Mining and hydropower development and private consumption spending continue to underpin economic growth in the Lao People's Democratic Republic (Lao PDR). Eight new hydropower projects and the $3.7 billion Hongsa lignite thermal power project are under construction. Mining output increased in the first half of 2013 from a year earlier. Tourism continued to grow, with tourist arrivals increasing by 15% to 998,000 in the first quarter.
|Selected Economic Indicators (%) - Lao People's Democratic Republic||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-21.5||-24.0||-23.6||-21.0|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
However, bad weather has hurt agriculture, particularly rice production, and some property developments funded by investors from the People's Republic of China and Viet Nam have been delayed, apparently by slowdowns in those economies.
The government sharply increased its budget deficit projection for Fiscal Year 2013 (ended 30 September 2013) from 3% of gross domestic product (GDP) to 6% to cover domestic debt repayment and salary increases for government employees. Also, revenue has been below target. Taking these factors into account, the forecast for GDP growth in 2013 is pared to 7.6%. The forecast for 2014 is retained at 7.7%.
Rising prices for meat, poultry, fruit, and vegetables have driven inflation higher. The average inflation rate for the first 8 months was 6.2% year on year. Consequently, inflation forecasts are revised up from the Asian Development Outlook (ADO) 2013.
Exports rose by 4% to $1.54 billion and imports by 6% to $2.99 billion in the first half, widening the trade deficit and contributing to a significant decline in gross international reserves to an estimated $530 million at midyear. The Lao kip weakened against the US dollar and the Thai baht, and a parallel foreign exchange market has re-emerged.
In August, the authorities introduced restrictions on the sale of foreign currency to the public and tightened some import regulations, which should help to dampen imports and contain a deteriorating external deficit. The current account deficit is now expected to widen to 24.0% of GDP in 2013 before narrowing slightly in 2014.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.