VIENTIANE, LAO PEOPLE’S DEMOCRATIC REPUBLIC (29 September 2017) — The Lao People’s Democratic Republic’s (Lao PDR) economic growth is on track to reach 6.9% in 2017 as foreseen in April this year, despite a slightly sluggish growth by 6.8% in the first half of the year. Firm economic growth is expected for 2017 and 2018, the Asian Development Bank (ADB) forecasts in its annual flagship economic publication, Asian Development Outlook (ADO) 2017 Update, released on 26 September 2017.
Growth in 2017 is driven mainly by strong electricity exports, the construction of large infrastructure projects, and a surge in cash crop production and exports. The report forecasts 7% gross domestic product (GDP) growth for 2018.
“The Lao PDR’s economy is performing well in the Southeast Asian region. The measures taken in 2016 and early 2017, including curtailing spending and boosting private sector investments, appear to further support economic growth,” said Yasushi Negishi, ADB Country Director for the Lao PDR.
In the update of its ADO 2017, ADB forecasts heartening prospects for developing Asia with GDP growth of 5.9% in 2017 and 5.8% in 2018. Growth across developing Asia is energized by a revival in world trade and strong demand from the People’s Republic of China. Meanwhile, inflation remains broadly in check despite firming oil prices. The average inflation for the region was revised downward from 3% to 2.4% in 2017 and from 3.2% to 2.9% in 2018. The region’s exports in dollar terms surged by 11% in the first 5 months of 2017 over the same period last year, and the value of its imports rose by 17%. The pickup follows two consecutive years of contracting export values caused by falling commodity prices and subdued external demand for manufactures.
Southeast Asia will see stronger growth as output accelerates steadily from 5% in 2017 to 5.1% in 2018, an upgrade from 4.8% and 5% in the previous forecast. The subregion’s growth will be led by rising exports from Singapore and Malaysia, while the forecasts for regional leaders, Indonesia and Thailand, are maintained.
The report says the Lao PDR’s ongoing constructions of the cross-border railway project and hydropower projects including the Xayabouri hydropower project, stimulated economic activities, an increased investment in special and specific economic zones by additional 50 companies in the first half of the year, and a surge in cash crop production and exports will drive further economic growth in 2017.
Agriculture saw sturdy growth as rice and cash crops prospered under favorable weather this year. Services experienced slightly lower growth than foreseen in April, after tourist arrivals declined by 9.8% in the first half of 2017. Industry sector remains subdued, despite rising gold exports by 14.5% in the period, continuing slack in international markets held total mining output nearly flat.
The report says the current account deficit forecast is down from its foreseen in April for this year, and it is seen to resume widening in 2018, albeit less than earlier forecast, as imports of machinery, construction materials, and fuel rise to supply the construction of the railway project and seven new hydropower plants.
Net foreign reserves rose from $767 million at the end of 2016 to $887 million at the end of June 2017, providing cover for 1.7 months of imports. The inflation rate forecast for 2017 and 2018 are both down to 1% and 1.5%, respectively, as the current prices for oil and food remain subdued.
Risks to the outlook include a sustained worsening of the international market for mining products, and unexpected slowdown in Thailand and its vital electricity market, and, as always, bad weather affecting agriculture.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in cofinancing.