advancement within the State apparatus is largely a
question of simultaneous promotion within the hierarchy of the Party, and that the latter,
in turn, is predicated on loyalty and obedience to the Party and its central leadership. It is
commonly believed that civil service promotion is contingent upon Party membership.
However, this variety of a patron-client system appears to be somewhat “diluted” by the
value placed on kinship and marital alliance in Lao society6 – and hence the occasional
(if very muted) references to political “dynasties” within the LPRP. In addition, there are
exceptions to the rule – the current Minister of Justice is not a Party member and some
National Project Directors (all of whom are seconded civil servants) are not Party
40. Given the ethnic diversity and quite particular history of Lao PDR, the Party
actively strives to foster national unity. One of the ways it does so is to ensure that ethnic
minority groups are represented at its high levels – the Politburo, for example, includes
several members who are from minority groups.
41. Since 1975, the Party has proved both resilient and pragmatic. At its last
Congress in 2001, the LPRP reaffirmed its opposition to political pluralism, ruling out
multi-party political competition for the foreseeable future; nonetheless, when asked by
the (foreign) press (following the February 2002 National Assembly elections) whether
multi-party elections might occur in the future, the President of the Republic responded
that it seemed unlikely but would “.. depend on the circumstances”7. The Party’s
endorsement of free market economics since 1986 is also proof of pragmatism, although
the pace of reforms has been slow, partly to protect Party and other interests.
42. Economic reforms have brought Lao PDR into much greater contact with the
outside world. The collapse of most one-party communist states since the late 1980s
has also made interaction with liberal democracies unavoidable – in the past, for
it should be pointed out that this is by no means limited to Lao society.
Bangkok Post, February 26 2002.
example, study abroad could be entirely limited to like-minded political regimes; today,
this is no longer the case, and young Lao study in Australia, Japan, Europe, and North
America. These changes have clearly had an impact on Lao society and ways of
thinking; this, in turn, has probably led to a gradual watering down of the Party’s
ideological commitment to Marxism-Leninism. However, it is generally thought that the
Party leadership remains somewhat divided over a number of issues, including the pace
and shape of further reforms – on the one hand, the “revolutionary old guard” associated
with the war of liberation; on the other, the younger leaders, more open-minded and
often more technocratic. It seems likely that the “reformers” will eventually become
dominant – if only because the “conservatives” are generally much older and reaching
the twilight of their political careers.
(ii) The National Assembly
43. In theory, the National Assembly has considerable power. In practice, however,
the independent power of the National Assembly is “incorporated” into that of the LPRP
through its entirely legal control over the selection of candidates for NA seats. Those
wishing to be candidates for NA membership must be screened and approved by the
Lao Front for National Construction (which is clearly inseparable from the Party), thus
ensuring that all candidates are, at the least, acceptable to the Party. This results in
almost all candidates being Party members – in the recent (February 2002) NA
elections, for example, only one of the 166 candidates was not a Party member8.
44. NA constituencies are provincial. Each province is represented by at least 3 NA
members, but with total provincial representation being thereafter a function of the
provincial population size. In total, there are now 109 seats in the National Assembly. On
average, each NA member thus “represents” about 50,000 people. The candidates for
each province are – for all intents and purposes – presented on a single “list” – which
always includes more candidates than there are provincial seats in the NA. On election
day, provincial electors are asked to “eliminate” the candidates that they do not want to
represent them. Electoral turnout is very high, largely because a failure to vote can lead
to subsequent, but minor, problems with the state – such as unaccountable delays in
obtaining birth certificates.
45. The NA maintains offices in each province which are intended to facilitate contact
between provincial parliamentarians and their constituencies. It is unclear to what extent
NA members do consult their constituencies about legislative processes or inform them
of NA “oversight” of the Government.
46. Although the candidates in the most recent NA elections came from a variety of
backgrounds, most had clear links with the Party and the Government. In Vientiane
Municipality, for example, among the 18 candidates (for 12 seats) were a Politburo
member (who is also of ministerial rank), the Minister of Justice, and the Mayor of
Vientiane Municipality. In several provinces, members of the Armed Forces were
candidates for NA seats.
he was, however, the Minister of Justice.
(iii) Mass organisations
47. There are four mass organisations in Lao PDR – the Lao Front for National
Construction (commonly referred to as the Lao Front), the Lao Federation of Trades
Unions, the Lao Youth Organisation, and the Lao Women’s Union. They are
constitutionally mandated to “.. unite and mobilise all strata of all ethnic groups in order
to take part in the tasks of national defence and development..” (Art. 7 of the
48. These mass organisations are present at all levels – national, provincial, district
and village. Whilst they do “represent” particular categories of the population, they are
also closely linked to the LPRP. At district and provincial levels, they report to the
Governors in their capacity as General Secretaries of the local Party Committee.
49. Of the mass organisations, it is the Lao Front which appears to be the most
highly regarded9 at the local level and in rural areas. The Lao Front is responsible for
building national solidarity and for ensuring that the interests of ethnic minority groups
are taken into account and upheld. It is often considered to be one of the more liberal
elements in the country’s political system. The Lao Women’s Union is also fairly active in
rural areas, and is often involved in health programmes and income generating activities.
(iv) Civil society and the press
50. Although the Constitution explicitly recognises the freedom of Lao citizens to
assembly (and thus to create and join associations), no further regulatory framework
defines how this constitutional right can be exercised in practice. As a result, there are
no legally recognised civil society organisations (CSOs) in Lao PDR. The mass
organisations described above are not CSOs because they are inextricably linked to the
Party (and thus to the State). However, given that there is little in the way of civil society
in Lao PDR, the mass organisations provide the only formal representation for women,
workers, youth and ethnic minority groups.
51. The Constitution also provides for freedom of speech and press. However, there
are still no independent newspapers – all newspapers published in Lao or English are
managed by the State. In addition, there are no independent radio/TV stations10.
3. The structure of government
52. The Government of Lao PDR is headed by the Prime Minister, to whom a range
of Ministries and Committees report. In all, there are 14 Ministries and Ministry-style
Ministry of Finance;
Ministry of the Interior;
Ministry of Defence;
Ministry of Foreign Affairs;
Ministry of Agriculture and Forestry;
the participatory poverty assessment found that local Lao Front leaders are among the most
respected people in poor, rural (and mainly ethnic minority) communities.
Nonetheless, it should be noted that almost all Lao watch Thai television without any problems.
Ministry of Commerce and Tourism;
Ministry of Communication, Transport, Post and Construction;
Ministry of Education;
Ministry of Industry and Handicrafts;
Ministry of Information and Culture;
Ministry of Justice;
Ministry of Labour and Social Welfare;
Ministry of Public Health;
Committee for Planning and Cooperation.
The provincial administrations also report directly to the Prime Minister.
53. The Prime Minister’s Office also includes some “lesser” Committees and
Agencies, including the Leading Committee for Rural Development, the National Audit
Office, and the Committee for Government Organisation Improvement. In addition, and
in the absence of a Civil Service Ministry and a Ministry of Local
Government/Administration, the PM’s Office also includes the Department for Public
Administration and Civil Service.
54. In terms of local governance and development, the key Government agencies
would be the Prime Minister’s Office, the Ministry of Finance and the Committee for
Planning and Cooperation11.
4. Local administration
(i) Central-local relations in Lao PDR: a brief history
55. In order to understand today’s centre-local relations, it is vital to take into account
how these relations have evolved over time – the recent past does much to explain the
current, rather idiosyncratic, way that local administrations function in Lao PDR.
56. After the proclamation of the Lao PDR in 1975, and despite policies of
centralised planning and national unification, provinces were able – de facto – to enjoy a
considerable degree of autonomy. They did, however, remain dependent on fiscal
transfers from central government in order to finance their budgets. This was to change
dramatically following the adoption of the NEM in 1986: major economic reforms were
implemented and central planning was almost entirely abandoned. As a result:
“.. there was massive devolution of government prerogatives to the provinces.
Provincial government now became responsible for planning, managing and ..
