Economic growth forecast at 3.3 percent despite Covid-19 crisis

The government is predicting that Laos’ economy will grow by 3.3 percent this year, the same growth rate projected in June, despite the protracted travel restrictions imposed to prevent the spread of Covid-19.
Prime Minister Thongloun Sisoulith confirmed the projection on Tuesday when addressing the opening ceremony of the 10th Session of the National Assembly’s 8th legislature.
He outlined the country’s economic difficulties and rising debt burden, exacerbated by the Covid-19 crisis and most recently compounded by widespread flooding.

“We have been suffering from economic difficulties for several years. In addition, weather extremes and the Covid-19 pandemic are severely affecting socio-economic development,” he said.
“Some of our goals will not be achieved, particularly the revenue collection target, and efforts to curb inflation.”
With the pandemic placing a greater burden on Laos’ debt service capability, the government has drawn up short-, medium- and long-term plans to address its liabilities and obligations by attempting to reduce the fiscal deficit each year.
The government will no longer accept loans from foreign countries in order to address the fiscal deficit. Loans will only be taken out to repay the principal on existing loans when the time arrives for debts to be serviced.  
“At present, we are still able to repay the debts owed to foreign countries,” Mr Thongloun said.
The government also plans to pass responsibility for its debts to private enterprises to commercial banks, as this would enable private companies to maintain their financial liquidity and continue their business operations.
Mr Thongloun acknowledged that the economy was vulnerable to global economic shocks and climate change but was optimistic that economic growth would be higher than the global growth rate of -4.4 percent projected by the IMF.
The agriculture sector is expected to grow by 2.3 percent this year, representing 16.6 percent of GDP. Industry is forecast to grow by 9.8 percent, accounting for 33 percent of GDP, but growth in the service sector is expected to contract by 1.6 percent, representing 39.5 percent of GDP.
Over the past nine months, the value of exports was US$4.27 billion, equal to 70.8 percent of the revised plan for 2020 approved by the National Assembly.
In the meantime, the value of imports reached US$3.82 billion, equal to 64.68 percent of the target for 2020.
Mr Thongloun said foreign reserves were sufficient to purchase imported goods for 5.03 months, higher than the minimum of three months approved by the National Assembly.
Over the past year, the value of the kip fell by 5.26 percent while the inflation rate averaged 5.72 percent year-on-year, driven by rising food prices.
Although the impact of the Covid-19 pandemic on the economy may continue until next year, the government is optimistic that the economy will recover to some extent due to the uninterrupted construction of large-scale development projects.
These include the Laos-China railway, Vientiane-Vangvieng expressway, building of industrial parks and dry ports, and hydropower and mining projects, all of which will help drive economic growth.

By Somsack Pongkhao
(Latest Update October 28, 2020)