WB: Lao economic reform needed

The World Bank is optimistic about economic growth in Laos, which is projected to rebound to 6.5 per cent this year, rising from 6.3 per cent recorded last year.

Despite continued fiscal tightening, the pick-up is expected to be driven by robust investment in mega infrastructure projects including the Laos-China railway, according to the latest edition of the World Bank’s Lao Economic Monitor released on Monday.

Economic growth will also be driven by a resilient services sector led by wholesale and retail growth associated with robust construction.

Meanwhile, the government remains committed to fiscal consolidation to contain public debt in the medium term by tightening public spending and improving revenue administration.

This should result in a decline in the fiscal deficit from 4.4 per cent of gross domestic product last year to 4.3 per cent this year.

Rebounding growth

Speaking at the launch of the report in Vientiane, World Bank Country Manager for the Lao PDR, Nicola Pontara, said economic growth was rebounding after declining last year partly due to the impact of floods.

However, he warned, Laos was at high risk of debt distress and several measures needed to be undertaken to deal with this situation.

“Strengthening revenue collection is important to create fiscal deficit space and reduce the burden of public debt,” Pontara said.

“Looking forward, it will be important to improve the business environment to support private sector development, including the growth of small and medium enterprises. These measures can contribute to maintaining a stable macroeconomic environment, promoting job creation and reducing poverty and inequality.”

World Bank Senior Economist Somneuk Davading said compared to other countries in the region, economic growth in Laos remained strong and the nation was one of the top five countries in this dynamic region.

Nevertheless, he said, the government needed to continue its reform measures and further improve the investment climate to attract more capital.

Main challenges

One of the main challenges for Laos is to ensure environmentally friendly and quality growth, which generates job opportunities for local people. Instead of relying on the export of natural resources and raw materials, it is essential to ensure that value-added products are also exported.

Laos is vulnerable to external impacts and natural disasters, which can add fiscal pressure. The trade dispute between China and the US has dampened growth prospects in Laos’ major trading partners and spilt over to the domestic economy through lower trade and investment.

Likewise, the foreign reserves level has been low and has not improved as anticipated. If compared to other countries in the region, foreign reserves are lower, according to economists.

The depreciation of the kip against the US dollar and Thai baht is another concern for Laos, which could impact on debt serviceability.

The World Bank report also notes the key constraints faced by small and medium enterprises (SMEs) such as access to finance, competition with informal firms, and electricity outages.

The report confirms that strengthening the performance of SMEs can improve the quality of jobs, generate income and contribute to the greater well-being of the Lao people. Vientiane Times