[{"bbox": [97, 153, 1132, 207], "category": "Text", "text": "modernizing public finance sector; (vi) strengthening accounting and auditing/inspection; and (vii) developing human and institutional capacity."}, {"bbox": [96, 231, 1133, 605], "category": "Text", "text": "In the above-mentioned context, the **European Joint Programming Strategy (EJPS) for Laos** in **2021-2025** aligns with the Lao PDR's 9th NSEDP 2021-2025 and with the European Partners' strategic priorities for external action, which aim at fostering sustainable, green and inclusive growth through strengthened trade and investment. The EJPS focuses on **three priority areas**: green and inclusive economy (PA 1); human capital (PA 2); and good governance (PA 3). A large share of these funds will support the **Green Team Europe Initiative**², which seeks to foster sustainable investments, in line with the green objectives shared by the EU Partners and Laos. Within this framework, the EU proposes a **transformational approach** in its cooperation with Laos, by supporting an **increase in trade and investment**, especially in green sectors, supported by **enhanced education and skills**, and **improved governance**. The EU **MIP 2021-2024** for Lao PDR received an allocation of **EUR 83M** and it focuses on: agriculture and forestry, trade and PSD (under PA 1), education/TVET (under PA 2), and good governance, including public finance management (under PA 3). The EU programming priorities fully take into account the external aspects of the EU policy priorities (Green Deal; sustainable growth and jobs; science, technologies and digitalisation; migration Partnership; and education) as well as the opportunities to work with the EU Member States on co-financed programmes and the use of the EFSD+ blending and guarantee facility."}, {"bbox": [96, 628, 1133, 843], "category": "Text", "text": "This proposed PFM Action with a EUR 5M contribution from the EU and AUD 10M co-financing from Australia, builds on the strong foundations laid by the successful ongoing EU-funded PFM reform programme implemented by the WB. This new programme will continue supporting PFM reforms, by strengthening budget formulation and execution (targeting line ministries including education & agriculture)) and domestic revenue mobilisation. In this new phase, the Action will reinforce EU policy dialogue on PFM, in partnership with Australia and the World Bank. It will place emphasis on piloting gender and green budgeting, improving the governance of State enterprises, and strengthening the National Assembly's financial oversight role. As such, the proposed Action will better complement other EU's action to be implemented as part of the EJPS."}, {"bbox": [85, 883, 340, 913], "category": "Section-header", "text": "## 2.2 Problem Analysis"}, {"bbox": [97, 929, 1132, 983], "category": "Text", "text": "There are a number of challenges that Lao PDR has to tackle to improve service delivery and PFM systems. The most important priorities that have been identified for the present action are the following:"}, {"bbox": [97, 995, 1132, 1102], "category": "Text", "text": "**The budget preparation process is characterised by weak links between budget allocations and the country's development priorities and sector strategies.** This is mainly due to the absence of effective planning and forecasting mechanisms. While a medium-term expenditure framework exists, the introduction of multiyear spending ceilings remains challenging. The PFM capacity of line ministries varies and can be strengthened."}, {"bbox": [97, 1113, 1132, 1274], "category": "Text", "text": "**Lao's tax revenue collection has been volatile and trending down.** The tax revenue to GDP ratio has decreased from 13% in 2011 to 11.1% in 2019. Major contributors to the decline of the tax revenue include profit tax, natural resources tax, and trade tax. With regards to the profit tax, while the standard rate reduced about 14%, from 28% in 2012 to 24% in 2018, the profit tax to GDP ratio was reduced by 48%. Since there were no major changes in the tax administration, it could be argued that the reduction in profit tax to GDP ratio was due to the extensive use of profit tax exemptions."}, {"bbox": [97, 1284, 1132, 1415], "category": "Text", "text": "**Tax administration capacity is generally weak.** There is no strategic planning at the headquarters level, and there is no comprehensive risk management framework in place to guide the tax administration's operation. The revenue target setting is still not fully based on the real capacity and actual information. Staff capacity in conducting audits remains limited. There is no taxpayer services function. Taxpayer data and information are limited and are not centralized."}, {"bbox": [97, 1430, 1132, 1537], "category": "Text", "text": "**Procurement capacity and resources in Lao PDR are limited, compounded by frequent staff rotation.** Procurement is not yet fully recognized as a key PFM function. There is limited institutional coordination, supporting infrastructure and a lack of professionally recognized staff. The capacities for data collection and management are poor. E-procurement is not being implemented."}, {"bbox": [85, 1577, 1142, 1621], "category": "Footnote", "text": "² The following European partners are part of the TEI as of March 2022: France, Netherlands, Switzerland, Hungary, Luxembourg, Germany, Findland, EIB and the EU"}, {"bbox": [1038, 1681, 1143, 1705], "category": "Page-footer", "text": "Page 5 of 25"}]