The International Monetary Fund (IMF) has projected that Laos’ economic growth will remain strong this year, with the under-construction Laos-China railway seen as one of the main driving forces of growth.
The global financial institution unveiled the economic forecast for Laos on May 22 after concluding the Article Four Consultation with the country, sending a message that despite still suffering from natural disasters, economic growth would remain sound.
“The Lao PDR’s economic growth in 2018 slowed to 6.3 per cent, mainly due to natural disasters and a tragic dam collapse, and inflation remained low,” Eteri Kvintradze said as quoted in her statement at the end of her Article IV Consultation Mission to Laos.
“Going forward, growth is expected to remain strong, supported by private investment, electricity exports, and completion of the Kunming-Vientiane railway.”
Kvintradze (pictured, Lanka Business Online) led an IMF team on a visit to Laos from May 8 to 22 as part of her consultation mission.
While in Laos she met Deputy Prime Minister and Minister of Finance Somdy Duangdy, Chair of the Planning, Finance, and Audit Committee of the National Assembly Vilayvong Boudakham, Governor of the Bank of the Lao PDR Sonexay Sithphaxay, and other senior officials.
The team also held discussions with the Lao Women’s Union, development partners, and representatives of the private sector.
According to the statement, risks to the outlook are tilted to the downside, mainly from external factors. A sharper than expected slowdown in China and FDI investment may reduce exports and decelerate FDI
Despite facing some risks, Laos has a lot of opportunity, and faster regional growth and deepening integration within Asean will help boost investment, trade, and tourism. In addition, accelerated reform efforts could help to mitigate these downside risks.
According to the IMF, Laos’ fiscal deficit dropped to 4.4 per cent of GDP last year. In 2017, the figure stayed at 5.5 per cent.
The slower growth of the fiscal deficit was possible thanks to Laos’ fiscal consolidation.
The government has committed to maintain this fiscal policy, adding that ongoing public financial management reform will strengthen fiscal governance.
The IMF views Laos’ new Public Debt Management Law as a step forward in defining a rules-based mechanism for contracting and guaranteeing public debt. This law would strengthen the role of the finance ministry in managing public debt.
The government also made a commitment to assess and target infrastructure projects with high social returns. Financing these at concessional terms to the extent possible would benefit debt sustainability.
In relation to monetary affairs, Laos has modernised its monetary governance framework. In addition, Laos has promulgated new laws for the Bank of the Lao PDR, commercial banks, and payment systems.
However, it warns that the implementation of this new legal framework needs to be supported by developing regulations, clear guidance, and a proactive communication strategy. VIENTIANE TIMES/ASIA NEWS NETWORK