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Third Financial Sector Program Loan: Program Completion Report

| country: Viet Nam, Socialist Republic of

1. Assessment of a program’s success should be based on quantitative indicators and tangible results rather than whether policy actions have been met. Whileapproval of legislation and regulations can be considered a reform in the initial phase of a program, particularly subprogram 1, subsequent programs should assess the result of the implementation of the legislation and regulations. As an illustration of this, the issuance of circulars, which was heavily relied upon as having achieved the desired outcomes under the Third Financial Sector Program Loan, does not necessarily mean that the objectives of the circulars have been met, or even that the actions required by these circulars have indeed been carried out. Circulars are merely the medium through which the desired end results are to be achieved. Measurability of end results in the form of quantitative targets (including transitional targets) would significantly improve the grey assessment areas to the benefit of both ADB and the government. [Main text, para. 43(i)]

2. Related to the point above, the design and monitoring framework should consist of indicators agreed between ADB and the government from the outset. These indicators should either already be present in the government’s strategy or blueprint or, if they are not, then they should be included and approved by the highest level of authority of a particular organization. This would strengthen government ownership and accountability. These indicators then should be measured by both ADB and the government at the end of each year of the program. When the indicators fall short, corrective measures should be agreed on and included as a reform in the following year. [Main text, para. 43(ii)]

3. These indicators should be linked to the policy matrix, as reforms should contribute to the achievement of these indicators. When a particular reform is delayed, then additional technical assistance resources will need to be provided to address the problem. When policy actions are not completely achieved orwhen they are assessed as either satisfactory or ongoing (as in the case of the two actions for the tranche 2 release of the Third Financial Sector Program Loan), then the subsequent subprogram should immediately focus on these actions at the design stage, so that they do not fall through the cracks between subprograms or even between clusters. The post-program partnership framework is important to maintain dialogue between program clusters. While the policy matrix and the design and monitoring framework are separate documents in form, they should be connected through a cause and effect relationship. [Main text, para. 43(iii)]

4. Given the challenges of coordination in Viet Nam and the financial sector generally, when a policy action requires coordination between two or more agencies, ADB and the government must first ensure that the coordination mechanism and institutional infrastructure have been established and areworking as envisioned. In the initial stage, ADB staff, including those from the Resident Mission, should participate in meetings and discussions. This is to prevent the existence of a coordination mechanism only on paper. [Main text, para. 43(iv)]

5. ADB and the government need to recognize that financial sector reforms are complex, have a medium- to long-term gestation period, and require proper sequencing that follows a step-by-step approach. This is especially important when new institutions, legal and regulatory frameworks, or standards are being introduced. Such a focused and phased approach may better accommodate capacity constraints, avoid delays, and enable a more accurate measurement of outcome and impact. [Main text, para. 43(v)]

6. Program loans should be focused and consist of targeted high impact policy actions in a few selected areas, which cumulatively lead to the desired outcome. This will increase government ownership of the program and thus avoid delays in implementation of the reforms. [Main text, para. 43(vi)]

7. There needs to be a balance between flexibility and achievement of results. A program cluster modality has in-built flexibility, particularly when designing indicative actions such as for subprogram 2. However, this flexibility is not a carte blanche for changes and should not be used to substitute uncompleted reforms just because they are difficult to implement. When making revisions or substituting policy actions, a careful assessment should be made as to how these revisions or substitutions will affect the achievement of outputs and ultimately the outcome of the program. In the case of Third Financial Sector Program Loan, the policy actions that were reformulated during subprogram 2 should be reassessed as part of future programs. [Main text, para. 43(vii)]

8. Financial sector reforms must be supported by sufficient technical assistance (TA) resources. The design of financial sector TA should be undertaken in close coordination with the relevant executing and implementing agencies and aligned to their work plan. TA projects should be focused, and targeted particularly at reforms that have been substantially delayed. [Main text, para. 43(viii)]

9. For capacity building, technical assistance grants are likely to be insufficient. An ad hoc approach to training is insufficient and can be counterproductive. Instead, ADB and the government should discuss the possibility of either a project loan to support capacity building or of Ministry of Finance earmarking a portion of the program loan to fund the capacity building initiatives of a structured medium-term program through the government budget process. Given its importance, this can be considered as a policy action in the policy matrix. [Main text, para. 43(ix)]

10. When a reform requires adoption of international standards, then both ADB and the government should communicate with the relevant international body responsible for the adoption of those standards. Where possible, a program specifically for Viet Nam can be designed and agreed. An example of this is the adoption of international financial reporting standards in close coordination with the international accounting standards board. [Main text, para. 43(x)]

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