The summary tables of the budget for fiscal year 1993 ( October 1992-September 1993) and 1994 were officially made available to the UNDP Country Office upon regrets. ( budget information was not officially available prior to 1993). They included actual revenues / expenditures for preceding fiscal years and budgeted revenues/expenditures for the current fiscal year. Although the budged document does not present details of expenditures for each ministry, it provides a comprehensive picture of the sources and uses of government tax and non-tax revenues, including grants I and the sources of financing of the budged deficit. However, publication of the full budget document, which was again raised and strongly suggested by the donor community at the fifth Round Table Meeting ir Geneva, is still awaited.

LINKAGE BE'IWEEN PLANNING AND BUDGETING

Formulation of the annual budget is undertaken 'in conjunction with the preparation of an annual plan of action. The budget prepared by the Ministry of Finance and plan of action prepared by the Committee for Planning and Cooperation for Fiscal Year 1994-1995 are expected to be approved by the National Assembly at its session beginning 26 September 1994.

A technical cooperation program between the Government and LJNDP, ADB and IMF is currently on-going, seeking to establish closer linkages among medium term indicative planning, public investment programming, annual budgeting, and public expenditure accounting, monitoring and control. Through this program as outline public investment program ( PIP) for 1994-2000 has been formulated and approved by government for presentation at the recently concluded fifth RTM, the outline PIP calls for $146.7 million investment in FY 1994-1995 rising to $291.3 million in FY 1999-2000, the total 6-year PIP amounts to $1,339.8 million. Formulation of a full PIP in the context of a medium-term indicative plan up to 2000 is expected to completed by the end of 1994.

OVERALL BUDGET DEFICIT AND SOURCES OF ITS FINANCING

Total revenue collected and grants received by the Lao PDR Government 'in 1993 amounted to Kip 144.526 million. On the other hand, total expenditure incurred amounted to Kip 170.514, yielding and overall budget deficit ( commitment basis)of Kip 25,989 million. This deficit represents 2.8% of nominal GDP i.e. measured at current prices. When grants are excluded from revenue, however, the deficit was computed at 6. 1% of nominal GDP. This ratio represents a substantial reduction from the previous ratios of over 10% registered 'in the past.

After adjusting for net arrears, the overall deficit ( cash basis) was computed at Kip 39.0 billion. This was financed mainly by net capital inflow amounting to Kip 25.5 billion, representing 65% of total deficit. The remainder of 3 5% was covered by domestic financing, generated mainly through sale of assets of SOES in the amount of Kip 14.6 billion.

For FY 1994, a bigger cash deficit of Kip 72.6 billion is envisaged in the budget, representing 10.3% of nominal GDP, thereby bringing the budget deficit/GDP ratio back to the two-digit level registered two years ago.

CURRENT ACCOUNT BALANCE

Until FY 1992, the amount of tax and non-tax revenues ( excluding grants) collected by the Government had been inadequate to cover even current expenditures. There was therefore a deficit in the budget's current account of between $ 10 to $12 million from 1990 to 1992. For the first time since then, a modest current account surplus ( excluding grants) of Kip 8.3 billion ( $ 11. 6 million) was registered in FY 1993.

For FY 1994, a bigger current account surplus of Kip 12.9 billion is envisaged in the budget account surplus my be attributed to increased revenue collection made possible by improvements in the country's tax and customs administration. The draft tax and customs code formulated under a technical cooperation program of UNDP and IMF was enacted into law in August 1994. Further technical cooperation is envisaged for training tax and customs personnel in the implementation of the new law and in disseminating the same to the general public to facilitate compliance .

REVENUES

Tax revenues collected in FY 1993 amounted to Kip 85,928 million .41% higher than the amount collected the year before. In addition , Kip 27,328 million in non-tax revenues was collected, and Kip 32,270 in grants was received by the state.

The biggest sources of tax revenues in 1993 were import and export duties ( 29.2%), timber royalties ( 27.4%), and turnover taxes ( 16.6), accounting for a combined share of almost there fourths of the total The remainder came from profits,. income, agriculture, land and natural resources taxes, and from business license and registration fees.

The tax effort ( tax revenue as a proportion of nominal GDP) of the Lao PDR for 1993 was computed at 9.1% . For 1994, the tax effort is targeted to increase to 10.4% .While this tax effort instill low compared to those of other countries in the region, it already represents a big improvement over the tax effort of 7.4% registered in 1992 and 6. 1 % in 1990.

It is worthy to note that prior to 1990, the bulk of government revenues was derived from mandatory transfers from state-owned enterprises. In 1990, the share of tax revenues total revenues was around 60%. It has increased further to 76% in 1993.

With respect to non-tax revenues the biggest source was over flight payment by international airlines for use of Lao air space , representing 30.6% of the total. Other major sources were :interest and amortization receipts (25.6%) income from leasing of assets of state-owned enterprises (17.9%) , and depreciation payment from state-owned enterprises 17.2%).

For FY 1994 total revenue collection is budgeted at Kip 136.50 billion, representing an increase of 20% from actual revenues collected a years earlier. Tax revenue collection is targeted at Kip 110.23 billion, representing an increase of 28% over the amount of taxes actually collected the year before administrative rules and regulations for tax and tariff collection was enacted by the national Assembly in August 1994. Preparations are underway for training of personnel who would be responsible for implementation of the new law Considerable training of tax administration personnel in the central and provincial' governments would be regard to fully implement the new tax and customs policies and procedures embodied in the new law.

EXPENDITURES

Actual expenditure for FY 1993 was recorded at Kip 170.514 billion, of which 61.5% was current and the remainder of 38.5% was capital expenditure, the share of current expenditure to total continued its upward trend in FY 1993, from 57.1% 54.2% in 1991 and 48.7% in 1990.

Conversely, the share of capital expenditures to total has been declining from 51.3% in 1990 to only 38.5% in 1993. This implies that the growth in capital spending has been outpaced by increases in recurring expenditure 'in the from of wages and salaries , materials and supplies, pensions and severance payments, and interest payments. This trend in public spending needs to be arrested, if not reversed, in the immediate future, if the huge investment outlays targeted in the outline Public Investment Program for 1994-2000 are to be attained .

For FY 1994, a total expenditure of Kip 245,550 was budgeted representing an increase of 44/5 over actual expenditure in the previous fiscal year. It is worthy to note that, for Fiscal Year 1994, almost one half (49.7%) of total expenditure is budgeted for capital spending, recovering and approximating the share registered in 1990.

PATTERN AND FINANCING OF CAPITAL EXPENDITURE

The bulk of capital spending 'in 1993 was for transportation and communication accounting for more than a half ( 54.7%) of the total Agriculture and forestry sector and industry/mining/energy group had a share of approximately 12% each. The share of the social sectors of education and health were the lowest at 9.5% and 1.3% respectively. With reference to the latter two sectors , the outline PIP is targeting that its combined share to total will increase to 18.3% approximating the 20% share advocated by UNDP in.

Based on the budget tables made available by the Government, more than two thirds(67.61/o) of capital spending in FY 1993 was funded from external sources . In absolute amount, it is equivalent to $61.6 million. It should be noted that this amount is confined t expenditure on physical capital and may include investments in human capital . For F' 1994, the amount to capital expenditure budgeted for foreign financing is $125 million. I the outline PIP this amount is targeted to increase to almost $300 million by the year 2000.