Economic growth in Lao PDR is projected to rebound to 6.5 percent in 2019, up from 6.3 percent in 2018. This pick up is expected to be driven by growth of the construction sector supported by investments in large infrastructure projects, and a resilient services sector, led by wholesale and retail trade growth.
... See More + The Government has remained committed to fiscal consolidation to contain public debt in the medium term by tightening public expenditure and improving revenue administration. The medium-term outlook remains broadly favorable, but subject to downside risks from heightened uncertainty in the global and domestic environments. Prolonged trade partners, and spillover to the domestic economy through lower trade and investment, and reduced prices for key export commodities. The authorities may face difficulty in responding to such economic shocks given the low level of foreign currency reserves and significant external public debt. A priority is therefore to create fiscal space through improving tax policy and administration as well as build up reserve buffers to respond to shocks. Additionally, improving the business environment and reversing the decline in the global ranking of the ease of doing business, particularly for small and medium-sized enterprises, could also contribute to greater macroeconomic stability, job creation and poverty reduction.
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Report 140689 AUG 01, 2019
Phimmahasay,Keomanivone; Davading,Somneuk; Kularatne,Chandana; Obeyesekere,Sheannal Anthony Manindha; Lim,Jiamin; Amin,MohammadDisclosed
Although decelerating from 6.9 percent the previous year, economic growth in 2018 is estimated to remain robust at 6.5 percent. The slowdown in growth in 2018 has been partly due to a combination of the following domestic factors : (i) the severe floods that hit the country during July – September 2018, which adversely affected agricultural production and damaged infrastructure in several provinces; (ii) the weak performance of the mining sector despite higher commodity prices; and (iii) continued fiscal consolidation, which contributed to slower credit growth.
... See More + These downside factors offset the gains from the industry sector driven by the expansion of construction activities and electricity exports, coupled with robust growth in wholesale and retail trade. There is evidence of increasing job creation between 2010 and 2017. According to the 2017 Labor Force Survey, wage jobs are estimated to have gradually increased since 2010. This has resulted in 28 percent of households situated mostly in urban areas reporting an increase in income. As a result, ownership of consumption goods among the more affluent households increased faster than in poorer, mainly rural, households. Therefore, while poverty is still expected to decline modestly, inequality is likely to have increased. The government intends to remain on the path of fiscal consolidation, with the deficit estimated to decrease to 4.7 percent of GDP in 2018 from 5.3 percent in 2017, owing to some improvement in revenue collection and expenditure restraint. Improved revenue performance has been primarily driven by higher excise revenues due to increasing oil imports coupled with a higher price of oil. Other drivers include an increase in income taxes, dividend earnings, and other non-tax revenues. Strengthened revenue administration, such as the use of electronic tax payment platforms, has also supported revenue mobilization for certain tax types. Public outlays have been rationalized through tighter control of the public wage bill and downward adjustment of non-wage current spending. These measures offset higher interest payments and the increase in capital spending financed by external loans. Fiscal consolidation is estimated to have slowed the accumulation of public debt in 2018, though not enough to reverse the rising debt-GDP ratio, which is estimated to increase from 60.1 to 60.6 percent of GDP between 2017 and 2018.
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Lao PDR’s GDP growth slightly decelerated to 6.9 percent in 2017, but remained robust. The economy is expected to further ease to 6.7 percent in 2018.
... See More + Recent expansion of labor-intensive industries (agriculture, manufacturing and services) and robust remittances inflows are expected to continue to support poverty reduction. Macroeconomic vulnerabilities remain significant despite some improvement in economic management. The large deficit has resulted in public debt reaching around 61 percent of GDP in 2017. The current account deficit narrowed in 2017 on the back of strong exports of electricity, manufacturing and agriculture products, while improved metal prices supported higher mining exports. Monetary conditions were slightly loosened near the end of 2017; however, the monetary policy transmission mechanism remains weak. The fiscal deficit is expected to gradually decline while the external deficit will temporary widen. These and other economic developments and the economic outlook are discussed in the first section of this report. The second section focuses on the high cost of paddy production for farmers and the operational inefficiencies among multiple players in the value chain that are responsible for high consumer rice prices. The study finds that Lao farmers receive relatively high farm-gate price, yet high production cost eats their profits. These constraints are largely structural and they require: (i) facilitating value chain linkages between farmers and millers through productive partnerships; (ii) enhancing access to finance of farmers and millers; and (iii) improving quantity and quality of public services critical to reduce the currently high production costs and enhance commercialization, e.g., seed, applied research, mechanization, cooperatives, and good agricultural practices. Reducing farm production costs appears to be the most important challenge and opportunity at this point of time for Lao PDR.
