Source: Vientiane Times
The Asian Development Bank (ADB) is optimistic about the growth of the Lao economy amid the Covid-19 crisis and lockdown measures imposed to contain the spread of the Coronavirus.
According to the ADB’s Asian Development Outlook (ADO) 2021, which was unveiled on Wednesday, the Lao economy is projected to grow at 4.0 percent in 2021 and 4.5 percent in 2022.
The projection is based on improved agricultural production and sustained power generation, which will offset a slow recovery in services amid the pandemic.
The projected recovery follows a 0.5 percent contraction in Laos’ economy last year, following a growth rate of 4.7 percent in 2019, according to the ADB report.
“Growth is gaining momentum in Laos, but new Covid-19 outbreaks, along with structural challenges, pose a threat to the country’s recovery,” said the ADB Country Director for the Lao PDR, Sonomi Tanaka.
“A swift vaccine rollout, accompanied by measures to strengthen macroeconomic management and improve investor sentiment, is needed to support the economic recovery and safeguard the welfare of households.”
Severe travel restrictions last year helped prevent a large-scale public health crisis in Laos but stifled domestic and external demand, resulting in high unemployment.
Public finances were hard hit, with ratings agencies downgrading the Lao government’s credit rating because of rising external liquidity pressure amid limited refinancing options.
According to the ADB, a moderate recovery in agriculture is expected this year, mainly due to growth in livestock trade. But the planting of food crops has been delayed by cooler weather and water shortages.
Industrial growth will be boosted by increased electricity production. Continuing investment in large-scale infrastructure, mining and urban property is expected in 2021 and 2022, which will create jobs and support household purchasing power.
Growth of the services sector this year will be supported by a recovery in domestic consumption following the completion of strategic infrastructure projects, including the Vientiane-Vangvieng Expressway, which will boost domestic hospitality industries.
With international travel for business and leisure expected to normalise in 2022, the drivers of economic recovery in the medium term are expected to be wholesale and retail trade, transportation and communications, according to the ADB.
Meanwhile, inflation in Laos was recorded at 5.1 percent last year, driven by rising food prices which were affected by diseases and natural disasters.
This year, the inflation rate is expected to drop to 4.5 percent, before rising to 5.0 percent in 2022, as pressure from imported goods on the Lao kip’s depreciation is partially offset by improved domestic production.
Ongoing difficulties in domestic resource mobilisation, which is associated with structural challenges and weak governance, are being exacerbated by the pandemic. The country’s fiscal deficit will likely remain elevated in the near term.
The macroeconomic framework of Laos remains fragile, given the country’s high risk of debt distress, increased debt-service pressure, and potentially higher refinancing rates. To create the fiscal space needed for more resilient growth, it is critical to make reforms for better transparency and management of public debt.