Vulnerability and Safety Nets in Lao PDR

Abstract

Lao PDR has experienced high levels of economic growth in recent years and the incidence of poverty has fallen dramatically since the 1990s. Yet, this report shows that Lao households continue to be highly vulnerable to regular seasonal fluctuations, as well as agricultural shocks and natural disasters. The report also highlights the importance of health shocks, injury and death for household welfare. Households adopt a variety of strategies to cope with these shocks, but in many cases are unable to fully smooth consumption, with negative short and long term consequences. Overall, the report points to a number of important vulnerable groups. The chronic poor in remote rural areas, including ethnic minority groups, remain highly vulnerable to seasonal fluctuations and natural disasters. However, households in urban areas, particularly the poor and near-poor, are vulnerable to future increases in food prices if they are not accompanied by increases in real wages. Moreover, as the Lao economy develops, more households will rely on off-farm work or migrant remittances, making them increasingly vulnerable to domestic and global macro-shocks. Finally, particular groups, including children, women, the disabled and the elderly are likely to be particularly badly affected by these shocks. The report goes on to discuss the potential value of social safety nets. Safety nets can reduce poverty and alleviate suffering for households who are unable to fully smooth their consumption after a shock. But effective safety nets don't just contribute to reducing poverty in the short term; they can also prevent long term poverty traps from arising (e.g. due to households being forced to sell productive assets, withdraw children from school, or reduce consumption below nutritionally adequate levels), and enable households to pursue riskier but more productive livelihood strategies. The report reveals important gaps in current policies and programs and suggests some potential directions towards implementing a comprehensive and institutionalized safety net program in Lao PDR. This will require substantial investments, not only to finance the actual programs, but also to develop the required capacity and knowledge at both local and central levels. While there are no easy solutions, reaching consensus on priorities and policy options for addressing vulnerability in Laos is essential if recent progress in poverty reduction and economic growth is to be sustained and deepened.