[administering] .. local resources with the exception of projects financed by
external sources and some sectors of national interest. Provincial and district tax
administrations were placed under the sole authority of the Governor and no
longer had direct communications with the central Tax Department in Vientiane…
Each level of government (central, provincial, district) applied the same types of
taxes to fund their .. budgets. SOEs [State Owned Enterprises] under the
the planning functions of the CPC were previously carried out by the State Planning
supervision of the local authorities transferred their operational surpluses to the
local budgets.” (Keuleers & Siboungeuang 1999: 171)
Ministries no longer had authority over their technical services in the provinces. At its
apogee, local autonomy allowed provinces to set interest rates (at the local “State” bank)
and even to determine exchange rates for the KIP. Central government had effectively
lost control over the spending of local administrations and the management of their
resources (Keuleers & Siboungeuang 1999).
57. By 1991, it was patently apparent that unregulated provincial autonomy was
compromising macro-economic reforms, and had resulted in growing disparities in
service provision between the wealthier and poorer provinces. At the 5th Party Congress,
held in March 1991, it was decided to sustain economic reform but also to recentralise
the administration. The new Constitution (1991) encapsulated this pendulum swing in
national policy, reaffirming the power of central government. In 1992, for the first time
since 1975, a national budget was drafted, covering all state expenditure (both central
and local); two years later, in 1994, the National Assembly adopted a new budget law,
further strengthening central control over revenues and expenditure throughout Lao
PDR. By all accounts, recentralisation was effective and thorough12.
58. At a time when many other countries were decentralising fiscal processes, then,
Lao PDR was doing the opposite. This was to continue throughout the 1990s. In 2000,
however, “decentralisation” reappeared on the political agenda in the form of Instruction
01/PM and its accompanying SPC and MoF Recommendations (see above). It is
nonetheless important to bear in mind that the Lao PDR paradigm for “decentralisation”
is what happened in the 1980s – the unregulated devolution of power to unaccountable
provincial administrations – and that this paradigm continues to shape the way that “re-
decentralisation” takes place.
(ii) Current territorial organisation
59. Lao PDR is today divided up into 16 provinces, Vientiane Municipality and
Saysomboune Special Zone (administered directly by the armed forces for security
reasons). Provinces are, in turn, divided up into a varying number of districts (with a total
of 141 districts for the country as a whole), which are themselves made up of villages
(with a total of 11,293 for the whole country). In theory, there are no formal
administrative level between districts and their constituent villages; in practice, however,
district administrations usually tend to group villages into zones or “khet”, made up of
several villages. Official government documents frequently refer to three regions –
northern, central, and southern – but these are geographical and not administrative
units. The following table provides summary data on Lao PDR’s local administrations.
intriguingly, the extent to which central government had successfully recentralised budgeting
and financial control over public sector expenditure is alluded to in the World Bank’s 1997 Public
Expenditure Review, which tentatively recommended that the provinces should be given greater
spending authority in the future.
Table 2: local administrations in Lao PDR
Region Province Population Surface area Population No. of districts No. of villages
North Phongsaly 152,067 15,601 9.7 7 629
Luang Namtha 115,765 9,051 12.8 5 422
Oudomxay 218,379 11,425 19.1 7 771
Bokeo 118,179 7,669 15.4 5 382
Luang Prabang 370,965 19,714 18.8 11 1,175
Houaphan 258,184 17,186 15.0 8 846
Sayaboury 298,725 16,359 18.1 10 548
Centre Vientiane Municipality 596,772 5,691 104.9 9 492
Vientiane Province 319,749 17,950 17.8 12 581
Xiengkhouang 211,758 16,811 12.6 7 514
Bolikhamxay 181,396 15,580 11.6 6 362
Saysomboune SZ 28,964 4,902 5.9 3 80
Khammouane 293,926 16,761 17.5 9 803
Savannakhet 703,049 21,679 32.4 15 1,543
South Champassak 512,729 16,140 31.8 10 908
Sekong 68,252 7,665 8.9 4 256
Saravane 279,340 10,478 26.7 8 708
Attapeu 92,733 9,520 9.7 5 209
Source: Keuleers 2001
60. As can be seen from table 2, there is considerable variation in the characteristics
of provinces. In terms of population size, there are 5 provinces13 with populations of over
300,000, 6 with populations of between 200-300,000, 4 with populations of between 100-
200,000, and 3 with populations of less than 100,000. The more populated provinces
also tend to be those with the highest population densities (with the singular exception of
Vientiane province). Districts also vary considerably in terms of population size – in
Champassak, for example, the average population size of districts is over 50,000, while
in Sekong, average district population size is less than 20,000. Averages also disguise
considerable variation – within Champassak, for example, the largest district has a
population of about 75,000, while the smallest has only 33,000. There is also
considerable variation in the number of villages in districts, ranging from as few as 11 to
as many as 170.
61. Ease of access to the provinces from Vientiane is variable. Some of the northern
and southern provinces are relatively remote. It is within some provinces and districts,
however, that communications are most difficult – in Beng district (Oudomxay province),
for example, only 30 of the district’s 107 villages are accessible by vehicle; the others
can only be reached on foot.
(iii) Current local administration
(a) Provincial administrations
62. Provincial Governors are at the heart of local administration in Lao PDR. They
are appointed by the President of the Republic upon the recommendation of the PM.
They report directly to the PM and enjoy the same rank as Ministers of the Government.
In political terms, they are the General Secretaries of their respective provincial Party
and are members of the Party’s Central Committee. Line ministry offices in the province
report administratively to the Governor, as do the district administrations and the mass
organisations linked to the Party. A provincial Governor is assisted by a Vice-Governor
and served by an Office of the Governor.
63. As will be seen below, provincial Governors are expected to coordinate planning
and budgeting in their provinces. They approve all sectoral and local plans prior to their
submission to the central government. Governors can and do sign project documents
with donor agencies14. Perhaps most importantly, in terms of administrative
accountability, provincial Governors exercise considerable control over the civil servants
and Party cadres in their jurisdiction. In Vientiane province, for example, the Governor
insists that no promotions of line ministry staff within the province can take place without
his recommendation. In addition, the Governor can request that line ministry staff be
replaced, although the final decision lies with the Ministry in question. It is also clear that
Governors have the power to allocate line ministry staff to districts15. The Governor
for the sake of simplicity, Vientiane Municipality and Saysomboune Special Zone are treated as
UNCDF’s EDI (Eco-development and Irrigation) project document was signed by the Governor
of the province of Oudomxay..
