Independent Evaluation

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Program Performance Evaluation Report on the Second Financial Sector Program in the Lao PDR
Completed: 2006

This report evaluates the performance of the Second Financial Sector Program (FSPL II) which was approved to continue government's support for policy reforms began under the first financial sector program. The second program aimed to

Project objectives were to be achieved by

• improve state commercial banks
• improve banking supervision
• put in place the required financial infrastructure including the institutional and regulatory framework for an interbank market, credit information bureau, deposit protection fund.

  Summary of Findings

FSPL II is assessed as partly relevant. Although its scope and focus were in line with stated country development priorities, program measures were not always identified, formulated, and sequenced in a way that was appropriate and suitable for the country.

While most of the program conditions were technically met, many of these failed to produce the output needed to achieve intended outcomes, making it less sustainable.

There was less efficiency in the process. While FSPL II was prepared with comparatively little resources, program implementation required a high level of ADB resources and a substantial number of review missions.

The contribution of FSPL II and its associated technical assistance to institutional development and capacity building for financial reforms and bank restructuring was moderate due to a lack of political support, among others.

The evaluation did not consider that the project had any impact on reducing inter-island income disparities.

Program impact was moderate to negligible as there is no evidence that FSPL II accelerated reforms in other sectors.

  Lessons Identified

• For future ADB financial sector assistance, it is important to have a careful assessment of the political economy and commitment to a comprehensive reform agenda.



• Evaluation results confirm international experience which indicates that state bank restructuring without privatization is difficult to achieve.



• General lessons with regard to policy-based lending are being reconfirmed by the evaluation of this program, among which are precondition of country ownership for policy reform; need for commitment and capacity to reform; and adequate staff resources.



• There is a clear need to formulate a comprehensive capacity-development strategy that covers overall policy, governance, and other incentive structures that have an impact on the effectiveness of such assistance.