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The Lao PDR Economic Monitor provides updates on macroeconomic developments and sectoral issues in the country. It is produced bi-annually and distributed widely to the government agencies, development partners, the private sector, think tanks, civil society organizations, and academia.
... See More + Addressing macroeconomic risks remains a pressing priority while improving environment for long-term growth is a continuous agenda. To create a more stable macroeconomic environment for reforms, maintaining fiscal discipline and bolder steps towards fiscal consolidation is of utmost importance at this stage. Growth is projected to further moderate to 6.7 percent in 2017, below historical averages, but towards a more sustainable level. Continued expansion in power generation, manufacturing, and agriculture are weighed down by slight deceleration in investment, moderating credit growth, stronger controls over government spending and lower-than-expected tourism performance. Domestic demand also shows signs of slowing. Still, compared to developing East Asia and Pacific (EAP) and regional peers such as Cambodia, Thailand and Vietnam, growth remains robust. Headline inflation further declined in 2017, reflecting falling food prices and slowing aggregate demand, amidst a gradual recovery in oil prices. In this regard, the proposed 2018 best, only a modest adjustment. More meaningful consolidation will require stronger efforts to strengthening revenue collection through improved tax administration, fiscal consolidation is of utmost importance at this stage.
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The Lao PDR Economic Monitor provides updates on macroeconomic developments and sectoral issues in the country. It is produced bi-annually and distributed widely to the government agencies, development partners, the private sector, think tanks, civil society organizations, and academia.
... See More + Addressing macroeconomic risks remains a pressing priority while improving environment for long-term growth is a continuous agenda. To create a more stable macroeconomic environment for reforms, maintaining fiscal discipline and bolder steps towards fiscal consolidation is of utmost importance at this stage. Growth is projected to further moderate to 6.7 percent in 2017, below historical averages, but towards a more sustainable level. Continued expansion in power generation, manufacturing, and agriculture are weighed down by slight deceleration in investment, moderating credit growth, stronger controls over government spending and lower-than-expected tourism performance. Domestic demand also shows signs of slowing. Still, compared to developing East Asia and Pacific (EAP) and regional peers such as Cambodia, Thailand and Vietnam, growth remains robust. Headline inflation further declined in 2017, reflecting falling food prices and slowing aggregate demand, amidst a gradual recovery in oil prices. In this regard, the proposed 2018 best, only a modest adjustment. More meaningful consolidation will require stronger efforts to strengthening revenue collection through improved tax administration, fiscal consolidation is of utmost importance at this stage.
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Growth in developing East Asia and Pacific (EAP) continues to be resilient and in line with previous expectations. Already robust domestic demand has been supported by some pickup in external demand and the gradual recovery in commodity prices.
... See More + Fiscal deficits in the major regional economies widened in 2016, prompting some adjustment toward the end of the year in Indonesia and Malaysia. Monetary policies remained accommodative, and credit continued to grow rapidly in most major economies. Inflation is edging up and producer prices are rising quickly as commodity prices increase. Capital outflows intensified toward end-2016 leading to depreciation pressures, but financial markets have since recovered. The growth outlook for 2017–19 remains broadly positive across the region. China is expected to continue its gradual transition to lower, more sustainable growth. In the rest of the region, growth is projected to pick up moderately. Continued buoyancy in domestic demand, including public and increasingly private investment, will be supported by gradually strengthening external demand. Global growth and commodity prices are projected to continue recovering slowly, while global financial conditions tighten gradually. Inflationary pressures should remain contained. In the Pacific Island Countries, maintaining fiscal sustainability needs to remain a focus along with policy reforms in selected sectors, which could prove transformational over the medium term. For fiscal sustainability, efforts to shore up revenues, contain unproductive spending while boosting critical expenditures on health and education, and build up buffers against shocks need to be sustained. There are also opportunities to accelerate growth and boost employment over the longer term. On tourism, promising options include tapping into the Chinese and retiree market, increasing the number of luxury resorts, and encouraging cruise ships to base in the Pacific. Increases in labor mobility, through the expansion of existing agreements and the negotiation of new agreements, complemented by investments in workers’ human capital, could also generate substantial benefits. Higher mobile and internet penetration, complemented by a conducive business environment and the development of a skilled workforce could boost productivity. And income from fisheries could be significantly increased, without threatening the sustainability of the fisheries stock, by broadening participation in cooperative agreements to include East Asian countries with major fishing grounds, such as the Philippines and Indonesia, and ensuring compliance with robust catch limits.
