62046 January-February 2009 Issue no 9 March - April 2008 Issue no 6 Annette Dixon: First Impressions World Bank Country Director for Southeast Asia visits Laos W orld Bank Country affected by flood; work hard to Director for mobilize funds and investments Southeast Asia, internally and externally to generate Ms. Annette Dixon, visited employment opportunities; seek help Laos from 18-25 January from International Financial 2009 for the first time in her Institutions and donors to address the new role. A field trip to Nam financial crisis. Theun 2 project (NT2), meetings H.E. Mr. Somdy Douangdy (Minister with the Prime Minister of Laos of Finance) mentioned: We are and various ministers were urgently looking for other funding scheduled to complete her first resources to compensate the loss of visit to Laos. revenue caused by the FC. The Ministry of finance is seeking the During her first round of meetings World Bank and other donors for with the GoL (Government of Lao financial support through budget PDR), Ms. Dixon highlighted support programs such as PRSO or various areas that require ODA¹ in order to stimulate the continued focus. The implications economy. GoL treats the FC as an of the Global Financial Crisis (FC) Meeting with Prime Minister, H.E. Mr. Bouasone Bouphavanh important issue and has assigned on Laos; NT2 Revenue each DPM to work closely with line Management and sector specific ministries to address this issue. issues were key highlights on the agenda. H.E. Mr. Soulivong Daravong (Minister of Energy and Mines) stated: During the FC, The World Bank will continue to Implications of Global Financial GoL is pushing hard for more investments provide assistance to address the Crisis on Laos on infrastructure sector and encouraging financial Crisis, and if needed will At her meeting with the Prime Minister, more private sector investments so that mobilize additional financial and H.E. Mr. Bouasone Bouphavanh, major the country is prepared, competitive and technical resources. >> issues were discussed. According to Ms. well positioned. Dixon the FC—different from the Asian ¹ More information on PRSO & ODA; www.worldbank.org/lao ² More information on IDA on page 3 Crisis as it is worse and spreading more H.E. Mr. Sinlavong Khoutphaythoune rapidly— is unfavorable to Laos’ growth (Minister of Planning and Investment) said and affecting various sectors in Laos. that: The World Bank ‘s support is crucial Reduction of global industrial production by over 20% and reduction of mineral prices for Laos to overcome the financial crisis. IN THIS ISSUE GoL measures to mitigate FC will affect Laos directly. impacts The Prime Minister indicated the ♦ World Bank Country Director for The Prime Minister indicated that Laos following measures to mitigate FC impacts; Southeast Asia Ms. Annette faces two challenges: FC is affecting Laos encourage and educate people to take Dixon’s first impressions on Lao and as the result estimated that the Gross ownership of the country’s development PDR Domestic Product (GDP) might decrease by and be prepared to go through the crisis; ♦ NT2 Site Visit 2% this year. Apart from the FC, Laos has collectively working with private sector to been affected by the flooding in 2008 seek solutions and to mitigate the impacts ♦ World Bank Upcoming Events costing 80 million USD in disaster recovery of the FC; ensure that the investment ♦ Introducing Ms. Annette Dixon (livelihood, infrastructure, and productivity climate is favorable to attract more quality of people). investors; put in place policy to help people ♦ Lao Economic Update Page 2 http: //www.worldbank.org/lao January-February 2009 << CONTINUED FROM LAST PAGE NT2 & Revenue management A significant factor contributing to this rela- investments and is a big source of revenue. The relationship between the World Bank and tionship is the preparation and implementa- Revenue Management – The Prime GoL has strengthened more over the years, tion of Nam Theun 2 project which has in- Minister indicated: GoL appreciates the World according to the Minister of Finance. creased the opportunity of enhancing under- Bank’s advice on NT2 revenue management standing between the and will develop detailed expenditure plans. World Bank and GoL staff. NT2 contributes to the Some sectors for GoL to consider as priority social development of the include: mother and child health; rural devel- country, but also gener- opment; education and infrastructure. GoL ates a good business has expressed its commitment to increase environment and boosts expenditure in some sectors. There is also a the interest of investors. commitment from GoL to spend more on the health sector and put in place programs dur- NT2 has set a good ing the crisis. This is a good opportunity to benchmark for technical, focus on priority sectors and the World Bank social and environmental is ready to work with GoL to identify