Lao Economy

Govt Struggles To Address Budget Deficit

Source: Vientiane Times

The government has cleared a plan to lower its budget deficit for 2018 but it still requires more funds to repay domestic and overseas loans.

The Deputy Prime Minister and Minister of Finance, Mr Somdy Duangdy, presented the government’s plan to address the deficit at the first joint meeting between the National Assembly’s Eighth Legislature and the government in Vientiane on Tuesday.

He said the government plans to mobilise funding to address the deficit and mitigate budgetary tensions by issuing bonds and borrowing more money from domestic and foreign sources.

In 2017, the government plans to collect 23.8 trillion kip in revenues, with expenditure set at 32.26 trillion kip and the deficit at 8.46 trillion kip, which is equal to 6.52 percent of GDP.

In the meantime, revenue collection for 2018 has been set at 26.61 trillion kip (18.72 percent of GDP) while the budget expenditure is expected to touch 33.32 trillion kip (23.43 percent of GDP), with the deficit expected to be 6.7 trillion kip or 4.7 percent of GDP.

The government has forecast that the real budget deficit should stand at 7.3 trillion kip. Nevertheless, it requires an additional 9.28 trillion kip to pay the principal amount owed to creditors.

This means the total deficit for 2018 could rise to 16.6 trillion kip and the government plans to source 7.2 trillion kip from overseas, including from the European nations.

The government also plans to issue bonds worth 3.3 trillion kip in Laos to minimise the nation’s budgetary tensions.

In addition, the government is seeking other possible sources of funding in a bid to address the total deficit of 16.6 trillion kip. The government has acknowledged that Laos will continue to face financial difficulties since revenue collection has not increased as anticipated, while budgetary expenditure has risen significantly over the past few years.

Economists have said that issuing bonds and borrowing money from other countries could be the only way out, but this approach should only be adopted in emergencies or for the short-term. The government needs to consider possible long-term sources of funding to repay debts and to prevent the country from being dragged into an economic crisis.

The financial sector has been called on to boost revenue collection and plug loopholes which have resulted in financial leaks. The government also needs to impose stronger measures for firms that have attempted to evade taxes.

The government has also stressed the need to improve the business environment and promote private investment in Laos to serve as a new source of revenue.

The Deputy Prime Minister reiterated the importance of introducing an electronic system to collect taxes at restaurants, hotels and shopping centres in major cities.