Lao PDR's Rapid Growth Brings New Development Challenges: ADB

MANILA, PHILIPPINES - The Asian Development Bank’s (ADB) current five-year strategy for Lao People’s Democratic Republic remains relevant but more work is needed to respond to challenges posed by the country's rapid economic growth, climate change and human resource and capacity constraints, a midterm review said.

"ADB’s priority sector support remains fully aligned with the government’s own focus on the four core sectors of agriculture, health, education and infrastructure, and for the remainder of the program period increased emphasis will be placed on sustainable environmental management, addressing education needs, and fostering greater subregional cooperation," said Gil-Hong Kim, Country Director for ADB’s Lao PDR Resident Mission.

The Lao PDR economy has made huge strides over the past few years with income growth and poverty reduction already outstripping targets set for the full term of ADB’s Country Strategy and Program 2007-2011. Improvements in governance and the business environment have resulted in a surge in private and foreign investment, while the rapid rollout of new roads has increased connectivity, both internally and with neighboring countries. At the same time, gains in the reduction of non-income poverty have been mixed, while more attention is needed on environmental enforcement, child malnutrition and maternal mortality.

ADB’s program supports sectors that deliver pro-poor sustainable growth, inclusive social development, and regional integration, in line with its long-term development framework, Strategy 2020. The midterm review notes that this thrust remains valid but it also points out that the fast pace of economic growth is presenting new challenges that will require a strengthening of ADB’s resident mission.

“ADB assistance will continue to concentrate on sectors that are high priority in the government’s poverty reduction strategy, in areas where progress must be made if the Lao PDR Millennium Development Goal targets are to be reached, in areas where ADB has some track record of success, and in areas where ADB has the opportunity and competence to establish catalytic relationships with development partners,” said Arjun Thapan, Director General of ADB's Southeast Department.

In agriculture, the focus will be on addressing obstacles to commercialization and diversification of the sector and rural livelihood improvement. For infrastructure, ADB will continue to work with development partners to complete and expand the Greater Mekong Subregion (GMS) transport corridors, and in education, greater emphasis will be put on strengthening secondary schooling, as well as technical and higher education.

In health, ADB will seek to improve coordination with partners to address problems in financing, human resource development and service delivery, and will continue efforts to combat the regional spread of communicable diseases. In the power sector, where ADB has been the largest provider of assistance, it will work to expand private-public partnerships to further develop the country’s enormous hydropower resources in a sustainable manner.

The impacts of the global economic crisis are not expected to hurt Lao PDR as much as some of its neighbors, but the budget deficit is still expected to widen, while garment sector exports and tourist arrivals are likely to fall. In response, ADB is making available an additional $35.3 million for 2009-2010 from its concessional Asian Development Fund (ADF).

Lao PDR continues to remain heavily dependent on external assistance to finance its public investment with official development assistance accounting for about 80% of total public sector capital outlays for 2006 to 2008.To ensure the effectiveness of this assistance, ADB is working to foster sector-based programs with development partners, and to expand strategic partnerships, cofinancing, and other funding sources, such as carbon credits.

Over the review period, the performance of ADB’s portfolio of public sector loans and grants totaling about $278 million has been strong, with contract award and disbursement targets substantially met, the start-up time for projects and programs below average, and the number of at-risk projects under 9%. At the same time steps have been taken to further improve the performance, including the adoption of project readiness filters to address start-up delays, and the close review and monitoring of counterpart fund requirements.

For 2010 to 2012, the pipeline of indicative ADB support includes 11 national projects from ADF funds worth $189.3 million; 15 national technical assistance projects of $10.4 million, and 16 GMS projects totaling $437.7 million. This assistance involves a doubling of ADF allocations subject to country performance assessment, and to help ensure the program can be effectively carried out, additional staff will be sought for the resident mission.