Covid-19 puts squeeze on poverty reduction efforts

The Covid-19 pandemic will without doubt reverse some of the progress made in poverty reduction due to job losses and the rising cost of living in Laos.
Renowned economist Dr Leeber Leebouapao told Vientiane Times last week the closure of factories and slower growth of the service sector had had a severe negative impact on people’s livelihoods. 
“If we conduct a new survey for 2020, I’m sure that the number of families classified as poor will increase,” said Dr Leeber, who is Chairman of the National Assembly’s Planning, Finance and Audit Committee.
“Poverty will not only emerge among migrant workers who returned from Thailand, but also among those working in hotels, restaurants and other sectors of the service industry because of the slump in international visitors.”
According to the latest edition of the World Bank’s Lao Economic Monitor published in June this year, 25 percent of job losses are expected to occur in the travel- and tourism-related sectors.
“Poverty could increase by 3.1 percentage points in 2020, or a total of 214,000 people could slip into poverty,” the World Bank’s report stated.
The slowdown in nonagricultural sectors and a decline in remittance flows could negatively impact on poverty, which can only be slightly offset by the recovering agriculture sector.
According to the National Economic Research Institute, the unemployment rate is projected to rise from 9.4 percent in 2017 to 20 percent in 2020.
The assessment was reported after hundreds of thousands of Lao migrant workers returned from Thailand and are now struggling to find jobs.
Although Laos has been successful in its response to the Covid-19 epidemic, the country is vulnerable to the impact of the global economic downturn and natural disasters.
The virus outbreak first hit the country’s key sectors, leading to a broader economic slump and poverty impacts.
The global recession has affected Laos in various ways including tourism, exports, investment, exchange rates, lower remittances, and commodity prices.   
This year the economy is expected to grow by just 3.3-3.6 percent, down from 6.5 percent last year, which could result in a reduction in GDP per capita. This implies a significant reduction in household income.
According to the government’s June report, the service sector has been hardest hit by the Covid-19 pandemic.
Over the past six months of this year, the sector grew by only 1.7 percent, far below the target of 5.2 percent.
It is expected that service sector growth will contract by 4.5 percent this year because almost no international visitors came to Laos in the second quarter.
The pandemic has not only affected poverty levels in Laos but in many other countries as well.
The World Bank estimates that 40 million to 60 million people will fall into extreme poverty (under US$1.90/day) in 2020 as a result of the virus crisis. The global extreme poverty rate could rise by 0.3 to 0.7 percentage points, to about 9 percent in 2020.
Over the past 4-5 decades, the poverty rate in Laos has continued to decline, dropping to 27.6 percent in 2007-2008 and to 18.3 percent in 2018-2019. However, many challenges remain on the path to further poverty alleviation.

By Somsack Pongkhao
(Latest Update August 30, 2020)