the Governor of Sayaboury, for example, (at the request of UNCDF) recently authorised the
transfer of additional agricultural extension staff to the district in which UNCDF’s Nam Tan Project
exercises almost total control over staff appointments and promotions in the provincial
64. All line ministries are represented in the provinces. These provincial offices are
usually structured in much the same way as their parent ministries. They are technically
accountable to their parent ministries and (as has been seen) administratively
accountable to provincial Governors. Although there are almost certainly considerable
differences between provinces, and a need for more detailed analysis, line ministry
offices at the provincial level do appear to have at least modest resources and capacity:
the Provincial Agriculture and Forestry Service Office in Oudomxay, for
example, has about 60 staff in provincial headquarters (for which a new
building is currently under construction). There are several irrigation
engineers in the provincial office, with access to surveying and drafting
equipment, thus enabling the office to survey and design irrigation works and
supervise their construction. The provincial office has 3 vehicles, all of which
(although old) are apparently functioning;
the Department of Planning and Cooperation in Vientiane province has 48
staff in the province – 11 based in provincial headquarters and the remaining
37 shared out among the 12 districts. The department does have functioning
vehicles, a substantial office, and some computing facilities;
Luang Prabang’s provincial Department of Finance has a total of 249 staff, 86
of whom work in the provincial office. Although under-equipped, the provincial
office does have two older but functioning computers and one photocopier;
the Department of Planning and Cooperation in Bolikhamxay province has 22
staff in its provincial office, divided up among the department’s 5 divisions
(General Planning, Public Investment Planning, Private Investment, Statistics,
and Administration). Three of the staff are university educated (2 in Vietnam
and 1 in the ex-Soviet Union); the remaining technical staff are graduates
from technical colleges in Vientiane. The provincial office is housed in a new
and large building of its own, has one functioning computer and 3 vehicles in
(b) District administrations
65. District Governors are also key figures within their own jurisdictions (although
seemingly less so than the provincial Governors within their jurisdictions). As with
provincial Governors, district Governors exercise authority over both line ministry district
branches and local Party organisations (including district level mass organisations). In
addition, they directly supervise the village headmen of their districts. Each district
Governor has a deputy and an Office of the Governor. District administrations appear to
be very variable in terms of their capacities/resources – a rough rule-of-thumb appears
to be that the more remote the district, the lower will be its capacity and equipment
66. Most of the main line ministries are represented at district level. As would be
expected, district branch office staff are the least qualified of all civil servants; few would
be college graduates and most would have only completed primary education. It is also
at district level that line ministries have the least resources. Nonetheless, district level
capacities do exist, even in some of the remoter districts:
in Beng (Oudomxay province), the district Department of Finance branch
office has 6 full-time civil servants and another 6 contractual staff. The office
is housed in a rudimentary building, located next to the district Governor’s
office. All records are kept manually. Other than pocket calculators, the only
equipment in the office is an old typewriter. However, the head of the district
office has readily available expenditure and revenue figures for 2000-2001,
as well as a budget for 2001-2002;
in the same district, the Department of Planning and Cooperation office has a
staff of three, again housed in a rudimentary building and with little
equipment. Nonetheless, the office has a clear understanding of its role and
is able to describe the district’s public investment portfolio for 2001-2002.
(c) Village administrations
67. Outside of urban areas16, the village (or ban in Lao) is usually a traditional
community made up of a varying number of families. Villages are sub-divided into
numbered “units”, which appear to correspond to small neighbourhoods and group
together between 10 to 15 households. Each unit has its own “chief”, selected by the
unit’s households and officially appointed by the village headman. Unit “chiefs” do not
have to be Party members.
68. Villages are represented and administered by their headmen. The position of
village headman is, as has been seen, provided for in the Constitution. Headmen are
elected by their villagers and serve two-yearly terms; they are frequently, but not
necessarily, Party members. There does appear to be some turnover in village headmen
– in Oudomxay district, for example, the last village headmen elections resulted in 28
new headmen being chosen (for a district total of 143 villages). Village headmen are
assisted by a number of deputies, most of whom have specific responsibilities (e.g.
village development, cultural and social affairs, ..).
69. Village headmen see themselves as being:
channels of communication between the district administration and villagers;
responsible for coordinating village-level development activities;
supervisors of village mass organisations;
responsible for resolving conflicts and keeping the peace.
They appear to be in relatively frequent contact with the district administration: the
headman of Nahom village in Beng district, for example, claims that he goes to Beng two
to three times a month. In addition, an assembly of all village headmen in a district will
attend formal and periodic meetings with the district Governor, during which activities will
be reviewed and national policies discussed.
70. Interaction between village headmen and the households in their villages seems
to be regular and occasionally formal. Village meetings are held to discuss general
development issues, instructions from the district administration and local problems
(such as intra-village conflict).
even within Vientiane Municipality, sub-district administrative units are called “villages”.
5. Planning, budgeting, financing and delivery of public goods and services
(i) Planning and budgeting
71. Since 1992, the Lao PDR system of planning and budgeting has been relatively
centralised. At the heart of this centralisation is the key concept of a single, State
budget, which includes all public sector expenditure and revenue – in Lao PDR, there is
therefore only one budget for all public goods and services. The State budget must be
approved by the National Assembly before it can be implemented. The Lao fiscal year
being from 1 October to 30 September, the State budget is usually submitted to the NA
by the Government in September. The following provides a normative description of
planning and budgeting processes in Lao PDR.
72. Planning takes place within a framework of five year Socio-Economic
Development Plans (the most recent being 2001-2005) and annual Socio-Economic
Development Plans. For the 5-year plans, the Prime Minister issues instructions to all
line ministries and provinces, specifying national priorities and guidelines for planning.
The provinces and provincial line ministry offices then instruct district staff, who are
expected to ensure “grassroots” input to the planning process. At all stages and at all
levels, it is the Committee for Planning and Cooperation (CPC) which is the principal
coordinator of the planning process. Village “plans” are consolidated into district “plans”,
which – in turn – are consolidated into provincial plans (along with provincial line ministry
“plans”) and then submitted to the provincial Governor for initial approval. Provincial
plans (which consolidate both sector and district “plans”) are submitted to the CPC in
Vientiane, which then tries to consolidate all provincial and central line ministry plans into
a single, national 5-year plan. This is submitted to the PM and the Council of Ministers
before being presented to the National Assembly.
73. Annual planning is expected to take place within the broad framework of the 5-
year plan and according to the guidelines and instructions issued by the Prime Minister.
In practice, annual planning appears to be broken down into two components:
planning and budgeting for recurrent expenditure (and revenue
collection), which is largely coordinated by the Ministry of Finance;
planning and budgeting for public investment, which is coordinated by the
As with the 5-year plans, the annual planning process is expected to begin at the village
and district levels. District and sector plans are consolidated into the annual provincial
plan/budget, which – following initial approval by the Governor – is then submitted to
Central Government. Central concerns are then incorporated into the consolidated set of
provincial plans/budgets, before the entire plan/budget is screened by the Ministry of
Finance, with CPC input for the Public Investment Plan (PIP). After initial approval by the
Prime Minister and the Council of Ministers, the annual plan/budget is submitted to the
National Assembly. Once the NA has approved the plan/budget, the final figures are
communicated to line ministries and the provinces – the latter may then inform the
districts of approved budgets.
74. Table 2 provides summary information on provincial expenditure in 2000-2001
and provincial budgets for 2002-2003.
Table 2: provincial expenditures and budgets (US$)
2000-2001 EXPENDITURES 2001-2002 BUDGETS
Recurrent Capital Total Recurrent Capital Total
Vientiane M. 4,990,218.82 12,975,710.59 17,965,929.41 4,213,684.21 13,684,210.53 17,897,894.74
Phongsaly 1,256,330.59 2,591,882.35 3,848,212.94 1,234,736.84 3,684,210.53 4,918,947.37
Luang Namtha 1,260,574.12 2,600,352.94 3,860,927.06 1,281,157.89 3,684,210.53 4,965,368.42
Oudomxay 1,587,496.47 3,217,262.35 4,804,758.82 1,705,052.63 3,473,684.21 5,178,736.84
Bokeo 985,500.00 2,851,323.53 3,836,823.53 1,343,157.89 3,157,894.74 4,501,052.63
Sayaboury 2,474,840.00 6,369,264.71 8,844,104.71 2,751,789.47 4,526,315.79 7,278,105.26
Luang Prabang 2,760,301.18 3,399,776.47 6,160,077.65 3,180,000.00 4,210,526.32 7,390,526.32
Huaphanh 2,158,176.47 2,479,330.59 4,637,507.06 2,200,000.00 4,736,842.11 6,936,842.11
Xiengkhuang 2,098,380.00 3,269,058.82 5,367,438.82 2,044,421.05 3,789,473.68 5,833,894.74
Vientiane P. 2,695,631.76 5,549,000.00 8,244,631.76 2,720,000.00 5,263,157.89 7,983,157.89
Borikhamxay 1,529,812.94 2,339,920.00 3,869,732.94 1,654,315.79 2,631,578.95 4,285,894.74
Khammuane 2,638,207.06 4,283,092.94 6,921,300.00 2,672,842.11 4,421,052.63 7,093,894.74
Savannakhet 5,368,381.18 9,656,942.35 15,025,323.53 5,821,052.63 8,210,526.32 14,031,578.95
Saravan 1,670,825.88 2,352,983.53 4,023,809.41 1,670,947.37 3,789,473.68 5,460,421.05
Champassak 6,029,790.59 6,017,168.24 12,046,958.82 4,614,736.84 5,794,736.84 10,409,473.68
Sekong 978,210.59 2,216,305.88 3,194,516.47 1,037,578.95 2,378,947.37 3,416,526.32
Attapeu 1,106,121.18 3,338,942.35 4,445,063.53 1,182,421.05 2,821,052.63 4,003,473.68
Saysomboon SZ 668,867.06 1,658,343.53 2,327,210.59 674,315.79 2,000,000.00 2,674,315.79
Totals 42,257,665.88 77,166,661.18 119,424,327.06 42,002,210.53 82,257,894.74 124,260,105.26
2000-2001 exchange rate = 8,500 KIP/US$ 1.00
2001-2002 exchange rate = 9,500 KIP/US$ 1.00
Source: National newspapers, February 2002.
