Lao PDR is on an increasingly sustainable development path. Reforms underway have reduced poverty and stimulated growth. The economy has expanded on average by 7.1 percent per year from 2001 to 2010, and is expected to grow by 7.6 percent per year in 2011-2015. In 2011, Lao PDR reached a GNI per capita of US$1,010. and, as such, moved up from its lower economy income status to a lower-middle income economy. At this pace, Lao PDR is on track to achieve its long term vision: to graduate from the Least Developed Country status by 2020.

Natural resources - forestry, agricultural land, hydropower, and minerals - comprise more than half of the total wealth of Lao PDR. The hydropower and mining sectors combined accounted for about one third of the country’s economic growth between 2005 and 2010. The growth in these sectors has resulted in significant increases in revenue which has translated into poverty reduction. It has also spurred progressive changes in environmental legislation.

Lao PDR is increasing its integration into the regional and global economy.  It is located in one of the fastest growing regions of the world economy which has strategic importance in terms of potential for growth in cross-border investment and exports (including hydropower and mineral products) to rapidly industrializing neighboring countries. Lao PDR is a member of the Association of Southeast Asian Nations (ASEAN) and the ASEAN Free Trade Area.  The country is also in the closing stages of accession to the World Trade Organization.

Available data suggest that while Lao PDR made significant progress on many of  the Millennium Development Goals (MDGs), some are off track including malnutrition (forty percent of under-five children are stunted), measles immunization, skilled birth attendance, and some dimensions of gender equality (for instance, girl’s equal enrolment in tertiary education). In its Sixth National Social and Economic Development Plan (NSEDP) 2006-2010 (which is a successor to the National Growth and Poverty Eradication Strategy), the government laid out its poverty reduction strategy to meet the MDGs by 2015. It aims to foster economic growth with equity, develop and modernize the country’s social and economic infrastructure and enhance human resource development.

Critical reforms towards this end are receiving priority in the Seventh NSEDP 2011-2015. The World Bank Group (WBG) continues to work with the government as it lays the foundations to graduate from the Least Developed Country status. The World Bank Group’s operations in the country is guided by the Country Partnership Strategy (CPS) for 2012 to 2016, designed in consultation with a range of stakeholders in Lao PDR to support the Government’s Seventh NSEDP and build stronger institutions for sustainable and inclusive development.

KEY FINDINGS

• Lao PDR’s 2012 economic outlook is positive, with development soaring in construction, manufacturing, mining, and services. These sectors are expected to drive a projected growth of 8.3% in 2012. Despite this robust growth, the medium-term outlook remains subject to uncertainty in external markets.
• Declining rice prices and slower increase of fuel prices drove down overall inflation during the past months.
• The 2011/12 budget features increased exposure to hydropower and mining revenues and slower growth in non-resource sector revenue.
• Along with anticipated higher fiscal expenditures, the overall fiscal deficit will deteriorate, together with non-resource and non-mining fiscal deficits.
• The overall balance of payment is projected to slightly improve in 2012, as a result of augmented foreign direct investment and transfers outside the resource sectors.
• The non-resource sector’s external balance deficit is expected to improve due to investment inflows and transfers. Meanwhile, the resource sector’s balance of payment surplus is expected to moderately decline due to higher income repatriation in the mining sector. 
• In 2011, the National Assembly approved the revised General Tax Law.  In effect, this introduced a transparent, turnover-based presumptive tax regime for businesses with a turnover below the VAT registration threshold. This revision eliminates minimum business tax.
• Lao PDR continued to make progress in its process of acceding to the World Trade Organization, concluding bilateral negotiations with the European Union and the United States in late 2011 and with Ukraine, the last bilateral negotiation, in May 2012.