Lao Economy

Vientiane Owns Up To 237 Billion Kip Debt

Vientiane authorities revealed last week the capital owes 237.22 billion kip (more than US$30 million) to investors who funded 118 projects, mainly in infrastructure development.

Officials said these projects are now complete following approval by the National Assembly.

Under agreements with Vientiane authorities, project contractors invested in the projects upfront with Vientiane to repay the construction cost from the state budget at a later date. This arrangement is normal procedure for government development projects carried out amid budget constraints.

However, such schemes are one of the main reasons the government has accumulated a large debt in recent years, which it is now struggling to repay.

In light of this situation, at its monthly meeting for October last week, the government instructed all state bodies to suspend new, non-essential investment projects, especially the construction of offices and infrastructure development.

In an earlier meeting – the annual government conference attended by the cabinet, the Mayor of Vientiane and provincial governors – the government also instructed state agencies not to undertake projects for which no government or institutional funding is available, particularly in relation to infrastructure.

According to information disclosed by the Ministry of Finance and the Ministry of Planning and Investment in June, Laos’ debt is equivalent to 29.8 percent of gross domestic product (GDP), while GDP for the 2012-2013 fiscal year, which ended in September, was estimated to reach US$10 billion. This represents growth of about 8 percent compared to the previous year.

Finance Minister Mr Phouphet Khamphounvong told the ordinary session of the National Assembly in June that the level of debt ‘is manageable’.

He explained that 96 percent of the debt was made up of low interest loans, with rates not exceeding 2 percent a year, payable over the long term.

Mr Phouphet said a major international financial institution made a favourable assessment of Laos’ financial situation, saying the 29.8 percent figure was well below the international debt ceiling level of 40 percent of GDP.

Laos repays debt at 7.5 percent of domestic revenue and 3 percent of export revenue. It is expected the debt will fall from the current 29.8 percent to 25 percent of GDP by 2020, Mr Phouphet said.

However, while the debt is judged to be manageable at present, Laos is facing severe budget constraints following the huge salary increases and supporting allowances awarded to government employees last fiscal year.

The strain on the budget has forced the government to cut payment of the supporting allowance, amounting to 760,000 kip per person per month, this fiscal year.

Source: Vientiane Times