75. From table 2 it can be seen that provincial capital expenditure is relatively high,
accounting for almost two-thirds of either real or planned expenditure.
76. A number of comments need to be made about the planning and budgeting
process in Lao PDR:
despite the rhetoric, the process is considerably more “top-down” than it is
“bottom-up”. In reality, provincial five-year plans, which are supposed to be
derived from the local level, tend to be local “translations” of national policy
objectives. Plans for Sayaboury and Oudomxay provinces, for example, are
redolent with targets for cutting down slash-and-burn cultivation, for reducing
opium production, and for “focal site development” – all of which are nationally
dictated policies. The extent to which such plans are participatory must be seen
as relatively limited;
indicative planning figures (IPFs) do not inform the district/provincial
planning/budgeting process. No provinces or districts received – as part of their
planning guidelines – any figures concerning the likely availability of funds for
their expenditure plans. Some provinces (Oudomxay, Sayaboury) claim that their
approved expenditure budgets are always scaled down versions of the budgets
that were submitted (whilst finalised revenue targets are invariably higher than
the initial proposals). In other provinces (most notably Vientiane province),
approved expenditure for 2001-2002 was actually greater than the initial
provincial submission. It is very unclear as to where changes to submitted
budgets take place and on what basis – some civil servants assume that cuts are
a result of National Assembly deliberations (which seems unlikely), while others
assume that it is the Ministry of Finance which does most of the “tinkering”;
there are considerable differences between provinces in terms of the involvement
of districts in the planning/budgeting process. In Vientiane province, for example,
the provincial Department of Finance office is adamant that districts do not plan
or budget for capital expenditure. In Bolikhamxay province, on the other hand,
districts are clearly much more involved and submit their own investment
proposals. However, even in an apparently “progressive” province like
Bolikhamxay, there is much confusion as to what districts can and cannot plan,
and how planning responsibilities are allocated among different administrative
levels and line ministries. The same applies to provinces, whose responsibilities
are not clearly demarcated from those of central line ministries. It seems clear
that Instruction 01/PM and its accompanying Recommendations have not been
understood in the same way by each province;
in the provinces visited by the mission, districts do not appear to have any formal
medium term or annual plans – although some of them, as has been seen, do
have annual budget proposals;
capital investment planning is largely limited to the identification of needs
(whether through embryonic participatory or through less inclusive methods) and
a “guesstimate” as to what costs might be. Little in the way of appraisal or more
detailed design appears to take place17;
the degree to which planning and budgeting are coordinated and integrated
appears to be fairly limited. Most plans and budgets tend to be accurately
for example, a draft CPC/NRDP manual for participatory planning, written in December 2001, is
almost entirely limited to problem analysis, needs assessment, and the like. Issues such as
economic or technical feasibility are notable by their absence in the manual.
described as “consolidated” from disparate elements – line ministry provincial
and district offices, districts, the Governor. The Planning departments at district
and provincial levels do not appear to ensure adequate coordination of the
planning and budgeting process and clearly have problems in coordinating
planning (seen as their responsibility) with budgeting (often seen as the
Department of Finance’s responsibility). In none of the provinces visited by the
mission were there any inter-sectoral planning and budgeting committees.
77. In conclusion, some planning and budgeting responsibilities have been devolved
to provinces and districts, particularly to the former. However, this transfer of
responsibilities has not been accompanied by clear guidelines about how to plan and
budget at local level, leaving each province “free” (or in the dark about how) to decide on
its own procedures and methods. In some cases, this has been done thoughtfully –
Bolikhamxay province, for example, organised a series of meetings to discuss
Instruction No. 01/PM, a study tour to Champassak province to see how it was
implementing 01/PM, and then a “pilot” planning exercise in one district to test out
methods. In other provinces, there appears to have been rather less thought given to
local planning and budgeting.
78. Public expenditure in Lao PDR is mainly financed through national revenues and
donor assistance18. The latter usually accounts for a significant proportion (60% or more)
of the annual PIP. Government revenues (excluding the proceeds of asset sales) are
derived from two principal sources:
tax revenues (profit, income, turnover, excise, timber royalties, etc.) which
account for 75-80% of total revenues;
non-tax revenues (user fees, overflight rights, etc), which account for 20-25% of
Approximately half of all such revenues are collected by the provinces (or, more
correctly in the strictly legal sense, by the Tax Department offices in the provinces).
79. Applying the logic of the State Budget Law, there can only be national revenues
in Lao PDR. Indeed, up until recently, following the recentralisation of the early 1990s,
revenue collection was largely a national, centrally-managed matter; however, since
1999-2000, re-decentralisation (strongly shaped by the Lao “decentralisation” paradigm)
has resulted in a hybridised system of provincial revenue management, the main
elements of which are as follows:
provinces are classified as being of two basic fiscal types: (i) surplus provinces
where revenues exceed expenditure (Vientiane Municipality, Savannakhet,
Champassak, Khammouane, and – recently – Bolikhamxay); (ii) provinces which
are either self-sufficient or in deficit. In general, surplus provinces are the
in principle, and in accordance with its agreement with the IMF, the Government of Lao PDR
can only finance public expenditure from revenues, donor assistance and treasury bills (which are
of little importance); the Government has committed itself to avoiding bank financing for any
wealthiest areas in Lao PDR, although the correlation between provincial fiscal
surplus/deficit and poverty should not be taken as read;
surplus provinces are expected to transfer their surpluses to Central
Government. Deficit provinces, on the other hand, are expected to benefit from
fiscal transfers from the centre in order to subsidise expenditure;
each year, revenue targets are established for each province by the MoF. These
targets are usually the outcome of a process of negotiation between the
provinces and the MoF;
provinces which exceed their revenue targets are allowed to retain a variable
proportion of the excess in order to fund local projects19 - deficit and self-
sufficient provinces retain 100% of any excess, while surplus provinces retain
50% of any excess. This is assumed to be an incentive for provincial revenue
in principle, provinces (of either type) that fail to meet their annual revenue
targets are expected to cut back on expenditure in order to avoid an overall fiscal
This “model” clearly encourages provinces to see locally collected revenues as
provincial revenues, even though they are legally national revenues collected by the
national Tax Department offices in the provinces. This tendency is reinforced by the
1999 Decree on implementation of the Budget Law (Decree No 192/PM), which sets out
to distinguish between national and provincial revenues20. Recommendation 475/MF of
2000 goes even further by introducing the notion of district and village revenues –
although there is little evidence that many villages are collecting revenue21.
80. As mentioned earlier, Recommendation 475/MF also introduces the confusing
notion of only fiscally self-sufficient or surplus districts being able to become “budgetary
units”. In the context of a single, State budget, this makes little sense.
