Joint Policy Research and Dialogue Program for Fiscal Stabilization In
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The Lao People`s Democratic Republic NationalThe Lao People`sInstitute forDemocratic Economic Republic Research National Institute for Economic Research The Lao People`s Democratic Republic National Institute for Economic Research The Lao People`s Democratic Republic Joint PolicyThe Lao Research People`s Democratic and Dialogue Republic Program Joint Policy Research and Dialogue Program for Fiscal Stabilization The forLao People`sFiscalin Lao StabilizationDemocratic PDR Republic Joint Policy Researchin Lao and PDR Dialogue Program for FiscalFinal Stabilization Report inFinal Lao Report PDR Final Report March 2020 March 2020 Japan International Cooperation Agency (JICA) Japan International Cooperation Agency (JICA) March 2020 1R Japan International Cooperation Agency (JICA) 1R JR 1RJR 20‐01320-013 JR 20‐013 1R JR 20‐013 The Lao People`s Democratic Republic NationalThe Lao People`sInstitute forDemocratic Economic Republic Research National Institute for Economic Research The Lao People`s Democratic Republic National Institute for Economic Research The Lao People`s Democratic Republic Joint PolicyThe Lao Research People`s Democratic and Dialogue Republic Program Joint Policy Research and Dialogue Program for Fiscal Stabilization The forLao People`sFiscalin Lao StabilizationDemocratic PDR Republic Joint Policy Researchin Lao and PDR Dialogue Program for FiscalFinal Stabilization Report inFinal Lao Report PDR Final Report March 2020 March 2020 Japan International Cooperation Agency (JICA) Japan International Cooperation Agency (JICA) March 2020 Japan International Cooperation Agency (JICA) 1R 1RJR 20‐013 JR 20‐013 1R JR 20‐013 FOREWORD The cooperation program entitled “Joint Policy Research and Dialogue Program for Fiscal Stabilization in Lao PDR” (hereinafter referred to as “the Program”) was conducted in response to the request from His Excellency Dr. Thongloun SISOULITH, Prime Minister of Lao People’s Democratic Republic (Lao PDR), to his Japanese counterpart, His Excellency Mr. Shinzo ABE, in 2016. Japan International Cooperation Agency (JICA) and the National Institute for Economic Research (NIER) signed the Memorandum of Understanding to cooperate on the Program in March 2018 as a result of a series of discussions with NIER, and other relevant governmental organizations, including the Ministry of Finance, the Ministry of Planning and Investment, the Bank of Lao PDR and the National University of Laos. The Program was implemented based on the joint implementation structure, which involves researchers and officials specializing in fiscal and financial policy from both Japan and Lao PDR. Researchers and officials from both Japan and Lao P.D.R. worked closely in the four Working Groups, 1)Fiscal and Debt Management, 2)Resource Export Management, 3)Balance of Payment and Foreign Reserve Management, and 4)Financial System Development under the guidance of the National Committee in Lao PDR, and elaborated research reports of each Working Group and seven Policy Proposals. The seven Policy Proposals focuses on current and projected issues on fiscal stabilization in Lao PDR, and provides policy settings for the 9th National Socio Economic Development Plan (2021-2025) and other policies to secure fiscal consolidation in Lao PDR. Finally, I wish to express my sincere appreciation to all who extended valuable contributions to the Program and hope these close collaboration also contributed to fostering trust and friendship between Japan and the Lao PDR. I sincerely hope that this Report ant the Policy Proposal will serve the purpose and be put into policy and be implemented. March 2020 Shigenori OGAWA Director General Southeast Asia and Pacific Department Japan International Cooperation Agency Table of Contents Pictures .................................................................................................................................... i Logical Tree ............................................................................................................................ ii Summary of Policy Proposal .................................................................................................... iii I. Policy Proposals.................................................................................................................. 1 I – 1. Timeframes for proposed policy actions ..................................................................... 1 I – 2. Policy proposals ........................................................................................................ 1 I – 3. Follow-up actions ...................................................................................................... 3 II. Executive Summary of Four Working Groups ................................................................... 4 II – 1. Background ............................................................................................................. 5 II – 2. Assessment of Fiscal Conditions ............................................................................... 7 II – 3. Fiscal Analytics .......................................................................................................14 II – 4. Challenges for Fiscal and Debt Management ...........................................................16 II – 5. Policy Imperatives for Fiscal Stabilization ...............................................................18 II – 6. Scenarios ................................................................................................................19 II – 7. Suggested Policy Options ........................................................................................19 II – 8. Follow-up actions ....................................................................................................20 II – 9. Tables .....................................................................................................................22 III. Reports of Working Groups ............................................................................................32 III – 1. WORKING GROUP 1: FISCAL AND DEBT MANAGEMENT .............................32 III – 1 - 1. Executive Summary ..........................................................................................32 III – 1 - 2. Background ......................................................................................................33 III – 1 - 3. Assessment of Fiscal Conditions ........................................................................35 III – 1 - 4. Fiscal Analytics .................................................................................................42 III – 1 - 5. Challenges for Fiscal and Debt Management .....................................................44 III – 1 - 6. Policy Imperatives for Fiscal Stabilization .........................................................46 III – 1 - 7. Scenarios ..........................................................................................................47 III – 1 - 8. Suggested Policy Options ..................................................................................47 III – 1 - 9. Follow-up actions ..............................................................................................48 III – 1 - 10. Tables .............................................................................................................50 III – 2. WORKING GROUP 2: NATURAL RESOURCE MANAGEMENT ......................60 III – 2 – 1. Executive Summary .........................................................................................60 III – 2 – 2. Introduction .....................................................................................................61 III – 2 – 3. Analysis of the Experience of Resource Boom ...................................................62 III – 2 – 4. Management of Power Production ....................................................................63 1. Issues Regarding Domestic Demand Forecast for Power .......................................65 2. EDL’s sales and purchases of power .....................................................................66 3. Exchange-rate risk of EDL ...................................................................................67 4. Recent increase in debt .........................................................................................67 5. Establishment of EDL-T .......................................................................................68 6. Increase in Employees ..........................................................................................69 7. Restructuring of EDL ...........................................................................................69 8. Other Issues .........................................................................................................70 III – 2 – 5. Management of the mining sector .....................................................................70 1. Land concession for mining and land concession tax .............................................70 2. Exports and royalty..............................................................................................71 3. Possibility of bauxite production ...........................................................................71 III – 2 – 6. Conclusion and policy recommendations ..........................................................71 III – 2 – 7. References ........................................................................................................72 III – 2 – 8. Tables and