ADB Revises Lao PDR Outlook; Economy to Moderate in 2019 and 2020

News Release | 25 September 2019

VIENTIANE, LAO PEOPLE’S DEMOCRATIC REPUBLIC (25 September 2019) — Economic growth for the Lao People’s Democratic Republic (Lao PDR) is forecast to moderate in 2019 and 2020 as expansion in the industry and services sectors softened in the first half of 2019 due to lesser international tourist arrivals and near stagnation in electricity exports and generation despite a slight recovery in the agriculture sector, according to a new Asian Development Bank (ADB) report.

In an update of its flagship annual economic publication, Asian Development Outlook (ADO) 2019, ADB projects the Lao PDR’s economy to grow by 6.2% in 2019 and 2020, slightly lower than its April forecast of 6.5% for 2019 and 2020.

“The tight fiscal condition, as the Lao PDR’s public debt remains high, holds back the government’s spending and investment in the country,” said ADB Public Management Specialist for the Lao PDR Mr. Rattanatay Luanglatbandith. “Accelerating the pace of public finance reform, further improving business environment to promote private sector investment, and producing a skilled labor force to support the labor market demand should help spur investment and boost employment and economic growth that benefit everyone.”

In the first 4 months of 2019, merchandise exports have slightly increased in US dollar terms, compared with the same months in 2018 as the electricity export grew only at 2.3%, which is much slower than 7.0% a year earlier. This indicates a slowdown in industry growth in the first half of the year and a deepened contraction in mining output. Meanwhile, growth in tourism, a proxy for the services sector, softened as international tourist arrivals slowed from 6.1% in the first half of 2018 to 5.0% in the same period this year.

The Lao Kip appears to be overvalued, considering the significant premium over the official exchange rate paid on the open market for hard currency. Inflation is now forecasted to be around 2.3% in 2019 and 2020, slightly higher than the 2.0% projection in April this year because of continued pressure on food prices and local currency depreciation.

The monetary and credit conditions remain tight in the country as both grew by 3.9% and 3.1%, respectively, in the first quarter of 2019. The current account deficit in percentage of gross domestic product is projected at 8.9% in 2019 and 8.4% in 2020 on the back of an improvement in exports. Imports, meanwhile, is seen to contract at 9.5% in 2019 and 10% in 2020, narrower than previous estimates. Despite the Lao PDR’s expected improvement in the current account deficit, gross international reserves are forecast to remain below $1 billion by December 2019, covering only a month of imports, making the Lao PDR’s external position vulnerable to external financial shocks.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.