81. Re-decentralisation has also resulted in one other, significant change in the
revenue collection system. Up until 1999/2000, revenue collection from the 500-odd
largest taxpayers in Lao PDR was carried out by a centrally managed Large Taxpayers
Unit22 (LTU). In all, the LTU was responsible for collecting roughly 80% of all tax
revenues. With re-decentralisation, however, revenue collection from many large
taxpayers has been handed over to the provinces; the LTU currently collects revenue
from about 50 large taxpayers.
it is unclear how this incentive system is integrated into the budgetary process or whether
provincial projects funded out of excess revenue are approved by either central government or
the National Assembly.
distinguishing between national, provincial and district revenues is, however, inconsistent with
the Budget Law because provinces are in no sense autonomous budgeting units – their budgets
are subsumed within the national State budget, and thus approved by the NA. It is therefore very
unclear what the intent was in distinguishing between such revenues, although it might be
supposed that the demarcation of revenues was intended to clarify the basis upon which
provinces could be classified as surplus or deficit in revenue terms. In practice, however, there
has been much confusion, with provincial Governors simply proceeding as if all revenues
collected in their provinces are provincial revenues.
the Deputy Director of the Tax Department in Vientiane insisted, quite categorically, that
villages did not have the power to collect revenue.
established with support from UNDP, NORAD and the IMF as part of a Tax and Customs
82. There have been a number of consequences of this “hybridised” revenue
surplus provinces have few incentives to actually meet their revenue targets,
provided that they are able to at least match their expenditure with local revenues
and also sustain planned expenditure. This is indeed what has happened – in
2000/2001, two of the major surplus provinces (Savannakhet and Champassak)
did not meet their revenue targets, but were able to spend according to their
surplus provinces actually have an incentive to exaggerate their expenditure
plans within the limits of their revenue targets;
deficit provinces are potentially at a serious disadvantage, partly because
revenue shortfalls translate automatically into expenditure cuts and partly
because they depend on fiscal transfers from the centre, which can be unreliable
(particularly if surplus provinces are not transferring revenues to Vientiane);
overall, there has been a decline in revenue collection since re-decentralisation –
in 1999-2000, revenues represented about 14% of GDP, but in 2000-2001 they
declined to 12% of GDP23. It is thought that the transfer of LTU responsibilities to
some provinces (most notably, Vientiane Municipality) has had a serious impact
on revenue collection.
83. In general, the Lao PDR system of local level revenue collection is far from being
coherent or efficient. It is at its most inconsistent in trying to define “local” revenues
within the framework of a single, national budget.
84. Procurement for public goods and services is based on the “Implementing rules
and regulations on government procurement of goods, construction, repairs and
services” (Decision No. 1639/MoF, 1998), which is itself grounded in a Government
Decree (No. 95/CM of 1995). These regulations appear fairly standard and provide for
public bidding, limited bidding and price comparison, depending on the investment or
85. Provincial administrations and provincial line ministry offices are clearly enabled
to procure goods and services. Procurement committees exist in the provinces and are
made up of staff from different departments, depending on the goods or services being
procured. According to the MoF regulations, there appears to be no limit to the value of
goods and services that can be procured at the provincial level, although provincial
procurement committees for international procurement and for contracts involving
foreign aid or loans must include a Central Bank representative and a CPC
this is a tendency which particularly concerns the IMF, World Bank and ADB – all of whom feel
that fiscal re-decentralisation in Lao PDR has been poorly prepared, little understood, and
incoherent. In addition, if revenues continue to decline, then the overall budget deficit will
increase, thus raising the crucial issue of deficit financing and its potentially negative impact on
representative. In addition, any award valued at more than 1 billion KIP (approximately
US$ 100,000) must be approved by the Government.
86. At district level, beyond small amounts of office supplies and recurrent
expenditure, there appears to be little in the way of procurement. As far as can be
understood, all capital procurement in the districts is managed at the provincial level.
However, there is no apparent reason why districts cannot procure larger items.
87. In principle, Lao PDR manages public disbursements in line with French public
accounting methods – there is an “ordonator”, who authorises payments, and a “public
accountant” (the Treasury) who makes payments. Ordonators are heads of departments,
provincial Governors, district Governors, and the like. As the public accountant, the
Treasury department is expected to ensure that authorisations are in line with agreed
budgets and that the right procedures have been respected in obtaining goods and
services. Treasury branches are represented at the both the provincial and district
levels, with the latter often operating entirely in cash (derived from local revenue
collection and/or provincial transfers).
88. In practice there appears to be some confusion about disbursement procedures.
In Oudomxay province, for example, the Director of the provincial Department of Finance
claims that his Treasury department actually advances funds to the administrative
departments of line ministries. In Vientiane province, on the other hand, the Department
of Finance (according to its director) makes all disbursements.
(c) Monitoring and control
89. There appear to be problems in monitoring and controlling provincial expenditure.
Despite the Budget Law and Decree No. 192/PM on its implementation, which only
permit expenditure authorised by the State Budget, there are reportedly many cases of
unauthorised expenditure, with provincial Governors simply reworking their budget lines
as they see fit. This is possible, one suspects, because of their control over provincially-
based personnel, including MoF staff. The ongoing Public Expenditure Review (see
below) should shed more light on this problem.
90. Within the provinces, districts appear to be relatively well monitored. District
Finance Department offices claim that they are subjected to quarterly “audits” by their
provincial Departments. However, it is impossible to say how thorough such “audits” are
and whether they ensure that procedures are being correctly applied.
91. The Government of Lao PDR is more than aware of some of the problems with
its monitoring and auditing systems. In 1999, a National Audit Office (NAO, in the Prime
Minister’s Office) was established; the NAO, however, is not yet fully operational. In
addition, ADB has been providing technical assistance for the improvement of public
accounting regulations and procedures.
6. Donor activities and experience
92. A number of donors have provided support to projects and programmes in the
broad areas of governance and planning.
(i) UNDP and other UN organisations
(a) Governance and Public Administration Reform
93. UNDP has been very active in supporting the Government’s Governance and
Public Administration Reform (GPAR) programme. GPAR has, until now, worked in a
range of fields:
central government reforms, aimed at clarifying the functions and
responsibilities of state organisations;
local administration reforms and decentralisation in general;
civil service and personnel management reforms;
public sector legal reforms;
human resource development.
GPAR was initially “housed” in the Department of Public Administration (and thus in the
Prime Minister’s Office).
94. Phase 1 of the GPAR project came to an end in 2000-2001. The terminal
evaluation gave the project high marks, but noted that whilst a great deal had been done
at the conceptual level, much less had been achieved in terms of the actual
implementation of reform initiatives. The evaluation also noted that a key element in
GPAR’s success had been the extent to which the project was locally owned – all GPAR
working papers, for example, were widely circulated and reviewed within the decision-
making circles of government and the Party. The report concluded that: “The pace of
project activities and accomplishments in support of the reform process, although
frustratingly slow, has been appropriate. It has matched (a) the absorptive capacity of
the participating government and Party organisations, (b) the capacity level of the civil
service as a whole, and (c) the Lao style and pace of decision-making. Sensitive political
and constitutional reforms can only succeed if they march to local time, not to an
externally set timetable.” (Huntingdon 2000).
95. One of the most important GPAR products is its working paper (written in 2001)
on better governance – generally referred to as “Towards Better Governance” (or TBG).
The paper describes a set of key “dimensions” to good governance – legitimacy and
political accountability, rule of law and predictability, sound public sector management,
optimised service delivery and a participatory society. For each of these “dimensions”,
TBG goes on to describe “enablers” and sub-dimensions, such as: transparency, clear
legal frameworks, improving the election process, strengthening the National Assembly,
increasing political dialogue, strengthening the judiciary, clearer separation of powers
between the executive, the legislature and the judiciary, and a range of other themes.
TBG was presented, discussed and endorsed at a national workshop (attended by a
large number of vice-ministers) and is expected to be a key input into the Government’s
own background paper on governance for the Round Table Process (see below).
96. At the request of the Government, UNDP has formulated a follow-up to GPAR.
The second phase of GPAR is intended to focus on capacity-building and
implementation of certain reforms. It is explicitly designed to support implementation of
the Government’s decentralisation strategy. Total project costs are estimated at almost
US$ 2 million, to cover the period 2001-2004. Although the project document has been
signed, UNDP has only been able to secure US$ 240,000 in funding for GPAR II24, and
although it may still be possible to obtain further funding from UNV and Switzerland, it
seems likely that GPAR II will have to be implemented in a “modular” form, with different
donors taking on different components.
