LDC status graduation costs and benefits and the ways ... PDR LDC Graduation PPT... · GDP growth rate (3-yr av., 2014-16) 7.30 7.00 6.97 7.26 2.36 6.29 ... Foreign grant aids and

LDC STATUS GRADUATION,

THE WAYS FORWARD FOR

LAO PDRRegional Capacity Building Workshop

Formulating National Policies and Strategies in Preparation for Graduation from the LDC Category

Organized by

United Nations Economic and Social Commission for Asia and the Pacific and the Royal Government of Bhutan

Thimphu, Bhutan

14-16 November 2017

By Mana Southichack, PhD

WHAT’S IN THIS

PRESENTATION?

Lao PDR as a small, SE Asian

landlocked LDC

Lao PDR is expected to meet 2 LDC

graduation thresholds in the 2018

review

Benefits and costs of graduation

Challenges to overcome

Recommendations—the ways forward

Key figures Lao Cambodia China Myanmar Thailand Vietnam

Population (million) 6.7* 15.5 1,378.7 52.4 68.7 91.7

Population density (person per sqm) 28.9 87.9 146.1 80.2 134.4 295.8

Rural population (% of total population) 61.4** 79.3 44.4 65.9 49.6 66.4

GNI per capita (US$, atlas method) 2,000 1,070 7,940 1,190 5,690 1,990

GDP growth rate (3-yr av., 2014-16) 7.30 7.00 6.97 7.26 2.36 6.29

Agricultural share in GDP (%) 19.7 28.6 8.8 26.7 8.7 18.9

Employment in agriculture (% of total

employment) 72.0 54.1 ('10) 28.3 62.7 ('98) 32.3 43.6

Notes: * Lao PDR’s latest Population and Housing Census 2015 reports 6.5 million. ** Population and Housing Census 2015 reports 67%. Unless otherwise specified, all data are for 2015.

Data source: https://data.worldbank.org/indicator/. Accessed October 7, 2017.

Lao PDR as a small, SE Asian landlocked LDC

Lao PDR and its immediate neighboring countries:


Lao PDR experienced high economic growth

Lao PDR

620 ('07)

2150

Cambodia

590 ('07)

1140

0

500

1000

1500

2000

2500

Lao PDR versus Cambodia

Changes in GNI per capita (US$): 2000 - 2016

Lao PDR Cambodia

Data source: World Development Indicators, World Bank.

Lao PDR has been quite successful in

raising income in the past decade.

GDP growth: 7.3% annually over 2000 –

2015

Lao PDR’s GNI per capita surpassed

Cambodia’s in 2007, due both to high

growth and domestic currency

appreciation.

Poverty declined from 33.5% (2002) to

23.2% (2013).

But inequality, measured by the Gini

coefficient, increased from 32.5 (2002)

to 36.2 (2013).


GDP growth driven by the resource sector (mining and hydropower)

5.8 5.7

4.2

6.1

4.3

5.7

7.6

5.54.9

3.74.5

5.76.2

7.1

5.0

3.8

0.0 0.2

1.9

0.3

2.8

2.4

-0.2

1.92.6 4.8 3.5

2.32.2 0.4

2.4

3.1

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Non-resource Resource

Note: GDP growth rates for 2013 and 2016 respectively are 8.5% and 7%, but the additions of the resource and nonresource sector shares in the chart for these two years fall 0.1% below, due to rounding. Data source: World Bank's Lao PDR Economic Monitor (various issues).


Rapid structural change in output, but not in jobs, due to growth driven by

capital-intensive sector

48.545.5

36.7 (2005)

30.6 (2010) 19.719.1

31.032.4

49.4

82.7 (2001) Population Survey

76.3 (2005) Labor Survey

72.2 (2010)Population Survey

72.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Agriculture (Output) Industry Service Agriculture (Labor)

Data sources: Labor for 2015, Lao Statistics Bureau; all others, Asian Development Bank.


Growing share in GDP of industry sub-sector: 2000 – 2016

0.21

2006

13.45 2012

12.51

7.24

8.86

2009

15.31

8.67

4.62

9.68

5.32 6.20

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2000 2002 2004 2006 2008 2010 2012 2014 2016

Mining and quarrying

Manufacturing

Electricity, etc.

Construction

Data source: Computed from Asian Development Bank's Key Indicators for Asia and the Pacific 2017,

www.adb.org/statistics.


