Development Challenge 

Lao PDR faces increasing pressure to reconcile economic growth with environmental sustainability. The country remains highly vulnerable to climate change and environmental degradation, while continuing to rely significantly on natural resource extraction as a driver of economic development. 

At the same time, several structural challenges constrain progress: 

• Limited fiscal space restricts the Government’s ability to finance climate and environmental priorities 
• Insufficient alignment between economic, fiscal, and environmental policies weakens implementation 
• Fragmented institutional coordination across ministries and stakeholders reduces policy coherence 
• Private sector engagement in green investment remains limited 

As a result, although Lao PDR has established ambitious environmental and climate policy frameworks, including the National Green Growth Strategy and the 9th National Socio-Economic Development Plan (NSEDP), a significant gap persists between policy commitments and the financial resources required for their effective implementation. 

Project background 

This Joint Programme (UNJP) responds to a formal request from the Government of Lao PDR to support the implementation of Chapter 5.3 on “Green and Climate Finance” under the 9th NSEDP Financing Strategy. 

The programme adopts a coordinated and integrated approach to address systemic barriers to green and climate finance, combining targeted technical assistance with strengthened institutional coordination. 

Specifically, the programme aims to: 

• Support the integration of environmental and climate considerations into public financial management systems, including budgeting processes 
• Develop and operationalise innovative financing mechanisms, such as debt-for-nature swaps, carbon finance and other green finance instruments 
• Strengthen the policy and regulatory framework for sustainable investment, including in key sectors such as extractives and urban development 
• Enhance the mobilisation of private sector investment in green and climate-responsive activities 
• Establish and operationalise a national coordination mechanism, including a Sub-Committee on Green and Climate Finance and a dedicated Climate Finance Hub 

Through these interventions, the programme contributes to improving the alignment between national development priorities and financing flows, in line with the Integrated National Financing Framework (INFF) approach.