priority standard. Hence, this programs. project sets a high stan- dard for future quality NT2 SITE VISIT The World Bank Country Director for Southeast Asia Ms. Annette Dixon visited the NT2 project from January 19-20. NT2 was the first project that Ms. Dixon visited on her first trip to Lao PDR where she learned more about three main components of the project, namely the resettlement, the down- stream area, and the watershed area. She also visited the physical construc- tion of the dam including the reservoir, the powerhouse, and the down- stream channel. While examining the physical component of NT2, Ms. Dixon also took the opportunity to hear about the lives of the villagers affected by the project. On the first day of the trip, she visited Nongbouakham, a resettlement vil- lage, where she interacted with health personnel and learned about health services and situation in the village. Ms. Dixon also had the opportunity to meet with the downstream villagers of Mahaxay district and observed one of the livelihood programs. INTRODUCING... Ms. Annette Dixon, a New Zealand where she was Chief Executive of national, joined the World Bank in the Ministry of Youth Affairs. She March 1999. Since then she has also served as General Manager, worked across countries of Europe Sector Policy, and Deputy Director- and Central Asia in various General in the Ministry of Health; positions and has been Country Director of Health Policy, Director for Central Asia since Department of the Prime Minister; February 2006. and Manager, Policy Division, of the Ministry of Women's Affairs. In December 2008, Ms. Dixon Prior to becoming a senior public enters the position of Country servant, Ms. Dixon worked for ten Ms. Dixon visits NT2 Director for Southeast Asia years with non-governmental (covering Cambodia, Lao, Malaysia, organizations. Thailand, and the Greater Mekong Sub-Region) and Representative in Ms. Dixon holds a Master of Public WORLD BANK EVENTS Bangkok for Myanmar in the East Policy in Politics, Economics, and Asia and Pacific Vice Presidency Law from Victoria University, March 02: Signing of two agreements: (EAP). Wellington, New Zealand. She was ♦ SUFORD Additional Financing (Sustainable Forestry for Rural Development also awarded the Harkness Ms. Dixon brought to the Bank ♦ Rice Productivity Improvement Project Fellowship, which she undertook at significant social policy and The George Washington University March 9: Signing of “Public Finance Modernization management experience, gained and Governance Programme in Lao PDR” in 1994/95. << during her service in the Mid March: Civil Society Fund – selection process Government of New Zealand, January-February 2009 http: //www.worldbank.org/lao Page 3 Q&A Ms. Annette Dixon World Bank Country Director for Southeast Asia W hat is your impression on your first visit to Laos We have SWAps³ in general? (Sector Wide Approaches) in place Laos is a country that has tremendous natural beauty and many or under development assets and opportunities. It has abundant resources and the chal- and there’s a lot more lenge for Laos is to use those resources for the benefit of the we can do to bring whole population and for future generations. At the same time additional resources Laos is a poor country and there’s much to be done. For the here -both through World Bank this is a high priority country. We have a very strong budget support and investment operations. We have good experi- relationship with the government and many opportunities to help ence of pooling our funds with other donors and bringing addi- the government make the right policy choices and to use the tional trust funds with IDA to help the government move the resources wisely for the benefit of the population. development of the economy in the society pool. What are your first priorities for Laos in your new role as How about the challenges of working in Laos in general? Country Director? So far I haven’t seen too many challenges. I have only seen won- There are two priorities that are very evident to me at the mo- derful opportunities. There is a lot to do and we have a huge ment. The first of course is to help the government do whatever agenda. If we have a challenge it’s because we have to make a it can to mitigate the impacts of the Global Financial Crisis. Laos trade-off. Our resources are less than what needs to be done, so is a country which is very exposed to the global shocks and we we have to make choices and that’s probably the hardest thing. need to work with the government to ensure that in the short- term we do as much as possible to reduce the impacts on the “Laos is a country that has tremendous natural most poor and vulnerable. Another priority is the Nam Theun 2 beauty and many assets and opportunities” project (NT2). This is a critical time for NT2 because it’s the last year before the project starts production. NT2 revenues will start