Some progress made

Key Figures 2000 2005 2010 2015

Population (million) 5.3 5.8 6.2 6.7

Rural population (% of total population) 78.0 72.6 66.9 61.4

GNI per capita (US$, altlas method) 280 460 1000 2000

GDP growth rate (5-yr av.)* 6.2 8.0 7.8

Agricultural share in GDP (%) 45.2 36.2 31.4 19.7

Employment in agriculture (% of total employment) 76.3 72.2 72.0

Agriculture value added per worker (constant 2010 US$) 798.9 827.9 893.0 918.8

Access to improved sanitation facilities, rural (% of rural pop.) 17.2 31.1 44.9 56

Access to improved water source, rural (% of rural pop.) 37.9 49.2 60.4 69.4

Access to improved water source, total (% of total pop.) 45.5 56.8 67.5 75.7

Access to electricity, rural (% of rural pop.) 28.9 43.8 56.6 68.1

Access to electricity, total (% of total pop.) 43.1 57.2 68.0 78.1

Life expectancy at birth, total (years) 58.9 61.7 64.3 66.3

Literacy rate, adult total (% of people ages 15 and above) 69.6 72.7 84.7

Mortality rate, under-5 (per 1,000 live births) 117.7 97.2 79.7 66.7

School enrollment, secondary (% gross) 34.2 43.6 46.1 61.7

Lower secondary completion rate, total (% of relevant age group) 35.3 44.9 41.5 60.7

Primary completion rate, total (% of relevant age group) 67.5 69.7 85.0 100.2

Note: *

Example, for 2005, it's an average over 2001-2005.

Data source: https://data.w

orldbank.org/indicator/. Accessed October 7, 2017.


Lao PDR in comparison with immediate neighbors

Key figures Lao Cambodia China Myanmar Thailand Vietnam

Access to improved sanitation facilities, rural

(% of rural pop.) 56.0 30.5 63.7 77.1 96.1 69.7

Access to improved water source, rural (%

of rural pop.) 69.4 69.1 93.0 74.4 98.0 96.9

Access to improved water source, total (%

of total pop.) 75.7 75.5 95.5 80.6 97.8 97.6

Access to electricity, rural (% of rural pop.,

2014) 68.1 49.2 100.0 49.0 100.0 98.9

Access to electricity, total (% of total pop.,

2014) 78.1 56.1 100.0 52.0 100.0 99.2

Life expectancy at birth, female (years) 67.8 70.6 77.7 68.8 79.0 80.7

Life expectancy at birth, male (years) 64.8 66.5 74.6 64.1 71.4 71.3

Literacy rate, adult total (% of people ages

15 and above)* 84.7 73.9 95.1 75.6 92.9 93.5

Mortality rate, under-5 (per 1,000 live

births) 66.7 28.7 10.7 50.0 12.3 21.7

School enrollment, secondary (% gross)** 61.7 45.1 94.3 51.3 129.0 na

Lower secondary completion rate, total (%

of relevant age group)*** 60.7 48.0 98.6 48.7 84.0 99.6

Notes: Unless otherwise specified, all data are for 2015. * Lao PDR, 2015, from Population and Housing Census 2015; Cambodia, 2009; China, 2010; Myanmar, 2016; Thailand, 2015; and Vietnam, 2009.

Data source: Unless specified, https://data.worldbank.org/indicator/. Accessed 7

October 2017.

Lao PDR’s qualification for graduation from LDC status

Graduation thresholds for income and HAI are expected to be broken in the 2018 review

Lao PDR’s prospect of meeting HAI threshold

Source: Borrowed from Lao PDR Systematic Country Diagnostic (World

Bank, 2017b).

Source: Borrowed from National Human Development Report,

Graduation from Least Developed Country Status, Lao PDR 2017

(Acharya & Rasphone, 2017).

The average GNI per capita for 2014-2016,

using the more conservative World Bank

data is US$1,746.

(Data from World Development Indicator

yields a higher average.)

LDC graduation is integrated in the country’s overall

National Socioeconomic Development Plan.

Benefits of graduation from LDC status

Tangible benefits:

• Stronger human assets, improved

economic structure to deal with

market and natural disaster shocks.

• Most tangible benefits of graduating

from LDC status are realized prior to

graduation through LDC-linked and

LDC-status-guided technical and

financial assistances from

development partners.

• Lao PDR (as all LDC countries) is

eligible for assistances to prepare for

graduation to intensify development

focusing on key areas to raise human

assets and improve country’s

capacity to absorb shocks.

Intangible benefits:

• With a higher income, improved human

assets and economic structure, country

would be more positively viewed by

international investors, leading to increased

access to international private finance for

both public and private sectors.

