ADB projects steady recovery for Lao economy in 2023

The Asian Development Bank (ADB) believes the Lao economy will see a gradual recovery next year, supported by new investment and higher renewable energy and mining output.
“A consortium of lenders is preparing finance for the 600-megawatt Monsoon Wind project which, once completed, will export all the power it generates and be Southeast Asia’s biggest wind energy project,” stated an update in ADB’s flagship publication, Asian Development Outlook (ADO) 2022.

Energy remains an important sector to drive economic growth next year.   --Photo EDL-Gen

 “Energy exports will remain robust with seven hydropower projects scheduled to come online in 2022, adding 4.1 billion kilowatt hours to Laos’ export earnings. The current account deficit is expected to narrow to the equivalent of 4.5 percent of GDP from 5 percent in 2021 on buoyant export growth outpacing imports.”
 The ADB also stated that a recovery in domestic demand is expected to stimulate imports of capital and consumer goods in 2023, widening the current account deficit to 5.5 percent.
However, the ADB has lowered its 2022 economic growth outlook for Laos to 2.5 percent from 3.4 percent projected in April and to 3.5 percent from 3.7 percent for 2023.
Inflation is forecast to be significantly higher this year before moderating in 2023. Lower domestic demand should contribute to a larger narrowing in the current account deficit over the forecast horizon than was expected in ADO 2022.
The downgraded economic growth forecast comes amid sluggish global demand and the tightening of monetary policy to manage inflation.
The ADB significantly revised its forecast for inflation up to 17 percent for 2022 on higher-than-expected oil prices and the weaker kip.
The year-on-year inflation rate increased from 30.01 percent recorded in August to 34 percent in September, according to the latest report from the Lao Statistics Bureau.
Inflation next year is expected to moderate to 4.5 percent on lower global oil prices.
Low interest loans for local food producers to buy agriculture inputs should help boost domestic food production and relieve pressure on food prices, according to the ADB.
 The rising cost of living has decreased consumer purchasing power, and input supply constraints have reduced the growth prospects for agriculture and industry.
These trends, coupled with the economic slowdown in China, have delayed economic recovery in Laos.
The general price rise in Laos is spearheaded by a spike in the price of food, medicines, fuel and other consumer goods.
 The rising consumer price index is linked to the global economic downturn, the Russia-Ukraine conflict and the Covid-19 outbreak, which have disrupted economic activities and seen households trim daily consumption spending, affecting output growth.
Additionally, sharp increases in the price of fertiliser, animal feed, food and fuel have discouraged farmers and producers from expanding their operations.

By Somsack Pongkhao
 (Latest Update October 18, 2022)