UNCDF has been actively supporting the de-concentration and decentralization efforts of the Government of Lao PDR for over a decade. The Governance and Pubic Administrative Reform Programme (GPAR) is a multifaceted approach that has been adopted by the government, which consists of four interlinked projects.

UNCDF have supported the GPAR programme through the Strengthening Capacity and Service Delivery of Local Administrations (SCSD) project introducing two innovative performance-based grant mechanisms that have been embedded within the national treasury system. Since 2006, against a backdrop of a centralized government, UNCDF, working in partnership with the Ministry of Home Affairs, developed (1) a capital grant system inclusive of “bottom up” community and citizen-led planning coupled with performance-based vertical transfers to construct local service infrastructures, and (2) a performance-based operational block grant to district administrations in support of service delivery and citizen participation in local governance.

The District Development Fund (DDF) has undergone continual innovation and is now in its seventh generation, bringing much needed improvements to basic service delivery in rural and remote areas.  The success of DDF has resulted in its natural scale up that is being implemented with joint government financing in seven provinces covering 53 districts. Climate adaptation and environmental variations of DDF have been introduced to two specific areas in Lao PDR, which are Bolokhamxay and Khammouane.

Mr. Paul Martin, Regional Technical Advisor at UNCDF’s Bangkok Regional Office, explained:  “UNCDF, with the Government of Lao PDR, have forged a successful partnership for over a decade focusing on development local governance systems and services. As a major component of this partnership, UNCDF’s LDFP has been able to introduce various innovative financing systems to support local service delivery. Uniquely, DDF has introduced performance-based grants (PBGs) to develop a strategic vertical transfer mechanism.”

DDF systems developed by UNCDF has been fully embedded within the national financial legislation and are used by national and subnational civil servants to directly finance people centered local development plans.  UNCDF has designed and introduced DDF as an untied performance-based transfer mechanism allowing district authorities to discretionarily decide how to allocate their budget envelope on citizen-focused district priorities in participation of communities through a transparent selection process that is led by village chiefs. The performance aspect of DDF ensures transparency and accountability in the context of public financial management and participatory district planning.

The demonstration of untied vertical grants has significantly moved the decentralization policy of the Lao PDR government forward, cumulating in the amendment of the constitution to allow for the formation of local elected councils in 2016. In addition, the government has updated the budget and finance law to accommodate vertical funds’ transfers to the subnational level via these new democratically elected organs of local government.

Since 2012 (the start of the UNCDF SCSD intervention) DDF has been used to provide financing to the realization of;  (1) 66 community-prioritized local service investments totaling US$1.7 million, (2) 578 service outreach and extension interventions in water, electricity and agriculture totaling $0.85 million, which has benefitted 373,948 households in 4,942 villages.