Lao People's Democratic Republic: Sustainable Growth and Integration

ASIAN DEVELOPMENT BANK Independent Evaluation Department COUNTRY ASSISTANCE PROGRAM EVALUATION FOR LAO PEOPLE’S DEMOCRATIC REPUBLIC: SUSTAINABLE GROWTH AND INTEGRATION In this electronic file, the report is followed by Management’s response and the Board of Directors’ Development Effectiveness Committee (DEC) Chair’s summary of a discussion of the report by DEC. Evaluation Study Reference Number: CAP: LAO 2010-43 Country Assistance Program Evaluation October 2010 Lao People's Democratic Republic: Sustainable Growth and Integration Independent Evaluation Department CURRENCY EQUIVALENTS (as of 30 June 2010) Currency Unit – kip (KN) KN1.00 = $0.000121 $1.00 = KN8,262.0 ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund ADTA – advisory technical assistance ARD – agriculture and rural development ASEAN – Association of Southeast Asian Nations BEGP – Basic Education (Girls) Project BESDP – Basic Education Sector Development Program BOL – Bank of the Lao PDR CAPE – country assistance program evaluation CDC – communicable disease control CDTA – capacity and development technical assistance COBP – country operations business plan COS – country operational strategy CPA – country performance assessment CPRM – country portfolio review mission CPS – country partnership strategy CSP – country strategy and program CSPU – country strategy and program update DOE – Department of Electricity E&S – environmental and social EdL – Electricité du Laos EIA – environment impact assessment EIRR – economic internal rate of return EPL – Environmental Protection Law ESDF – Education Sector Development Framework ESP – Environment and Social Program FDI – foreign direct investment GAD – gender and development GDP – gross domestic product GMS – Greater Mekong Subregion HIV/AIDS – human immunodeficiency virus and acquired immune deficiency syndrome ICT – information and communication technology IED – Independent Evaluation Department IMF – International Monetary Fund JFICT – Japan Fund for Information and Communication Technology JFPR – Japan Fund for Poverty Reduction JSF – Japan Special Fund kV – kilovolt Lao PDR – Lao People's Democratic Republic M&E – monitoring and evaluation MDG – Millennium Development Goal MEM – Ministry of Energy and Mines MIS – management information system MPWT – Ministry of Public Works and Transport NA – not available NAPA – National Adaptation Programs of Action NGO – nongovernment organization NNRB – Nam Ngum River Basin NPRS – National Poverty Reduction Strategy Fund NSAPCC – National Strategy and Action Plan on Climate Change NSEDP6 – Sixth National Social and Economic Development Plan NT2 – Nam Theun 2 O&M – operation and maintenance OCR – ordinary capital resources ODA – official development assistance PCR – project completion report PFM – public financial management PHC – primary health care PIU – project implementation unit PMU – project management unit PPER – project performance evaluation report PPP – public–private partnership PPTA – project preparatory technical assistance PSD – private sector development PSM – public sector management SAO – State Audit Organization SAPE – sector assistance program evaluation SME – small and medium-sized enterprise SOCB – state-owned commercial bank STEA – Science, Technology, and Environmental Agency STUDP – Small Towns Urban Development Project SWG – sector and thematic working group TA – technical assistance TASF – Technical Assistance Special Fund TCR – technical assistance completion report TPR – technical assistance performance report UDAA – urban development administration authority VAI – village area improvement VUDAA – Vientiane Urban Development Administration Authority VUISP – Vientiane Urban Infrastructure and Services Project WREA – Water Resources and Environment Administration WTO – World Trade Organization NOTES (i) The fiscal year (FY) of the government ends on 30 September. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2000 ends on 30 September 2000. (ii) In this report, "$" refers to US dollars. Key Words adb, asian development bank, lao pdr, cape, country assistance program evaluation, country partnership strategy, development effectiveness, evaluation, agriculture and rural development, finance, industry, ied, independent evaluation department, impact, private sector development, sape, sector assessment, sustainability, transport, education, health, public sector management, sme Director General H. Satish Rao, Independent Evaluation Department (IED) Director H. Hettige, Independent Evaluation Division 2 (IED2), IED Team leader C. Kim, Principal Evaluation Specialist, IED2, IED Team members Y. Hirosato, Principal Evaluation Specialist, IED2, IED J. Balbosa, Senior Evaluation Specialist, IED2, IED T. Kondo, Senior Natural Resources Economist, Southeast Asia Department (formerly Senior Evaluation Specialist, IED2, IED) N. Singru, Senior Evaluation Specialist, IED2, IED K. Thukral, Senior Evaluation Specialist, IED2, IED K. Mohit, Evaluation Specialist, IED2, IED J. Dimayuga, Evaluation Officer, IED2, IED R. Perez, Senior Operations Evaluation Assistant, IED2, IED Independent Evaluation Department, CE-24 In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page EXECUTIVE SUMMARY i I. INTRODUCTION 1 A. Objectives and Goal 1 B. Scope and Coverage 1 C. Organization of the Report 2 II. BACKGROUND INFORMATION DURING THE CAPE PERIOD 2 A. Development Context and Binding Constraints 2 B. Government Development Strategies and Plans 4 C. ADB's Country Strategies and Programs and Country Operations Business Plans 5 D. Activities of Other Development Partners 7 III. EVALUATION METHODOLOGY 8 A. Evaluation Approach and Method 8 B. Limitation of the Evaluation Methodology 8 C. Evaluation Criteria and Rating System 8 D. Key Evaluation Questions 9 IV. SUMMARY OF EVALUATION FINDINGS 9 A. ADB’s Strategic Positioning 9 B. Program Relevance 12 C. Efficiency 13 D. Effectiveness 16 E. Sustainability 18 F. Development Impacts 20 G. ADB Responsiveness and Performance 24 H. Borrower's Performance 26 V. OVERALL PERFORMANCE RATING 27 A. Overall Performance Rating by Criteria 27 B. Overall Performance Rating by Sectors 27 VI. CONCLUSIONS 27 A. Implementation of the 2006 CAPE 27 B. Issues and Factors Affecting Performance Ratings 29 C. Key Lessons Identified 30 D. Recommendations 32 The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. Robert Warner, Mouane Simoungkhot, and Magdalena Casuga assisted in country assistance program evaluation missions as consultants. To the knowledge of the management of IED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. APPENDIXES 1. Macroeconomic Context and Performance and Development Indicators 35 2. ADB's Country Partnership Strategies and Country Operations Business Plans Provided during the Country Assistance Program Evaluation Period 48 3. Summary of ADB Performance in Key Sectors and Thematic Areas, Lessons, and Suggestions 87 4. ADB Program Implementation and Portfolio Performance 120 5. Client and Stakeholder Perception Survey Results 130 6. Overall Performance Rating and Analysis of Strengths, Weaknesses, Opportunities, and Threats 135 SUPPLEMENTARY APPENDIXES (available on request) Sector and Thematic Assessments on Agriculture and Rural Development, Education, Energy, Finance/Small and Medium-Sized Industry/Tourism/Trade, Health, Public Sector Management, and Transport Attachments: Management Response DEC Chair Summary EXECUTIVE SUMMARY This country assistance program evaluation (CAPE) aims to assess the performance of the Asian Development Bank (ADB) country strategies and assistance programs for the Lao People's Democratic Republic (Lao PDR) during the CAPE period of 2000–2009. It identifies factors affecting this performance, draws lessons, and makes recommendations for improving the future performance of ADB assistance. Country Context The Lao PDR is currently undergoing three linked transitions: from a centrally-planned to a market economy, from a subsistence-oriented and largely self-contained economy to a commercially-oriented and regionally-integrated economy, and from an agrarian to a more urbanized society. The economy grew strongly, albeit from a narrow base, at around 7% annually from 2000 to 2009, bolstered by strong contributions from the mining and hydropower sectors. This growth caused per capita gross domestic product to triple to reach $913 in 2009 and brought a significant improvement in the proportion of the population living below the national poverty line, from 39% in 1997–1998 to 33% in 2003–2004 and 27% in 2007–2008. Strong growth helped the Lao PDR to meet its income poverty and other targets under the Millennium Development Goals, it was off-track in areas such as hunger poverty, universal primary education, gender equality in all levels of education, maternal health, and environmental sustainability. While the country has performed well in the last decade in terms of managing its debt sustainability and channeling foreign exchange earnings, it is still vulnerable if efficient public finance management efforts are not continued. The weak financial

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