97. In support of decentralisation, GPAR II will be fielding a short-term advisor25 in
2002. Among other tasks, this advisor is expected to advise the Committee for
Government Organisation Improvement (CGOI, chaired by the PM, which is the
institutional “home” for GPAR II) on:
appropriate ways of strengthening district administrations;
the allocation of responsibilities and functions between provinces and districts;
the essential planning, budgeting and fiscal functions which should be
maintained at the central level.
In addition, the advisor is supposed to draft a strategic plan for further decentralisation in
98. GPAR II includes a separate, but closely linked, local pilot project – the GPAR
Luang Prabang provincial pilot (GPAR/LP). GPAR/LP, which started up in January 2002,
is a two-year project with a budget of just under US$ 1 million; it is co-funded by UNDP
and SIDA (with the latter providing about 90% of the total budget). GPAR/LP is seen as
the first phase of a longer term capacity-building programme aimed at improving
governance and public sector management at the provincial level. It operates in Luang
Prabang province and targets a range of government offices (among others, the Office
of the Governor and the provincial Finance Department) and 2 district administrations.
GPAR/LP aims to:
strengthen organisational development and human resource development;
improve financial management;
develop a model office environment;
improve planning and coordination;
assess service delivery capacities.
Close links with GPAR II are expected to ensure that lessons learned at the provincial
level will be fed into policy at the national level and that there is firm central government
support and backstopping for provincial innovations and reforms.
(b) Support to the National Assembly
99. Since 1997, UNDP – with NORAD co-funding – has provided capacity-building
support to the Lao PDR National Assembly. This has consisted of English language
training, study tours to other countries for Lao parliamentarians, upgrading of the NA
building and some of its provincial offices, establishing a library, and other activities. The
AUSAID had been keen to fund GPAR II, but – for budgetary and other reasons – pulled out at
the last moment.
it had originally been intended to have a full-time, resident decentralisation advisor.
first phase of this programme came to an end in 2001. A follow-up project has been
formulated, which emphasises two major areas for support:
strengthening the legislative capacity of the National Assembly;
strengthening the capacity of the NA to provide oversight of the Government.
For the moment, however, UNDP has been unable to obtain the required funds
(approximately US$ 1.2 million) for the second phase of the project.
100. Up until 2001, UNDP implemented the SESMAC (Strengthening Economic and
Social Management Capacities) project in the provinces of Oudomxay and Sayaboury.
The project, which was intended to strengthen provincial public management in several
ways, was prematurely closed down in 2001. Little was achieved in either province. The
December 2000 reorientation mission (undertaken by the GPAR project team)
highlighted several key problems with the project, the two most important of which were:
the very limited extent to which either provincial administration “owned” the
project or understood clearly what it was aiming to achieve. There were, then,
issues of ownership and communication;
the lack of appropriate institutional links between the project and the provincial
administrations, as well as a failure to “connect” with the national level.
(d) Tax and Customs
101. In collaboration with the IMF and NORAD, UNDP has been implementing a Tax
and Customs Project (TCP). TCP has tried to pilot reforms in the Lao PDR tax
administration – and, to a large extent, has been successful in doing so. Major reforms
piloted and implemented with project support have included: self-assessment for larger
tax payers, strengthened auditing capacities in the tax administration, setting up the
LTU, simplifying procedures for exports/imports. The project is now nearing the end of its
first phase, and is likely to be followed by a successor project, which will address issues
such as the organisation of the national tax administration (which is seen as having “lost”
control of revenue collection in some of the provinces), further strengthening of auditing
functions, improving the collection of tax arrears, and introducing VAT.
102. UNV has a large number of volunteers in Lao PDR. As part of its commitment to
local development processes and decentralisation, it will be providing volunteers for
GPAR II and GPAR/LP. It may also provide other resources for similar types of
programme. UNV will be fielding a mission in March 2002 to look at further programming
(f) Round Table Process
103. UNDP has provided valuable support for the Round Table Process (RTP), which
provides a forum for dialogue between the Government and the donor community. Since
the start-up of the RTP, several sector meetings (health, roads, education) have taken
place. At the last RTP Information meeting, held in December 2001, the Government
reaffirmed its commitment to holding a policy dialogue meeting on governance issues;
the Government stated that the first policy dialogue meeting of 2002 would be on
104. At the time of this mission, no fixed date had been set for the RTP governance
meeting. The Government was apparently in the process of preparing a background
paper on governance issues, to be shared with the donor community and which would
provide the basis for discussions at the meeting. In principle, the background paper was
to be based on GPAR’s “Towards Better Governance” paper.
105. If and when the RTP governance meeting takes place, it will provide the donor
community with a much better idea of the Government’s vision and perception of
governance issues in Lao PDR. If the official background paper for the meeting does
reflect the key elements of GPAR’s TBG, this will clearly be a major policy statement by
the Government; however, if the Government’s perception of governance issues is
radically different to that of TBG, it will be clear that serious reform (however incremental
and slow) is not on the Lao PDR agenda. It is also to be hoped that the background
paper will provide a much needed insight into how the Government sees decentralisation
and how it plans to improve its management of the process.
(ii) Other donors
(a) World Bank/IMF/ADB – Public Expenditure Review
106. The most recent Public Expenditure Review (PER) – supported by the World
Bank, the IMF and the ADB – is now being finalised for discussion with the Government.
Although it is not officially known what the PER will recommend, it is likely that the
following elements will be discussed:
recentralisation of the revenue collection process, bringing the tax administration
back under the control of the Ministry of Finance (and not the provinces);
greater rigour in the management of public expenditure, particularly in the
provinces, where there are signs that unauthorised expenditure has been taking
further reforms to the revenue collection process;
better management of ODA.
It is clear that there is a range of public expenditure issues which concern the ADB and
the Bretton Woods institutions.
107. ADB provides funding for the Small Towns Project. This project is mainly
concerned with urban infrastructure and service delivery, but is also involved in
supporting administrative reforms in order to increase the autonomy of Lao
108. ADB has also been providing the CPC with technical assistance in order to
improve the Public Investment Planning process. A new PIP operations manual has
been drafted and appears to be acceptable to most stakeholders. The new procedures
introduce a number of innovations into the annual investment planning process:
the MoF makes an initial forecast of total public investment funds available for
the fiscal year. This is then communicated to the CPC which – in turn – makes an
initial draft allocation of the forecasted investment ceilings for different sectors,
executing agencies and projects. The CPC also makes draft allocations for
medium-sized and small projects, which are communicated as block grants to
provinces and ministries. Final allocations are then stated in the Prime Minister’s
annual planning guidelines, which are distributed to all executing agencies.
provincial and ministry PIPs are presented and discussed at three regional
planning meetings. The finalised PIPs are then integrated into a draft national
PIP by the CPC and MoF. This is then submitted to the Government. Following
Government approval, the draft national PIP is submitted to the National
Assembly for final approval.
public investment projects are classified into 3 types:
o large projects (> 5 billion KIP or > US$ 525,000);
o medium-sized projects (between 500 million and 5 billion KIP or US$
o small scale projects (< 500 million KIP or < US$ 52,500).
initial approval of projects depends on their size:
o large projects require approval by the council of ministers, after having
been screened by the CPC, properly formulated and appraised, and then
resubmitted to the CPC;
o medium-sized projects require approval by the Deputy PM and the
President of the CPC, after having been formulated by the executing
agency (line ministry or provincial agencies) and appraised by the CPC;
o small scale projects require approval by ministers or provincial
Governors, after having gone through basic appraisal procedures and
presentation of a standardised project proposal form.
109. Although the system proposed remains relatively centralised, it does allow for
some degree of discretion in project approval at the provincial level, and does have the
important virtue of being based on forecasted and pre-determined investment ceilings.
110. In addition to its involvement in GPAR/LP, SIDA also provides support to the
Ministry of Justice in the form of study grants. This has been judged a failure, largely
because of mismanagement by the ministry.
