Strengthening Finance Sector Stability to Support Debt Management

proposed

The technical assistance (TA) will support the Bank of the Lao People's Democratic Republic (PDR), or BOL, the country's central bank, to strengthen its macroeconomic and financial sector management and related capacities. Affected by prolonged coronavirus disease (COVID-19) pandemic and the slow recovery, the Lao PDR has been facing macroeconomic imbalances, reflected in a current account deficit, dwindling foreign reserves, and a depreciating Laotian kip (LAK), and rising inflation. These monetary and economic challenges are accompanied by a rising both domestic and external public sector debt level. Despite recent gross domestic product (GDP) growth of 4%, if left unchecked, the country could face greater uncertainties in its broader social and economic development progress. The proposed TA responds to these challenges by supporting the BOL to strengthen its institutional capacity to better manage the country's macrofinancial conditions, particularly targeting debt sustainability and financial sector development and stability. The proposed TA will further support the preparation and implementation of finance sector project development in the Lao PDR.