• Stronger position in international negotiation,

especially in the ASEAN, ADB, UN, WB, WTO

frameworks (but with more responsibilities).

• Psychic benefit--Ridding the LDC status lifts

collective self-confidence of the people

and leaders of the country, providing a

motivation to achieve more.

• Government leaders to improve

performance and having a higher sense of

responsibilities (leaders are held at a higher

standard).

Costs of graduation from LDC status

Cost in preferential

treatment for exports:

Lao PDR will lose

a) Generalized System of Preferences

(GSP) that allows access to exports

from LDCs into the United States, EU

and other OECD countries—garment

industry will be affected most

significantly.

b) Global System of Trade Preferences

(GSTP) used among developing

countries and implemented based on

reciprocal principles—Lao PDR does

not use this.

Cost in foreign assistance:

Lao PDR will lose

a) Foreign grant aids and technical

assistance that are linked to LDC

status.

b) LDC status-linked concessional

loans and debt relief.

c) Special facilities at the WTO that

allows flexibilities in international trade

rule enforcement (and to assist Lao

PDR in capacity building in rule

enforcement, trade negotiation).

Potential impact on foreign aids

ODA in absolute term remains important

280.9

244.8 278.1

301.3 270.0

297.4

365.2 397.4

496.6

417.3 413.4 399.8 410.5 423.3

474.4 471.1

-

100.0

200.0

300.0

400.0

500.0

600.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: World Development Indicators. https://data.worldbank.org/indicator/


But the relative importance of ODA has been rapidly declining

116.5

11.6

16.9

3.4

84.6

22.0

2.0 7.5

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ODA (%Capital Formation)

ODA (%GNI)

ODA (%Gov't Expenditure)

FDI Inflow (%GDP)

Data source: World Development Indicators. https://data.worldbank.org/indicator/

FDI (and domestic

private investment) has

played an increasingly

significant role in

boosting economic

growth and

government coffer.

FDI inflow as percent of

GDP grew, from 2% in

2000 to 7.5% in 2015.

ODA as percent of

government spending

dropped from 84.6% in

2008 to 22% by 2015.


ODA has been trending downward

• Of US$2,369.9 million ODA

Lao PDR disbursed over

2010/11 - 2014/15 (up to

May 2015 only):

• 54.5% bilateral

• 34.7% multilateral

• 10% UN agencies

• < 1% INGOs.

• Bilateral aids and UN

disbursements are not LDC

related.

• Multilateral (int’l financial

institutions) aids are

increasingly technical

assistance & loans.

• If Lao PDR is doing fine

with ODA going

downward before LDC

graduation, then

graduation will matter

little.

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2010/11 2011/12 2012/13 2013/14

Int'l financial institutions Bilateral agencies

UN agencies International NGOs

Data source: AMP Database, MPI, Vientiane; in 5th National Human Development Index

Report 2017.

Potential impact on trade

Most Lao PDR’s exports do not rely on LDC preferential treatment • Mineral products and

electricity dominate.

• Great majority of

agricultural products

exported to neighboring

countries.

• Other exports also mostly

destined for neighboring

countries.

• Garments, which

benefitted from GSP,

mainly to EU market, has

been shrinking in

importance, down from

nearly 40% in total exports

in early 2000s to 4.2% by

2016.

58.4

46.4 37.6

30.2

17.5

20.5

14.4 21.6

8.5

8.3

9.3 13.4

0.8

6.8

9.2 7.9

1.1 4.1

5.5 4.2

6.9 8.2

5.8 4.2

6.9 5.6

18.1 18.4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016

Minerals Electricity

Agricultural products Electrical machinery, parts

Beverages Garments & footwear

Others

Data sources: UN CompTrade and Ministry of Industry and Commerce.

Potential impact on trade

More than 80% of Lao PDR’s exports went to Thailand, China,

and Vietnam

• Lao’s exports to China has

been growing rapidly.

• Lao’s exports to China,

Thailand, and Vietnam do

not rely on LDC

preferential treatment.

21.3

38.2 37.7 39.91.8

4.3

27.928.4

29.8

16.6

14.514.147.1

40.9

19.8 17.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thailand China Vietnam Others

Data source: Asian Development Bank, www.adb.org/statistics.

Recommendations: Challenges and the ways forwardMitigating costs of graduation

On foreign aids:

While their importance is declining and that

most ODA Lao PDR received is not LDC status-

linked, foreign aids are still important.

• Identify all LDC-linked aids

While strengthening domestic resource

mobilization:

• Lao PDR needs to reassess its ODA needs and

sources to identify appropriate matches.

