Five-Year Budget Approved, Deficit Continues

Source: Vientiane Times

The National Assembly (NA) approved the state budget plan for the next five years (2016-2020) last week, which will include a budget deficit of 27,119 billion kip.

The deficit is in line with the parliament’s approval of the five-year plan that sets the deficit at 3.6 percent of Gross Domestic Product (GDP) with the maximum deficit not to exceed 5 percent of GDP.

The five-year budget sets a target to collect revenue of not less than 149,601 billion kip or 20 percent of GDP. This will be an increase of 50,052 billion kip compared to revenue collected over the last five years.

Of the next five years’ targeted revenue, 131,894 billion kip or 17.7 percent of GDP will be collected from internal revenue, while 17,707 billion kip or 2.4 percent of GDP is expected to come from grants and aid.

The next five years’ expenditure is limited to not exceeding 176,720 billion kip or 23.7 percent of GDP. State investment is set at 67,550 billion kip or 9.4 percent of GDP including internal capital, which is set at not exceeding 24,900 billion kip, while the remainder will come from other sources.

Over the last five years (2011-2015), the government collected revenue of 99,549 billion kip, representing 24.6 percent of GDP, which exceeded the five-year target to reach 19-21 percent of GDP.

The collected revenue included internal revenue amounting to 77,648 billion kip, representing 19.9 percent of GDP.

Over the last five years, expenditure reached 118,639 billion kip, equivalent to 29.3 percent of GDP, which exceeded the five-year target of 22-25 percent of GDP.

Over the past five years, Laos recorded a budget deficit of 19,090 billion kip representing 4.7 percent of GDP, which was in line with the five-year plan that set the budget deficit at between 3-5 percent of GDP.

However, in some years Laos recorded budget deficits above 5 percent.

According to a recent government report, the deficit has increased from 5,787 billion kip (equal to 5 percent of GDP) to 7,418 billion kip (equal to 6.43 percent of GDP).

Economists have warned that the government should not increase the deficit above 5 percent of GDP in the long term as it might push the country into chronic debt.

A senior economist from the National Economic Research Institute, DrLeeberLeebouapao, told Vientiane Times this week that raising the budget deficit above 5 percent should only be done in the short term, but even then the government needs to cautiously manage debt.

The five-year budget plan was approved shortly after the NA approved the 8th five-year national socio-economic development plan, which set a target for annual economic growth of not less than 7.5 percent.

Laos needs investment capital of 223,000 billion kip or 30 percent of GDP to finance the five-year plan and achieve its development targets.

Of this amount, domestic investment should account for 9-11 percent of overall investment with 12-16 percent to be sourced from grants and loans. Private investment by domestic and foreign investors is set to cover 54-57 percent while investment from the banking system is set to account for 19-21 percent.