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In the six months since the previous East Asia and Pacific (EAP) economic update, developing EAP has faced a challenging external environment. Financial market conditions in the region, however, have been volatile over much of the past 6 months, as in the rest of the world.
... See More + Over the next two to three years, growth in developing EAP is expected to ease modestly. Poverty in developing EAP has declined rapidly in recent years, and is projected to fall further with continued growth; however, in several countries the pace of poverty reduction has been restricted by limited labor market opportunities, particularly for disadvantaged groups. The positive outlook for growth and poverty reduction in the region in this base case is subject to elevated risks. The outlook for the Pacific Island Countries (PICs) is heavily dependent on their ability to overcome geographic constraints and take advantage of the relatively narrow set of opportunities available to them. Sustaining the pace of poverty reduction will require measures to enhance the business environment, improve education and health outcomes, and strengthen social safety nets.
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Based on preliminary estimates, the Lao People's Democratic Republic (PDR) economy grew by 7.5 percent in 2014, compared to an average of 8 percent over 2011-13.
... See More + Looking forward, real gross domestic product (GDP) growth is projected to slow further in 2015 before accelerating in the medium term. Average annual inflation in 2014 decelerated to 4.2 percent from 6.4 percent a year earlier, driven primarily by slower growth in food prices and a decline in fuel prices. In response to a widened fiscal deficit in FY2012-13, the government embarked on much needed fiscal corrective measures in FY2013-14 and FY2014-15. Foreign exchange reserves coverage remains low as compared with prudential benchmarks. While the nominal exchange rate remained relatively stable within the band set by the Bank of Laos (BOL), the real exchange rate continued to appreciate. Indications in 2014 are that bank credit growth is slowing down sharply compared to its previous rapid pace over several years. In order to grasp new opportunities and enjoy the benefits of regional integration, it is necessary for Lao PDR to take steps to create a conducive business environment. In order to achieve broad-based, inclusive growth and poverty reduction in Lao PDR, channeling greater resources toward tackling key workforce skills and productivity challenges is of significant importance.
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Based on preliminary estimates, the Lao People's Democratic Republic (PDR) economy grew by 7.5 percent in 2014, compared to an average of 8 percent over 2011-13.
... See More + Looking forward, real gross domestic product (GDP) growth is projected to slow further in 2015 before accelerating in the medium term. Average annual inflation in 2014 decelerated to 4.2 percent from 6.4 percent a year earlier, driven primarily by slower growth in food prices and a decline in fuel prices. In response to a widened fiscal deficit in FY2012-13, the government embarked on much needed fiscal corrective measures in FY2013-14 and FY2014-15. Foreign exchange reserves coverage remains low as compared with prudential benchmarks. While the nominal exchange rate remained relatively stable within the band set by the Bank of Laos (BOL), the real exchange rate continued to appreciate. Indications in 2014 are that bank credit growth is slowing down sharply compared to its previous rapid pace over several years. In order to grasp new opportunities and enjoy the benefits of regional integration, it is necessary for Lao PDR to take steps to create a conducive business environment. In order to achieve broad-based, inclusive growth and poverty reduction in Lao PDR, channeling greater resources toward tackling key workforce skills and productivity challenges is of significant importance.
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This issue of the East Asia and Pacific economic update is based on data available through September 29, inclusive. This report also includes a special section, focusing on two crucial medium-term issues facing developing East Asia and Pacific: education and skills development, and international migration; and an overview of the economic prospects and policy priorities for the Pacific Island Countries.
