Govt Sets Measures To Boost Foreign Reserves

Source: Vientiane Times

The government is planning to purchase foreign currencies from various sectors as part of measures to boost foreign reserves, according to a government leader.

Speaking at the National Assembly this week, Deputy Prime Minister and Minister of Finance, Mr Somdy Duangdy, said one of these measures was a plan to buy foreign currencies from public and private sectors that generate income in foreign currencies.

Foreign financial institutions that plan to issue loans in Laos will also be encouraged to sell their foreign currencies to the central bank before providing loans in kip. This will enable the government to have more foreign currency, the deputy prime minister said.

One of the important measures the government will carry out in coming years is the development of a mechanism designed to enable international firms to transfer their money in and out of Laos via banks.
Mr Somdy said the foreign reserve level was lower than the government expected. In September, the reserve was sufficient to secure imports for only 3.5 months, which is much lower than the original plan of 5 months.

According to bank officials, the critically low level of foreign reserves is due to a rapid surge in imports. Over the first nine months of this year, Laos’ trade deficit was about US$138 million.

Analysis indicates that the low level of foreign reserves will be a significant challenge for the Bank of the Lao PDR in stabilising money exchange, and that once the central bank is unable to supply foreign currencies to the market, the value of the kip will depreciate.

Data from the Bank of the Lao PDR shows that the kip dropped by 3.78 percent against the US dollar and by 4.50 percent against the baht in recent months.

Observers say the exchange margin between the market and the official rate is very high, meaning the official exchange rate was not valid and many people could not convert kip into dollars at the official rate.

But if people are expected to sell dollars or baht at the officially imposed rate, this is viewed by many as unfair.

The government is aware of the growing disparity in the exchange rate between the market and official rates.

Mr Somdy said the government would step up efforts to supervise the operations of foreign exchange units, adding that those who are found guilty of not using the official exchange rate will be penalised in accordance with the law.

With these new measures, Mr Somdy said the government expected that foreign reserves should be sufficient to secure imports for at least three months in 2019.