Govt pledges to reduce debt burden

The government has vowed to restructure the payment of debts by converting its financial obligations into investment by the private sector.
The government also intends to lower the fiscal deficit to an average of 2 percent of Gross Domestic Product (GDP) annually from 2021 to 2025, according to a recent government report.
The pledge comes as the government attempts to lower public debt to 55 percent of Gross Domestic Product (GDP) to enable the nation to improve its financial liquidity.
The Covid-19 pandemic has ramped up Laos’ public debt burden, posing challenges for the tiny country to meet its debt service payments.
According to a World Bank report, public debt was expected to increase to at least 69 percent of GDP in 2020, up from 59 percent in 2019.
“Rising debt levels and an increasing share of less concessional borrowing have significantly increased debt service payments to US$1.2 billion for 2020,” the World Bank stated.
Over the past five years, the government has introduced electronic systems in a bid to amass more revenue, leading to a 20 percent increase in national income.
However, expenditure rose by more than 20 percent, resulting in an annual budget deficit of 4.73 percent.
The chronic fiscal deficit has forced the government to issue bonds and borrow more from various sources to address budget shortages.
The country’s debt burden has been exacerbated as Laos needs repay loan principals and interest. In addition, foreign exchange rate fluctuations impacted on the government’s public debt because many of the loans were in foreign currencies, notably Thai baht and US dollars, according to the World Bank.
Over the past five years, the government has attempted to reduce its debt burden by lowering the fiscal deficit and cutting spending on non-essential projects that do not guarantee economic returns.
Other measures to reduce the debt burden include converting debt into capital, selling state assets, and selling shares in state enterprises in the hope of addressing the country’s financial obligations.
During a government meeting of cabinet members, the Vientiane mayor and provincial governors, government agencies were instructed to study ways to implement the policy to convert assets into capital, to provide a source of wealth for the nation.
The government advised the responsible committee to study ways to transform loss-making enterprises into joint ventures as part of the government’s ongoing reform to reduce the debt burden generated by state enterprises.
There is also considerable potential to garner more revenue from land resources, tourism, and transit services.
Economists recommend that the government does more to improve the investment climate and help the private sector, particularly SMEs, to lower production costs in order to increase the amount of goods produced for export.

By Somsack Pongkhao
(Latest Update January 29, 2021)