Economy

Resource development continues to support growth in the Lao People's Democratic Republic despite a fiscal squeeze that is constraining government expenditure. Foreign investment in mining and hydropower remains robust, and investment has increased in special economic zones in Vientiane and Savannakhet. The production of copper rose by 6.7% and of silver by 29.3% in the first half. Gold production, by contrast, fell by a quarter because the Sepon mine stopped gold production last December.

Selected Economic Indicators (%) - Lao People's Democratic Republic 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 7.3   7.3  7.5   7.4 
Inflation 5.5   5.0  6.0   5.5 
Current Account Balance (share of GDP) -27.4   -27.4  -26.0   -26.0 

Source: ADB estimates.

Tourism has slowed this year. Visitor arrivals rose by 8% to 1.1 million in the first quarter, about half the rate of increase seen a year earlier, primarily because tourism fell in Thailand.

Fiscal problems that forced the government into last year’s delays on payments for wages and utilities have eased somewhat in 2014, but substantial delays remain on public infrastructure projects. That is expected to constrain spending on new projects for several years to come. The government cancelled a cost-of-living allowance for the civil service at the start of Fiscal Year 2014 (ended 30 September 2014) and postponed some infrastructure projects. For FY2015, the government has stopped a planned third hike in civil service wages in as many years, directed banks to curb lending for public infrastructure, and said it would put greater emphasis on repaying debts than on starting new projects.

In this context, economic growth is still expected to ease to 7.3% in 2014, from a revised 7.9% in 2013. The forecast for growth in 2015 is trimmed to 7.4%, reflecting the persistent fiscal difficulties. Forecasts of current account deficit are retained from the Asian Development Outlook (ADO) 2014 in April. International reserves remain low. Moderating domestic demand has eased pressure on prices, with inflation slowing to 4.8% in the first 8 months. Inflation forecasts are revised down by half a percentage point from April.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.