LAO PEOPLE’S DEMOCRATIC REPUBLIC (P.D.R.): MULTI-YEAR ENGAGEMENT WITH THE CENTRAL BANK ON MONETARY POLICY

Authored by Giorgi Barbakadze as featured in the MCM Capacity Development Annual Report 2024

The multi-year capacity development engagement with the Bank of Lao P.D.R. (BOL), facilitated by the Capacity Development Office in Bangkok (CDOT) is a prime example of collaborative efforts by CDOT advisors in monetary and foreign exchange (FX) operations (MCM), and in macroeconomic frameworks (IMF’s Institute for Capacity Development), supported by the CDOT Director (APD).

After organizing a series of regional and in-country training activities, CDOT developed and delivered a two-pillar CD program to the BOL, which included: (i) bolstering monetary policy implementation by developing tools to align market conditions with the desired monetary policy stance; and (ii) improving the monetary policy framework (pre-FPAS) by refining BOL’s decision-making processes.

The BOL demonstrated strong ownership of this multi-year program by establishing an internal core group, led by the Deputy Governor, that maintains active engagement with CDOT advisors.* Since endorsing the multi-year workplan in July 2023, the BOL made considerable progress. Key achievements include: the introduction of a seven-day instrument to absorb liquidity at the policy rate, periodical issuance of three- and six-month BOL bills and deposits, reducing the ratio of eligible bonds maintenance in the reserve requirement, establishing a liquidity monitoring framework, and setting up a liquidity monitoring and forecasting group to monitor market liquidity and estimate one-week ahead liquidity demand. Also, to enhance the policy making process, the BOL developed macroeconomic diagnostic tools, inflation analysis and Near-Term Forecasting models.

The TA program is well integrated with IMF surveillance. During Article IV consultations, the country team has stressed the importance of modernizing the monetary operations framework and the staff reports update the progress achieved in this task.

*At the time when this report was written, the Deputy Governor was serving as an Acting Governor