We have to decide where our money can be best placed to get flowing this year and we will work with the government to make the best outcome for the country as a whole. sure the revenues are used for the best possible outcomes. These revenues are coming on stream at a time when the global finan- Any advice for the country office in Laos, on working with cial crisis is reducing the government budget. We have been the government and developing counterparts? What are working on putting in place public financial management reforms your expectations from the Lao Country office? which will strengthen the overall capacity of the government to I think not just for the office but for the whole country team. One manage resources wisely. There are a lot of things to be done in thing that is really important is that the World bank has a lot to Laos and at a time of great risk and great opportunity we need to offer and we have lots of knowledge. We are very passionate and be focused. eager to help, but we also need to remember that we have a lot to learn from our counterparts of the country, the government, From your past experience as Country Director in the the development partners, the NGO’s and from the communities Central Asia Region, what would be applicable to Laos? In that we interact with directly. I hope that we can be open to what ways? learning. At the same time compiling all the knowledge that we I’ve come from a region that was also rich in natural resources. I have and knowing we can be helpful. was Central Asia Country Director for three years. That time I saw the government in Kazakhstan dealt with a huge oil boom. They had to focus on using this oil boom to diversify the sources ¹²³ of growth and to ensure that the benefits from the oil remains for future generations. This is particularly relevant to the situation in IBRD - IDA complements the World Bank’s other lending Laos where you have mineral resources and also hydropower arm–the International Bank for Reconstruction and projects coming on stream. Of course in my previous job I also Development (IBRD)–which serves middle-income countries looked after five different countries and a very diversed group. In with capital investment and advisory services. IBRD and IDA my new job I have the same situation. I have two IBRD¹ coun- share the same staff and headquarters and evaluate projects with the same rigorous standards. tries which help the bank get knowledge at middle-income coun- tries. These countries are really looking behind global expertise and knowledge. Add two IDA² countries and the challenge of IDA - is The International Development Association (IDA) is working in Myanmar where the bank doesn’t provide direct assis- the part of the World Bank that helps the world’s poorest countries. Established in 1960, IDA aims to reduce poverty by tance, but does support the roles of other donors and developing providing interest-free credits and grants for programs that partners. Perhaps most importantly, like Central Asia, the Greater boost economic growth, reduce inequalities and improve Mekong Sub-region shares many resources (especially water) and people’s living conditions. the countries need to cooperate to So it’s a little bit similar in the sense that I had a similar mix in my previous job. SWAps - enable donors to better align their assistance What opportunities are there for the World Bank to ex- resources to support the Government-owned development pand or strengthen its operation in Laos to support the programs. Key elements of the SWAps include: government Government of Laos in achieving its 2020 goal of graduat- ownership and leadership; partnerships with development ing from least developed country status? partners; agreed sector policy framework/ strategies based on share vision and priorities; common sector program/ Laos has already been reforming, so we do have the opportunity expenditure framework; coordination /alignment of resources; to increase IDA-resources. But most importantly, IDA is playing a and harmonized implementation mechanisms. critical role in mobilizing other donors to bring resources to Laos. Page 4 http: //www.worldbank.org/lao January-February 2009 World Bank Economic Update T he Lao PDR economy continues to grow, but at a relatively slower pace as the impacts of the global financial turmoil are starting to be felt. GROWTH The Lao PDR Gross Domestic Product “The Government of Lao PDR has (GDP) growth is expected to slow- achieved its revenue target for the third consecutive year” down (about 7% in 2008 and pro- Inflation in Lao PDR. Source: WB Monthly Economic Update jected at 5-6% in 2009) as the im- January 28, 2009. lar pace due to high prices of fuel and pacts of the global financial turmoil other investment imports in the first three are starting to be felt. However, growth GOL’s REVENUE PERFORMANCE Government Of Lao PDR (GoL) reve- quarters