• Negotiate with bilateral development

partners to increase aids for areas considered

critical and fit national and partners’ interests.

• Negotiate with multilateral agencies for soft

loans through multilateral agencies’ trust

funds for specific purposes and certain

technical assistance to cover domestic short

falls.

On trade:

Lao PDR has until 2024 before the LDC

preferential treatment on exports is lost to help

raise exporters’ competitiveness and

readjustment in the export-oriented industries.

• Conduct industry impact assessment needed

for intervention planning.

• Garment industry, which benefited most from

LDC status, must become more competitive

to maintain existing market or make

readjustment in production and distribution.

• Lao PDR must examine and identify areas

where government actions are required to

help raising exporters’ competitiveness.

• Custom procedures, taxes, logistic,

facilitate business match-making

Recommendations: Challenges and the ways forwardMeasures and approaches for dealing with challenges going forward

Following areas needed most

attention in the graduation

criteria, Lao PDR to focus on:

• Improving (reducing) EVI

• Mitigating natural disaster

shock

• Economic diversification is

key

• Mitigating negative size &

remoteness effects

• Promote non-agricultural

jobs

• Raising HAI

• Raising gross secondary

school enrolment

• Lowering U5MR

• Raising literacy rate

Source: UN Department of Economic & Social Affairs, Development Policy & Analysis Division.

https://www.un.org/development/desa/dpad/least-developed-country-category-lao-peoples-democratic-

republic.html, accessed 1 October 2017.

Lao PDRGraduation

Threshold

1) Gross National Income per Capita (US$ atlas method) 1,232 1,242

Income-only graduation 2,484

2) Human Asset Index (HAI) 60.8 66 and above

Under-five mortality rate (U5MR) 62.8

Percent of population malnourished 72.0

Gross secondary school enrolment ratio 45.0

Adult literacy rate 63.6

3) Economic Vulnerability Index (EVI) 36.2 32 and below

Exposure Index:

Size (population) 41.4

Location (remoteness) 58.8

Economic structure

Merchandise export concentration 22.4

Share of agriculture, forestry and fishing in GDP 41.9

0.0

Shock Index:

Trade shock (instability of exports of goods and services) 24.2

88.9

20.4

Natural shock (victims of natural disasters)

Natural shock (instability of agricultural production)

Environment (share of population in low elevated coastal

zones)

Key Indicators

Recommendations: Challenges and the ways forwardDealing with challenges involving economic diversification

Overcoming location (landlocked) problems:

• High transportation cost for exporting and importing limits the

competitiveness that businesses operating in Lao PDR have.

Exporting from Lao PDR is

• 2 times more costly than exporting from Cambodia

• > 3 times the cost of exporting from Thailand, Vietnam, or

Myanmar

Item Laos Cambodia China Indonesia Malaysia Myanmar Philippines Thailand Vietnam

Cost of export 1,950 795 823 572 525 620 755 595 610

Cost of import 1,910 930 800 647 560 610 915 760 600

Data source: World Bank, https://data.worldbank.org/indicator/. Accessed on 18 October 2017.


Key areas to focus, to minimize the

negative effect of being landlocked:

• Connectivity

• Hard-infrastructures of quality and

efficient land and air transportation

and telecommunication systems.

• Soft-infrastructures such as

regulations, administrative

procedures, and quality of

responsible officials at custom

clearance.

• Lao PDR must view the problem of

connectivity beyond the urgently

needed engineering and

technological solutions required for

efficient facilitation of physical goods

and people (transportation) and

information (telecommunication and

the internet).

• Lao PDR must adjust its business

systems (accounting, legal) towards

compatibility with regional and

international systems.

• The human factor--English language,

knowledge of history and cultures of

trading partners.


Overcoming population size

limit:

• Lao PDR must be more

progressively and deliberately

promote urban growth in

several existing major cities

strategically located in major

parts of the country, with

quality infrastructure and

greenery.

• A large market cluster reduces distance-cost for both suppliers and consumers,

and minimizes costs associated with infrastructure development and public

services, thus raises efficiency for the entire society.

Name of administrative unit Region Largest cluster1

Total urban Total population

Vientiane Capital Central 583,973 639,601 820,940

Savannakhet South Central 91,684 215,228 969,697

Champasak Far South 68,093 180,443 694,023

Luangprabang North 66,781 139,695 431,889

Xiengkhouang East Central 48,643 70,783 244,684

Oudomxay North 35,289 73,986 307,6221 It is the largest urban center in each respective administrative unit, the capital of the province, except for the market cluster

for the Capital, which is a collection of six adjacent districts with connected population clusters. Data source: Results of

Population and Housing Census 2105. Lao Statistics Bureau (2016).


