Laos: Investment, stronger agricultural exports drive economic growth

Laos’ economy is projected to grow 3.4 percent this year and 3.7 percent in 2023, due to the country’s investments to boost exports, according to the Asian Development Outlook (ADO) 2022 released by the Asian Development Bank (ADB) on Wednesday.
“Growth in 2022 and 2023 will be underpinned by recovering investment and rising output in capital intensive industries, including electricity and mining; gradually recovering tourism; and agriculture’s continued steady performance,” the report stated.
“Downside risks to the outlook are the possibility of new Covid variants and inflationary pressures exacerbating an already high level of debt distress. A key policy challenge is staying on track for decarbonisation commitments.”

Sound management of the country’s finances will be the key to recovery, which remains fragile and faces headwinds including the ongoing pandemic, high inflation, and the impacts of the Russian-Ukraine conflict.
“In 2021, Laos’ economy gradually recovered from its worst performance in decades, but new virus variants and rising inflation could derail the momentum,” said ADB Country Director for Laos, Sonomi Tanaka.
“The government will need to remain vigilant by fully vaccinating as many people as possible and bolstering transparency in public financial management to restore market confidence and attract resilient, sustainable investments.”
According to the ADB, a Covid wave in April 2021 forced the government to impose a series of lockdowns, which disrupted economic activity in domestic services, including hotels, restaurants and transportation.
To spur recovery in domestic markets, including tourism, the government in January 2022 relaxed Covid control measures and speeded up vaccination. It aims to have 80 percent of the population fully vaccinated by the end of 2022, compared with 50 percent as of December 2021.
Industrial and agricultural exports contributed to last year’s economic recovery. Favourable weather allowed many hydropower plants to operate at full capacity and maximise energy production for export.
Agricultural exports rose across most categories, partly to meet robust demand from China. Growth in exports will likely continue this year and next, thanks to anticipated investment inflows to support the development of wind, solar, and other low-carbon electricity for export markets.
Rising oil prices and the depreciation of the kip, which led to 5.3 percent inflation in December 2021, may push the country’s average rate of inflation to 5.8 percent in 2022 and 5.0 percent in 2023. Inflation will add to the country’s debt distress, which is already at high risk.
The report urges the government to boost transparency in the management of external public debt, which will help open doors for Laos to access sustainable development finance, according to the ADB.
The ADO 2022 says Laos has made solid progress towards achieving its nationally determined contributions under the Paris Agreement, aimed to achieve net-zero emission, especially in the areas of hydropower development and the expansion of household electrification.
However, Laos’ policy commitments on forestry, transportation, and renewable energy, were “not on track.” To correct that, the government has taken steps to secure international investment, though it must first make progress in addressing gaps in climate policy and institutional frameworks, as well as increasing project preparedness.