Inflation Causing Precarious Economy

A far higher than expected inflation rate means Laos must take precautions or be at risk of a financial crisis, according to the Deputy Minister of Planning and Investment.

Dr Khamlien Pholsena made the comment at a national meeting held yesterday in Vientiane to discuss the country’s socio-economic development plan for the 2013-2014 fiscal year.

“The current situation is between yellow and red light mode as the inflation rate has reached 6.84 percent,” he said.

The government aims to keep the kip fluctuating between -5 and +5 percent in value against the US dollar and Thai baht.

Mr Somdy Duangdy chairs the meeting.

However the current kip inflation rate is close to 7 percent and the difference between the official and black market exchange rates is fluctuating by up to 4 percent.

“This is risky for our currency reserves, with revenue collection targets unpredictable and revenue sources fragile,” Dr Khamlien said.

He said the government needed to focus on maintaining economic stability and keeping economic growth above 8 percent to ensure inflation is kept in check and exchange rates remain stable.

Director General of the Ministry of Finance’s Budget Department, Mr Saisamone Xaysoulien, said his department was struggling to keep the budget to the limits adopted by the National Assembly, which stipulated the deficit should not be greater than 5 percent of gross domestic product (GDP).

An amended plan would see the deficit target raised by another 1.07 percent of GDP.

Mr Saisamone said another key target was to control debt by issuing bonds to raise much-needed capital, as interest had to be paid.

He said the financial sector needed to be strengthened at central and local levels to ensure all revenue was being properly and correctly collected and all laws on revenue were being strictly enforced.

“All units should spend their budget wisely and effectively,” Mr Saisamone said.

The meeting, set to continue today, aims to discuss maintaining the country’s macro-economy, managing government investment projects, debt, projects in which the government owes private contractors, strategic studies, and priority works under the Sam Sang (Three Builds) directive.

Meeting chairman and Minister of Planning and Investment, Mr Somdy Duangdy, discussed difficulties in revenue collection and said the relevant bodies were working to address the issue.

He said the situation should continue to be monitored and any measures taken to address revenue problems should be flexible.

Source: Vientiane Times