Laos: Stronger financial markets needed to boost Laos’ resilience to shocks: ADB

The Asian Development Bank (ADB) is maintaining its economic growth forecast for Laos, while the outlook for consumer prices has worsened, according to the Asian Development Outlook (ADO) 2022 Supplement released on Thursday.
Inflation continues to accelerate in economies throughout Asia and the Pacific on high energy and food prices, mainly due to the Russia-Ukraine conflict, ADB said in the report.
While global oil, gas and food prices have fallen from their peaks earlier in the year, prices remain higher than before the conflict.
 The report estimates that headline inflation in Laos will average 23 percent in 2022, before falling to 10 percent in 2023.
The ADB has lowered its 2022 economic growth outlook for Laos to 2.5 percent from 3.4 percent projected in April and to 3.5 percent from 3.7 percent for 2023.
“Inflationary pressures are expected to continue in the near term, aggravated by central banks’ policy tightening globally amid a weaker local currency,” said ADB Country Director for the Lao PDR, Sonomi Tanaka.
“It is important that coordinated efforts are made to address the effects of currency weakness on domestic inflation – especially for food and fuel items – as price volatility on these goods disproportionally impacts the poor and vulnerable.”
A new ADB case study released on Thursday, “Developing a Local Currency Government Bond Market in an Emerging Market in the Wake of COVID-19”, highlights how development of the local currency government bond market in Laos can help strengthen economic recovery momentum and build resilience against future shocks.
“Deepening domestic financial markets, particularly through local currency bonds, offers diverse benefits, including raising the capacity of an economy to respond to shocks and providing the government with a stable source of funding at a reasonable cost and desirable maturity,” said ADB Advisor to the Economic Research and Regional Cooperation Department, Satoru Yamadera.
“Those economies that have made progress in deepening their local currency markets are more insulated from sudden currency shocks.”
Leveraging experience from the Asian Bond Markets Initiative, the case study outlines short- and medium-term measures that can help improve the efficiency of the government’s bond market, including effective management of the government’s cashflow and its public debt.