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Laos: Massive budget deficit reduction set by 2020

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Lao Deputy Prime Minister and Minister of Finance Somdy Duangdy. VIENTIANE TIMES

Laos: Massive budget deficit reduction set by 2020

The Lao government will massively reduce or wipe out the budget deficit by next year, Deputy Prime Minister Somdy Duangdy has said.

Laos has suffered a chronic budget deficit in recent years which has led to the accumulation of sizeable public debt and budgetary tension.

The National Economic Research Institute says public debt has risen to over 60 per cent of GDP – a level that economists say is too high and full of risk.

Somdy, who is also Minister of Finance, said international finance bodies have warned Laos to reduce the budget deficit or face possible cuts in financial support.

“The World Bank and international fund providers have hinted they will not provide financial support for projects in the [socio-economic development] plan if we do not reduce the deficit,” he told a meeting recently.

Somdy was disseminating the resolution adopted by the recent 7th Plenary Session of the Central Committee of the Lao People’s Revolutionary Party. The resolution detailed measures to address budgetary and economic issues.

The Central Committee resolved that in future state expenditure must be in line with the available budget so that the government does not have to borrow.

Somdy said the available budget would come from domestic revenue and foreign grants.

The 2020 budget must be drawn up with expenditure based on domestic sources of revenue and foreign grants. Any expenditure that exceeds the available budget will be cut.

“We have two options – the first is to pursue increasing revenue [if we want to increase expenditure], and the second is to cut excessive spending,” Somdy said.

The huge budget deficit occurred because the state’s investment plan was drawn up based on the investment requirements proposed by state departments and provinces, he added.

The deputy prime minister warned that this would no longer happen in the years to come.

Government efforts to reduce the deficit have caused it to shrink in recent years. It fell from 5.3 per cent of GDP in 2017 to 4.72 per cent last year, with a further drop to 4.28 per cent expected this year.

The deficit amount is expected to decline slightly from over 7.196 trillion kip ($840.78 million) last year to just over 7.088 trillion kip this year.

But although the deficit is shrinking, Somdy said the amount remains high.

To ensure effective investment by the state and limit unnecessary expenditure, the Central Committee resolved that new state investment must focus only on projects that are efficient to the economy.

In this regard, the deputy prime minister said the government places particular importance on investing in tourism, logistics and the processing industry, as well as improving the business environment.

Although the government has tried to align expenditure with the available budget this year, this has not been achieved as Laos is still on track to record a budget deficit.

Somdy said the government has already limited expenditure, adding that most state investment this year will go into the completion of unfinished projects. There are a few new state investments, he added. VIENTIANE TIMES/ASIA NEWS NETWORK

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