111. JICA is the largest of Lao PDR’s bilateral donors. It does not appear to support
any governance-linked activities, but does provide support for local development
planning and management. This takes the form of an annual training course (for about
25 participants), organised with the CPC and with technical assistance from the UN
Centre for Regional Development (UNCRD), based in Nagoya. The annual training
course aims at enhancing the technical capacity of planning personnel to undertake
development planning and management at the provincial and district levels.
112. AUSAID, another of Lao PDR’s important donors, is providing technical
assistance and other support for an ongoing land-titling project in urban areas,
particularly Vientiane. This does have revenue implications for local urban
IV. ISSUES FOR LOCAL GOVERNANCE PROGRAMMING IN LAO PDR
113. This section of the report tries to highlight what some of the issues might be for
deciding on future local governance programming in Lao PDR, and what issues would
need to be addressed were programming to go ahead.
1. Political will and policy evolution
114. As has been seen, “decentralisation” policies are currently fairly timid, opting only
for renewed deconcentration and a planned and partially implemented devolution of
limited planning and budgeting responsibilities to provinces and districts. How far is Lao
PDR committed to even these changes and is there any evidence of a move towards
real devolution of decision-making to local governments (rather than administrations), if
only in a very cautious way ?
115. At the 7th Party Congress, held in March 2001, very little was said about the new
decentralisation policy. Some commentators have taken this to be a sign that there is
little in the way of genuine political will within the Party to decentralisation. Some Lao
officials, however, maintain that the issue is now in the hands of the National Assembly
and that therefore the Party has no need to discuss it – this, however, seems a little
disingenuous. The jury, then, remains out on how committed the LPRP is to
116. The Government (insofar as it can be distinguished from the Party) does seem to
be committed to decentralisation – and has made a number of statements to that effect.
At the last RTP Meeting, in December 2001, the Government noted that progress on the
implementation of its decentralisation policy had been uneven and that a great deal
more needed to be done, particularly with regard to capacity-building and the
“realignment” of regulations. It needs to be borne in mind, however, that such statements
have been made to the donor community and that they therefore may be intended to
placate external partners rather than reflect genuine commitment to decentralisation.
117. It has to be said that the only reasonably objective barometer of continued
commitment to deconcentration and beyond will be the RTP governance policy dialogue
meeting, planned for the first half of 2002. If the Government’s background paper does
reflect or endorse GPAR’s “Towards Better Governance” (which is really quite radical for
Lao PDR), then it would be safe to conclude that there is sufficient political will to drive
forward a real decentralisation agenda. If, on the other hand, the background paper fails
to mention or table the main elements of the TBG agenda, it would have to be concluded
that there was little commitment to further governance reform.
118. Even if genuine commitment to governance reform, in general, and
decentralisation, in particular, is articulated at the RTP meeting, it would be a mistake to
expect rapid change. Lao PDR is not a country where reform proceeds at an electrifying
pace – as economic and fiscal reforms have shown. Nonetheless, there are grounds for
supposing that once committed to reform and change, Lao PDR does – however slowly
and unsteadily – keep roughly on track. Thus, the existence of political will for
decentralisation does not imply that implementation will be easy or that policy will evolve
119. The principal “champions” of decentralisation in Lao PDR would appear to be in
the Prime Minister’s Office, within the Department for Public Administration and the
Committee for Government Organisation Improvement. Their association with GPAR
has meant that they have been closely involved in much of the conceptual thinking on
decentralisation. A second potential decentralisation “champion” is the CPC. A potential
“enemy” of decentralisation is likely to be the Ministry of Finance, which is currently
under heavy pressure from the IMF, the World Bank and the ADB to recentralise
revenue collection and tighten controls over provincial expenditure.
2. Local “government” and “decentralisation” in Lao PDR
120. At the moment, it would be entirely misleading to describe Lao PDR as having a
system of local government. “Decentralisation”, as it is described in Lao PDR is much
more accurately described as deconcentration, with local administrations being held
more or less accountable to central government. There are no genuinely elected bodies
at the local level, and local administrations are not (officially) downwardly accountable to
local citizens – although they are, to a limited degree, accountable to local Party
121. The power exercised by provincial Governors is substantial. As has been seen,
provincial Governors have considerable authority over civil servants in their provinces
and appear to enjoy some autonomy in budgetary and fiscal matters. Despite attempts
since the 1990s to centralise control and power, a legacy of “satrapy” pervades current,
de facto, arrangements. At a more local level, district Governors appear to be less
autonomous and more effectively controlled by their provincial superiors than the latter
are by the centre.
122. All of this implies that any meaningful attempt to improve local governance in Lao
PDR would need to concentrate on establishing mechanisms for a degree of downward
accountability and making upward accountability rather more formal and coherent.
Increasing the degree to which local public sector management is transparent would be
fundamental to any movement towards greater accountability. At district level, a range of
options might be tested, including the creation of district development councils (with an
inclusive membership) and having district Governors present annual plans and budget
proposals to village headmen.
3. Government understanding of decentralisation
123. The extent to which the Government “understands” decentralisation is far from
apparent. This has to be read in the context of Lao PDR’s particular history of central-
local relations – experience from the 1980s and early 1990s is the decentralisation
paradigm that informs senior government officials and civil servants. This, as has been
seen, was not a satisfactory paradigm and led to less than desirable outcomes. It
remains, however, very much the way that most Lao officials think of decentralisation.
124. The apparent limited understanding of decentralisation is readily brought out in
the rather poor preparation for renewed decentralisation since 2000 – an incoherent
series of “regulations”, little in the way of mentoring from the centre so as to guide
provinces and districts into fulfilling new functions, and sometimes contradictory
intentions. In truth, the Government of Lao PDR does not really understand
decentralisation in practice – something which is recognised by GPAR II in its initial
provision for a long-term resident advisor on decentralisation.
125. One of the more striking impressions obtained from discussions with Lao PDR
officials and ordinary citizens is that their understanding of certain concepts is rather
different to that of most of the donor community. “Accountability”, for example, is largely
seen as upward, “transparency” is a concept that is not part of regular discourse, and
“participation” appears to imply involvement in the implementation of projects, rather
than involvement in the process of decision-making. All of this, given the recent political
history of Lao PDR, is not surprising.
126. This implies that any dialogue about local governance (which would have to
include concepts such as accountability and transparency) needs to start with
agreement on a mutually understood “language”26. Although this may seem self-evident,
it remains the case that in the area of governance there is a substantial conceptual
divide between the Lao PDR government and most of the donor community, and that
crossing this divide is a prelude to any process of reform and change.
5. Planning and budgeting
127. The current system of planning and budgeting in Lao PDR is fairly centralised.
Ultimate approval of all plans and budgets is the responsibility of the National Assembly,
planning responsibilities are poorly defined, few districts appear to do any capital
investment planning or budgeting, and much of what passes for local involvement in
identifying needs is more often than not a matter of adapting to national development
priorities. Implementing the recently drafted manual on PIP procedures would go some
way to improving things (by providing provinces with budget ceilings), but would still
leave districts with little in the way of discretion. In addition, the proposed PIP
procedures have little to say about how small-scale investment projects would be
identified and prioritised.
128. For decentralised planning and budgeting to be more effective in Lao PDR, a
number of key activities would need to be undertaken, inter alia :
for purely linguistic purposes, the English-Lao glossary of public sector management terms
produced by the GPAR project would be a useful starting point for any dialogue on governance.
defining the different planning/budgeting responsibilities of provinces and districts
in coherent way;
establishing the districts as planning and budgeting units (as prescribed by
Instruction No. 01/PM) by allocating district-level IPFs (working firmly within the
framework of the proposals for PIP procedures). Districts, despite the fact that
they are of variable size, would seem to be the best level for small-scale
developing a cost effective and inclusive planning process at district level which
would allow villages and local organisations to play a preponderant role in the
definition of needs and the identification of appropriate investments;
strengthening the districts’ capacity to formulate plans and budgets in
accordance with participatory planning outcomes;
facilitating the emergence of provinces not only as strategic planning units (as
per Instruction No. 01/PM) but also as providers of backstopping and mentoring
services to their constituent districts.
