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Laos inflation hits new high, may see 3% economic growth

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Bank of the Lao PDR (BoL) governor Sonexay Sithphaxay. VIENTIANE TIMES

Laos inflation hits new high, may see 3% economic growth

Lao's year-on-year inflation rate increased from 4.72 per cent in October to 5.04 per cent last month, according to the latest report from the Lao Statistics Bureau.

This was the highest surge in consumer prices recorded since August last year, sparking concerns about the rising cost of living in the country amid the Covid-19 crisis. The inflation was driven by several factors, including the price of fuel increasing by 48.68 per cent year-on-year last month.

The depreciation of the Lao kip against the Thai baht and the US dollar also drove up prices in local markets, especially for imported goods. Most businesses base the cost of their products on foreign currencies or charge customers in foreign currencies so they won’t run the risk of losing profits.

In the first 11 months of 2021, Laos recorded a trade deficit of $336 million, with the value of imported goods touching $5.24 billion while exported goods were valued at $4.9 billion. The government is attempting to boost domestic production for exports while working to minimise imports.

Last month, costs in the communications and transport category went up by 1.92 per cent month-on-month, and 12.45 per cent year-on-year. The prices of cars and transport equipment surged by 10.14 per cent and 23.26 per cent year-on-year respectively.

The cost of medical care climbed by 1.77 per cent month-on-month and 7.98 per cent year-on-year due to the rising cost of medicines and hospital services. The price of medicines and medical services rose by 7.77 per cent year-on-year while the cost of hospital and clinic services surged by 11.89 per cent year-on-year.

Meanwhile prices in the restaurant and hotel category went up by 0.38 per cent month-on-month and 7.42 per cent year-on-year, with the cost of food charged by restaurants and hotels increasing by 9.46 per cent year-on-year, while the prices of guesthouses and hotel services declined by 1.23 per cent year-on-year.

In addition, prices in the housing, water, electricity and gas category rose by 1.21 per cent month-on-month and 5.42 per cent year-on-year. The cost of construction services and gas and other energy sources increased by 9.09 per cent and 5.93 per cent year-on-year respectively.

The cost of clothing and footwear rose by 0.48 per cent month-on-month and 4.07 per cent year-on-year, with the price of men’s clothes increasing by 5.84 per cent and that of women’s clothes rising by 2.95 per cent year-on-year.

At the same time, the cost of food and non-alcoholic beverages decreased by 1.34 per cent month-on-month but increased by 2.61 per cent year-on-year. The products that drove prices up in this category included cooking oil (24.95 per cent year-on-year), seasoning (19.96 per cent) and cheese and eggs (15.93 per cent).

The cost of alcohol and tobacco increased by 6.07 per cent year-on-year while the prices of household goods rose by 4.89 per cent year-on-year, with personal items and sleeping-related goods surging by 9.51 per cent year-on-year.

Meanwhile, the Bank of the Lao PDR (BoL), the central bank, reported that the International Monetary Fund (IMF) expects the Lao economy to grow by 2.1 per cent in 2021 and three per cent in 2022.

Agriculture and the industrial sector will play a significant role in this growth, the IMF said.

The growth of the Lao economy was discussed at a two-day virtual conference between the Executive Board of the IMF and the BoL held from December 21-22.

On behalf of the government, BoL governor Sonexay Sithphaxay led the Lao delegation, which included BoL deputy governor Vatthana Dalaloy, Deputy Minister of Finance Dr Bounleua Sinxayvoravong, and other banking officials.

Before the conference, the IMF assessment team for Laos from the IMF headquarters conducted an assessment along with government bodies responsible for Lao macroeconomics, including BoL, the ministries of Finance, Planning and Investment; Industry and Commerce; and Energy and Mines, and commercial banks.

As a result of this assessment, IMF concluded that economic growth for 2021 would be 2.1 per cent and three per cent for 2022, following the critical impact of the Covid-19 pandemic in Laos and other regions worldwide.

This economic growth will be apparently driven by agriculture and the industry sector, and the long-term growth of the Lao economy is still vulnerable to internal and external factors, such as an increase in the inflation rate and the fluctuation of the exchange rate, according to an IMF forecast.

During his participation in the virtual conference, the BoL governor made a briefing on the government’s determination to handle various unexpected risks and to prioritise several matters, such as the national agenda to build confidence among domestic and foreign investors.

Sonexay thanked the IMF assessment team for their contribution in the assessment of the Lao economy and providing guidelines for the macroeconomic development of Laos.

VIENTIANE TIMES/ASIA NEWS NETWORK

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