Construction on electricity and real estate projects and tourism expansion are sustaining economic growth in the Lao People’s Democratic Republic.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||-21.2||-20.3||-17.3||-17.0|
Power projects are driving growth in the Lao People’s Democratic Republic (PDR), including the 1.9 gigawatt Hongsa lignite-fired power plant that started commercial operations in June, and the 1.3 gigawatt Xayaburi project, one of several hydropower plants under construction. Tourist arrivals rose by 11% to 2 million in the first 5 months of 2015, helped by an increase in air services to the Lao PDR. Mine output of copper, gold, and silver rose in the first half, though prices for the metals have declined.
On the downside, drought during the planting season is expected to hurt rice production and could stem the water flow needed to generate hydropower. Moreover, government spending remains constrained by the fiscal deficit, which widened sharply 2 years ago, and from a squeeze on government revenue from lower prices for both mineral exports and oil imports. Growth in credit slowed to 13.5% year on year in May. To stimulate lending, the central bank directed commercial banks in August to lower interest rates.
Inflation averaged 1.3% year on year in the first 8 months. Exports and imports both fell at a double-digit pace in January–April. Current account deficits are now expected to be slightly narrower than previously anticipated. The Lao kip depreciated by 0.9% against the US dollar from the end of 2014 to the end of August, but it appreciated by 7.1% against the Thai baht in that period. Gross international reserves rose to an estimated $900 million in the first quarter.
On balance, forecasts for Gross Domestic Product (GDP) growth are edged down from ADO 2015. Inflation will also be lower than forecast in March, a result of falling global oil and commodity prices and moderating domestic economic growth.
Excerpted from the Asian Development Outlook 2015 Update.