IMF Downgrades Laos’ Economic Growth To 0.2 Percent

Source: Vientiane Times

The International Monetary Fund (IMF) is predicting that Laos’ economy will grow by only 0.2 percent this year, a downgrade from the 0.7 percent growth rate projected in June.

The lower growth rate is attributed to several factors linked to the global economic slump, triggered by the Covid-19 pandemic.

One of the most important factors is that the travel restrictions imposed to contain the spread of the virus has had a severe and continuing impact on tourism, investments and exports.

Economists say the shrinking of these sectors resulted in the collapse of several enterprises, which had a domino effect, causing rising unemployment and a revenue shortfall for the government.

Measures aimed at keeping the virus in check interrupted economic activities, particularly exports, while agriculture has been affected by floods and prolonged dry spells.

This year, the effect of the Covid-19 crisis was further worsened by flooding. Eight districts in Savannakhet province were underwater, forcing thousands of families to evacuate while the floodwater destroyed crops and other property.

The World Economic Outlook released during the IMF’s recent annual meeting noted that economies everywhere, not just in Laos, face difficult paths back to pre-pandemic activity levels.

In the Asean region, Cambodia’s economy is projected to shrink 2.8 percent this year, Indonesia (-1.5 percent), Philippines (-8.3 percent), Myanmar (2 percent), Vietnam (1.6 percent), and Thailand (-7.1 percent), according to the IMF report. The IMF is optimistic that the Lao economy will recover to 4.8 percent growth next year, which is higher than Thailand (4.0 percent) and Brunei (3.2 percent).

Malaysia is projected to see the sharpest recovery (7.8 percent) in 2021, followed by the Philippines (7.4 percent), Cambodia (6.8 percent), Vietnam (6.7 percent), Indonesia (6.1 percent), Myanmar (5.7 percent) and Singapore (5.0 percent). The IMF’s mid-term projections for 2025 show Laos’ economy is expected to grow at 6.1 percent which is higher than that of its peers including Indonesia (5.1 percent), Malaysia, (5.0 percent), Thailand (3.7 percent), Singapore (2.5 percent) and Brunei (1.8 percent).

“Preventing further setbacks will require that policy support is not prematurely withdrawn. The path ahead will require skillful domestic policies that manage trade-offs between lifting near-term activity and addressing medium-term challenges,” the IMF report stated.

“The October 2020 Global Financial Stability Report highlights such trade-offs for monetary policy. Sustaining the recovery will also require strong international cooperation on health and financial support for countries facing liquidity shortfalls.”

The IMF recommended that efforts to boost economic recovery should include a strong multilateral component to help distribute vaccines to all countries at affordable prices.

The global community will need to continue helping countries with limited health care capacity by sharing equipment and know-how, and through financial support from international health agencies.

Meanwhile national governments have already responded with a variety of fiscal countermeasures that include efforts to cushion income losses, incentivise hiring, expand social assistance, guarantee credit, and inject equity into firms.