of the year. Gross international remains fairly strong and still driven by the reserves increased from US$539 million at ongoing hydropower projects as well as nue policy and administration re- forms, as well as sizable resource end-2007 to about US$623 million (or agro processing industries, construction equivalent to about 5 months of non- and other services. In addition to domestic revenues, have resulted in strong revenue performance and in achiev- resource imports) by November 2008, due consumption, medium-term growth will be to increased private and official inflows, sensitive to changes in global commodity ing the deficit target. Based on prelimi- nary estimates, revenue collection has but this growth is expected to slow down prices (mainly metals and agriculture) as due to the financial crisis repercussions. At well as to demand and investment from slightly exceeded its targets in FY2007/08 for a third year in a row. Revenue collec- the same time, broad money (M2)¹ grew neighboring countries (especially Thailand, by 13 percent by November 2008 com- China and Vietnam). tion (excluding grants) has risen from 14 percent of GDP in pared to December 2007 and banking FY2006/07 to about sector credit increased by 74 percent dur- Without large hydropow er and m ining projects 14.9 percent of GDP ing the same period. This rapid credit With large hydropow er and m ining projects growth poses a severe risk of new Non- in FY2007/08. Strong revenue Performing Loans (NPLs )and liquidity 9 problems, especially for Lao Development 8 .1 7.9 performance has 8 7. 0 Bank (LDB) and Agriculture Promotion 7.1 helped maintain the 7 6 .4 Bank (APB). 6 6.5 fiscal deficit at be- 5 6.1 low 3 percent during 5.4 MOVING FORWARD 4 5.0 the last two fiscal 4.3 The economy is facing a number of 3 years. Resource challenges in dealing with the im- 2 revenues have in- pacts of the global financial crisis. 1 creased from 2.3 These feed through a projected decline in 0 percent of GDP in foreign direct investment (FDI), commod- 2004 2005 2006 2007 2008 FY2006/07 to about ity prices, potential private sector credit 3.0 percent of GDP constraints, and declining exports. The Lao PDR Gross Domestic Product (GDP) growth. Source: in FY2007/08. The projected reduction in fiscal revenues World Bank Monthly Economic Update January 28, 2009. GoL’s recurrent spending for key priority (from reduced resource revenues, import INFLATION sectors, especially education and health taxes and other export revenues) will limit Lao PDR macroeconomic situation has also risen while capital expenditure Government’s ability to conduct fiscal pol- remained strong in 2008 with the declined. External public debt declined to icy, at the time when a fiscal stimulus may headline inflation declining to 3.2% 60 percent of GDP, but remains elevated. be most needed. in Dec 2008 (averaged annual infla- The external public and publicly guaran- 1 tion of 7.6% in 2008) and continues teed debt (in Net Present Value terms) as M2 is the total amount of money available in an economy at to be low in 2009. After peaking at 10.3 a percentage of GDP also remains high but a particular point in time. Including physical currency in percent in May 2008, the year-on-year has been declining from 46 percent in circulation, demand deposits, time deposits, savings depos- its, and non-institutional money-market funds. inflation rate dropped precipitously to 2.4 2007 to about 38 percent by end-2008. percent in January 2009, due to sharp References & more information EXTERNAL BALANCE - Lao Economic Monitor (LEM) November 2008 decline in oil and food prices. Lower fuel The overall external balance was in - World Bank Monthly Economic Update 28/01/2009 prices brought down the cost of transpor- surplus as capital inflows continued - The Lao PDR Economic Monitor is available on the World Bank’s website: www.worldbank.org/lao. tation, construction materials and other to balance the large current account products, leading to further decline in core deficit (of above 15 percent of GDP). inflation. The non-resource current account bal- For more information about anced with deficit of less than 10 percent the World Bank in Lao PDR, EXCHANGE RATE please contact: of GDP. Although global commodity prices The kip nominal exchange rates remained have been falling fast in the recent Viengsamay Srithirath strong and fairly stable against both the months, Lao exports overall in 2008 where Email: vsrithirath@worldbank.org US dollar and Thai baht during the past higher than in 2007 by about 20 percent Souridahak Sakonhninhom few months. The exchange rate level as of (in nominal terms), driven largely by min- Email: ssakonhninhom@worldbank.org end-January 2009 is kip 8400 per 1 US$ ing and other non-resource sectors. Im- and kip 243 per 1 baht. Website: http://www.worldbank.org/lao ports are also expected to grow at a simi- Editor: Ed Polderman