... See More + Overall, the global economy is showing signs of recovery, but at an uneven pace; global growth is expected to rise modestly to 2.6 percent in 2014, and an average 3.3 percent in from 2015 to 2017. The gradual strengthening of activity in high-income economies will boost demand for exports from developing East Asia and Pacific, helping the region sustain its growth performance. In China growth will gradually moderate to 7.4 percent in 2014 and 7.1 percent in 2016, reflecting intensified policy efforts to address financial vulnerabilities and structural constraints, and place the economy on a more sustainable growth path. In the rest of the region, growth will gradually pick up, as exports firm and the impact of domestic adjustment in the large ASEAN countries eases. Investment in the large ASEAN economies weakened, while private consumption remained resilient. Fiscal policy in many countries has aimed at rebuilding fiscal space but these efforts need to be sustained. Credit growth has slowed reflecting tighter policies and inflation generally remains low. Significant uncertainties remain about the strength and sustainability of the recovery in high-income economies, as well as about the timing of policy actions by central banks in these countries. In this uncertain global environment, there is still a window of opportunity to enact critical, and in some cases overdue,reforms; the short-term priority in several countries is to address the vulnerabilities and inefficiencies that have been created by an extended period of loose financial conditions and fiscal stimulus. In China the authorities need to strike a balance between containing the growing risks from rising leverage and meeting the indicative growth targets. Over the longer term, the focus in most countries must be on implementing the structural reforms needed to enhance their export competitiveness.
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The sector focus for this issue concerns school based management, current conditions and recommendations for the future. Lao People's Democratic Republic 's (PDR's) education system faces challenges in meeting its goals of providing all students with access to education and improving learning outcomes.
... See More + The study presents a framework explaining how school based management can help improve education quality. The Lao economy is estimated to grow at 8.1 percent in 2013, fueled by a vibrant resource sector, continued Foreign Direct Investment (FDI)-financed investment in hydropower, and accommodative macro economic policies. Growth is projected to moderate to 7.2 percent in 2014, reflecting a small projected slowdown in some real sectors, mainly mining and construction. Inflationary pressures, mainly through food prices, are not showing signs of dissipating by end 2013. In FY12-13, the fiscal deficit widened markedly due to a combination of a large increase in public sector wages and benefits, and a decline in grants and mining revenues. The FY13-14 budget plan indicates a narrower fiscal deficit of about 4.3 percent. The risk of debt distress remains moderate, according to the recent Joint International Monetary Fund (IMF)-World Bank Debt Sustainability Analysis (DSA) 2013. While the Bank of Lao PDR maintains nominal exchange rate stability of the Lao kip against major currencies, foreign exchange policy should probably give more consideration to reserve management and competitiveness. Foreign exchange reserves and net foreign assets continued to fall in the third quarter of 2013.
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The sector focus for this issue concerns school based management, current conditions and recommendations for the future. Lao People's Democratic Republic 's (PDR's) education system faces challenges in meeting its goals of providing all students with access to education and improving learning outcomes.
... See More + The study presents a framework explaining how school based management can help improve education quality. The Lao economy is estimated to grow at 8.1 percent in 2013, fueled by a vibrant resource sector, continued Foreign Direct Investment (FDI)-financed investment in hydropower, and accommodative macro economic policies. Growth is projected to moderate to 7.2 percent in 2014, reflecting a small projected slowdown in some real sectors, mainly mining and construction. Inflationary pressures, mainly through food prices, are not showing signs of dissipating by end 2013. In FY12-13, the fiscal deficit widened markedly due to a combination of a large increase in public sector wages and benefits, and a decline in grants and mining revenues. The FY13-14 budget plan indicates a narrower fiscal deficit of about 4.3 percent. The risk of debt distress remains moderate, according to the recent Joint International Monetary Fund (IMF)-World Bank Debt Sustainability Analysis (DSA) 2013. While the Bank of Lao PDR maintains nominal exchange rate stability of the Lao kip against major currencies, foreign exchange policy should probably give more consideration to reserve management and competitiveness. Foreign exchange reserves and net foreign assets continued to fall in the third quarter of 2013.
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The Lao economy is projected to grow at 8 percent in 2013. The hydropower sector (both completed projects in operation and projects in the construction or development phase), construction, food processing, and services sectors remain the major contributors to this growth.
... See More + Overall inflation has risen considerably since the end of 2012, due to a notable increase in non-rice food prices. The fiscal deficit as a ratio to gross domestic product (GDP) is expected to widen in FY2012-2013. Therefore, containing aggregate demand through fiscal and credit growth management is essential to maintain macroeconomic balances while exchange rate management needs to be measured given the pressures on reserves and competitiveness. As the banking sector continues to expand and credit growth remains relatively high, bank supervision capacity needs to be strengthened. Lao People's Democratic Republic's (PDR's) robust economic performance and expansionary fiscal policy calls for a bolder investment in social sector spending. This paper is divided into following two parts: part one gives recent economic developments; and part two presents sector focus.
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