Financial Crime World

Lao Economy Struggles to Regain Momentum in 2022

Vientiane - The Lao economy slowed down significantly in 2022, after a strong showing in 2021 driven by the opening of the Lao-China railway and Thanaleng Dry Port. According to recent data, real GDP growth was estimated to be 2.3 percent in 2022, slightly exceeding growth in 2021.

Challenges Facing the Economy

However, the slowdown was attributed to a number of factors, including rising inflation and concerns over economic uncertainty. The Consumer Sentiment and Business Tendency Survey conducted by the Macroeconomic Research Institute in March 2023 revealed that consumers were being cautious about their spending habits due to financial insecurity.

Government Efforts to Address Economic Challenges

Despite these challenges, the government has taken steps to address the economy’s difficulties. Fiscal consolidation efforts have been substantial, with a focus on reducing expenditure and increasing revenue collection. The overall deficit improved by 4.3 percentage points of GDP in 2021, and mid-year outturns suggest that a primary balance is achievable this year.

  • Fiscal consolidation measures:
    • Reducing expenditure
    • Increasing revenue collection
  • Monetary policy tightening:
    • Policy rate increased from 3.0 percent to 7.5 percent by February 2023
    • Reserve requirements for kip raised from 5.0 to 5.5 percent

Bank of Lao Measures

The Bank of Lao (BoL) has also implemented measures to tighten exchange controls, prioritizing access to foreign exchange and closing foreign exchange bureaus. However, the repatriation and surrendering requirements are not currently being enforced.

  • Exchange control measures:
    • Prioritizing access to foreign exchange
    • Closing foreign exchange bureaus
    • Repatriation and surrendering requirements not currently being enforced

Government Debt

The Lao government’s debt-to-GDP ratio has also increased significantly, largely driven by currency depreciation and additional government arrears. Public sector borrowing from China has contributed to this increase, with debt servicing deferrals in place.

  • Government debt:
    • Debt-to-GDP ratio has increased significantly
    • Currency depreciation and additional government arrears have contributed to the increase
    • Public sector borrowing from China has contributed to the increase

IMF Outlook

Despite these challenges, the International Monetary Fund (IMF) remains optimistic about the economy’s prospects. In a recent statement, the IMF praised the government’s efforts to address economic difficulties and stabilize the financial system.

“We are encouraged by the government’s commitment to fiscal consolidation and monetary policy tightening,” said an IMF spokesperson. “These measures will help to restore macroeconomic stability and create a more favorable environment for private sector growth.”

Economic Outlook

The Laotian economy is expected to continue its slow recovery in 2023, driven by ongoing efforts to stabilize the financial system and promote economic growth.