Promoting non-agricultural jobs:

• To promote growth in non-agricultural

jobs, Lao PDR must make investment

towards improving agricultural

productivity.

• 3 most important areas require special

attention:

• Irrigation development,

• Agricultural extension service,

• Rural infrastructure, especially

road network.

• Improve business environment by

focusing on reducing cost of doing

business.

FY 2007/08 FY 2012/13 FY 2007/08 - FY 2012/13

Agriculture and Related Activities 4.35 4.35 0.99

Manufacturing 10.52 15.93 0.04

Construction and Services 15.84 18.92 0.59

Labor ElasticityLabor Productivity

• Tourism sector: Has desirable income distribution

potential and environmental effect

• Lao PDR needs to prioritize sanitation

(garbage) and public safety (sidewalk,

lights, pedestrian-crossing)

• Promote brand-building of local products

that can tap into tourism market

• Human capital development—requires for the

growing needs for diverse knowledge and skill

sets

Recommendations: Challenges and the ways forwardDealing with challenges involving raising HAI

Raising secondary school enrolment and

improving education quality in rural areas:• Creating a national school lunch program

• Many children in rural areas do not go to

school because of lunch.

• School lunch is important not only for

encouraging enrolment, but critical for

physical and mental development and

safety (children do not have to go home for

lunch).

• Creating a rural school volunteer program (new

graduates, summer program volunteers)

• Investing on facilities and equipmentPhoto courtesy of Ryan Gargiulo;

http://www.pausethemoment.com/behind-the-photo-

laos-school-children/


Using incomes from hydropower and mining

to invest in human capital development

• Financing the many public investment

projects that are critically important for

continued socioeconomic advancement

is a challenge.

• Fiscal deficit has surpassed the critical

level (5% of GDP), and government debt

is expected to grow, increasing pressure

on macro-stability.

• To avoid this dire situation, government

should consider reinvigorate the mining

industry, which has been in the decline

due mainly to the moratorium on land

concession for new mining.

• With better management of land

concession, environmental

protection, and utilization of income.

22.424.1 23.9 23.2 24.0

18.5 19.4 19.7

24.1 24.6

29.627.8 26.7

24.4 24.6 24.9

-1.7-0.5

-5.7 -4.6-2.7

-5.9 -5.2 -5.2

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2011 2012 2013 2014 2015 2016 2017 2018

Revenue & Grant Expenditure

Fiscal Balance

Note: 2016 - 18, projection. Data source: IMF Country Report No. 17/53.


Using incomes from hydropower and

mining to invest in human capital

development

• Income from electricity jumped in 2016

(export nearly doubled), and it is

growing going forward.

• But it is insufficient

• Government should look into creating a

law requiring a portion of revenues from

electricity and mining to be geared

towards education and public health.

• This is one of the fair and desirable

ways to redistribute publicly owned

incomes and to guarantee that the

future generations benefits from today’s

exhaustible resource exploitation and

to ensure sustainability.

58.0 58.162.8 64.2

70.076.2 74.7 76.6

26.8 26.623.8 22.8

20.8 12.4 14.4 13.73.1 2.9

3.8 4.33.8 6.5 6.7 6.112.1 12.4 9.2 8.6 5.4 4.9 4.1 3.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 2017 2018

Non-resource Grant

Electricity Mining

Note: 2016 - 18, projection. Data source: IMF Country Report No. 17/53.

A final thought

• While it is technically possible for a country to be qualified for LDC status

graduation with income criterion only, it is a highly risky path.

Lao PDR, or any LDC country with abundant natural resource, could

raise the average income per capita relatively rapidly by exploiting

natural resources (i.e., expand mining and electricity production)

enough and be qualified for graduation.

• However, graduating without adequately developing human assets and

restructuring the economy sufficiently to be resilient to market and natural

disaster shocks, the country is at risk of falling back to aid dependency or

becoming a failed state.

• Finally, while the intangible (including psychic) benefits are important, they

have economic value only if they are appropriately exploited for making

further tangible gains in socioeconomic development.

• Thus, graduating with a sound human assets and economic foundation is

critical for success and sustainability.

Goodbye LDC

…

from Lao PDR

…

And hello future

Ka Din Chey La

Documents

LDC status graduation costs and benefits and the ways ... PDR LDC Graduation PPT... · GDP growth rate (3-yr av., 2014-16) 7.30 7.00 6.97 7.26 2.36 6.29 ... Foreign grant aids and