6. Capacity issues
129. There are undeniable weaknesses in the capacity of local administrations and
local communities to manage decentralised planning, budgeting and service delivery.
Although staff numbers are probably sufficient, education levels are relatively low,
particularly in the districts and villages, resources are scarce, and organisational
constraints are considerable (particularly with regard to coordination). If local capacity
remains weak, then the delivery of public goods and services is likely to remain
ineffective and inefficient.
130. To improve local governance, then, would imply a need to build capacity and
management skills. At the district level, most of this capacity-building would need to take
the form of training (in planning, budgeting, procurement, accounting, etc.) and would
need to involve not only district officials and line ministry staff but also village headmen
(who are the only legally recognised representatives of rural communities). At the
provincial level, there would also be a need to undertake basic training; but perhaps
most importantly, capacity-building at the provincial level would need to concentrate on
developing coordination capacities in order to provide districts with technical
backstopping and mentoring. Finally, a limited amount of physical capacity-building (in
the form of equipment etc.) would be needed to improve the productivity of local level
131. The capacity issue is often described by both Government officials and the donor
community as the major obstacle to decentralisation in Lao PDR. This mission does not
entirely share that point of view. There obviously are shortfalls in capacity, particularly at
the district level – but this should not be used as an argument for halting implementation
of the Government’s decentralisation policy. Firstly, by not devolving responsibilities for
planning and budgeting because it is assumed that local capacities are insufficient, the
status quo is simply maintained. Secondly, there is more capacity at local level than is
thought27. Thirdly, planning and other procedures can be tailored to relatively low
capacity at the local level.
when compared to a number of sub-Saharan African countries which have undertaken
decentralisation, Lao PDR actually appears to have considerable capacities at the local level
132. A key programming issue would be how and where to implement a programme of
support to local governance. One option would be to support the process of local
governance reform in much the same way as GPAR – drafting new legislation and
regulations, working directly on the policy framework, holding workshops, and the like.
This would not appear to be the way forward – partly because it is already being done by
GPAR II (with admittedly fewer resources than originally planned), and partly because it
now seems more appropriate to support the implementation of the Government’s
existing policy. What would be useful, then, would be to try to put some flesh on the bare
bones of existing policy prescriptions and, in so doing, provide lessons on how policy
might be improved.
133. The best way of trying to implement existing decentralisation policy in Lao PDR
would probably be to work in one province and with all its districts. The key question
then becomes, which province ? This would be an important issue – the poorest
provinces would be the most difficult to work in, whilst the easiest (where “success” was
more likely) would probably be the wealthier provinces of the central region. Also at
stake would be the commitment of the provincial Governor, whose support for any real
decentralisation would be crucial.
V. PROSPECTS FOR UNCDF LOCAL GOVERNANCE PROGRAMMING IN LAO
135. Should UNCDF consider a new programme of support for local governance in
Lao PDR ? Supporting and improving local governance in Lao PDR will not be easy.
There is much that is discouraging:
an apparently daunting politico-administrative environment, dominated by a
single party system which concentrates political power in a limited number of
a tradition of “top-down” development planning approaches which do little to
foster local participation;
decentralisation policies which are timid, far from coherent, inadequate in terms
of regulatory prescriptions and for which genuine political commitment is difficult
Such considerations would militate against UNCDF taking the next step and moving
towards formulation of an LDF/LDP type intervention.
136. On the other hand, there are a number of more positive considerations:
a recognition in Lao PDR that centralised management of development is neither
feasible nor desirable (hence Instruction No. 01/PM);
the GPAR project’s success in helping to put decentralisation on the political
the move towards better public investment planning;
the existence of limited, but nonetheless real, capacity at local levels to plan and
deliver public goods and services;
Lao PDR – through its gradual (and still incomplete) process of economic reform
– has demonstrated its capacity to make fundamental institutional changes, albeit
in a relatively slow and sometimes frustrating way.
There are, then, a number of basic pre-conditions upon which to build.
137. In addition (and assuming continued Lao PDR commitment to decentralisation),
the current context – of a limited understanding of what decentralisation might be and
what form it might take – presents UNCDF with a strategic opportunity to demonstrate
best practice and to influence the future direction of policy in Lao PDR. “Getting in early”
is obviously a risky strategy, but it is also potentially the best way for a small agency (like
UNCDF) to achieve policy impact.
138. It is clear that implementing an LDF/LDP in Lao PDR would mean taking some
serious (and not just rhetorical) risks. Nonetheless, the mission believes that it should be
possible to undertake an LDF/LDP, with the following provisos and caveats:
firm evidence of continued political commitment to decentralisation in Lao PDR:
the only objectively verifiable indicator of such a commitment will be whether the
RTP governance meeting takes place and how far the Government’s background
paper reflects the key elements of “Towards Better Governance” and other
acceptance by UNCDF of the need to limit policy level objectives and to adopt a
long term perspective: given the context, it would be unrealistic to have high
ambitions for what an LDF/LDP might achieve in terms of policy impact. UNCDF
will need to think in terms of a “weak” LDF/LDP. In addition, and because of the
slow pace of change in Lao PDR, UNCDF should see its intervention as
contributing in the long term to policy evolution.
acceptance by UNCDF of the need to formulate any project in a protracted and
highly transparent way: a longer-than-usual formulation phase would:
o probably result in a high degree of local ownership (which was judged to
have been a key factor in the success of GPAR);
o periodically allow UNCDF to calibrate government commitment (prior to
o minimise communications problems and allow for a shared understanding
of basic concepts such as accountability, transparency and participation.
139. It is also clear that project formulation will need to pay particular attention to
some of the following issues:
choice of province: as mentioned above, this is likely to be quite an important
decision and will affect project outcomes;
institutional arrangements: while any project would be firmly anchored in the
provincial administration, it will be crucial to ensure that it is also linked to the
national level in order to serve as a pilot for the implementation of
“premature” exit strategies: given the likely risks, it will be important for project
formulation to spell out the conditions under which UNCDF should consider
“cutting its losses” and bringing the project to an earlier than expected close.
3. Next steps
140. Before any firm decision can be made about going ahead with local governance
programming in Lao PDR, the RTP governance meeting will have to take place and –
through the Government’s background paper – signal a political readiness to discuss
and tackle key issues such as accountability, transparency and participation. Unless this
is the case, there would be little point in moving towards project formulation.
141. Assuming that UNCDF decides to go ahead with project formulation, it is
recommended that the process be staggered into three phases:
an initial “scoping” mission (i) to determine which province is most likely to be an
LDF/LDP “best bet”, (ii) to further establish a local governance policy dialogue
with central government authorities and (iii) to define the mechanisms for
ensuring policy impact and replication. The mission report would need to be
translated into Lao and circulated to relevant stakeholders at both national and
provincial levels. The Government would be invited to respond to the report;
following a positive Government response to the first phase report, a second
mission, primarily fielded in the selected province, to sketch out the broad
outlines of an LDF/LDP and to flag key issues and considerations at the
provincial and district levels. During this phase, the main elements of any future
project would be negotiated and agreed upon. This phase would culminate in a
first, stakeholder workshop, during which a rough sketch of the project would be
presented for discussion. The workshop would also provide the opportunity to
openly discuss key issues (accountability, transparency, participation,
incentives/sanctions, and so on) and thus ensure a commonly shared
understanding of such issues. A workshop report would be prepared (in English
and Lao) and circulated to all stakeholders. The Government and the provincial
administration would be invited to respond to the workshop report;
following a positive response to the second phase workshop report from the
Government and the provincial administration, formulation would enter its third,
and final, phase. This would entail full and detailed formulation, which should be
made easier by the common understanding established in the initial phases. A
final stakeholder workshop would take place to ensure a maximum of clarity and
ownership. The project document (in both English and Lao) would then be
submitted to all parties (Government, UNDP, UNCDF) for approval.