Laos growing, but risks remain

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A banking boom and strong foreign investment has boosted Laos’ economy over the past years. Photo © Arno Maierbrugger

Laos has maintained robust growth in 2012 and expects further advancement in 2013, though the country is facing a challenge in managing its domestic demand, the World Bank said in a recent country report.

The landlocked country, one of South East Asia’s least developed nations, has had its economy boosted through growth driven by the construction, services, industry and agriculture sectors on the supply side, the report found.

While the World Bank has reclassified Laos’ risk of debt distress from high to moderate and higher than expected external grants and mining income had improved fiscal performance for the financial year 2011/12, the report noted that high credit growth is pressuring falling reserves.

Foreign reserves fell by about 9 per cent year-on-year at the end of 2012, reaching a critically low level of about $620 million in December, or 2.5 months of non- resource imports.

The overall balance of payments remained in a deficit of 0.7 per cent of GDP at the end of 2012 as a result of continued demand for imports due to rising domestic demand.

The report identified a number of risk areas which required focus to preserve macroeconomic sustainability and sustainable growth. These risk areas were, apart from low reserves coverage, increased exposure to mining revenue, fast banking expansion with limited supervision and a large number of new investment projects. A planned wage increase is expected to slightly widen the fiscal deficit in the present financial year.

Laos’ GDP growth is forecast by the World Bank at 7.5 per cent in both 2013 and 2014, down from 8.2 per cent in 2012.

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Reading Time: 1 minute

A banking boom and strong foreign investment has boosted Laos’ economy over the past years. Photo © Arno Maierbrugger

Laos has maintained robust growth in 2012 and expects further advancement in 2013, though the country is facing a challenge in managing its domestic demand, the World Bank said in a recent country report.

Reading Time: 1 minute

A banking boom and strong foreign investment has boosted Laos’ economy over the past years. Photo © Arno Maierbrugger

Laos has maintained robust growth in 2012 and expects further advancement in 2013, though the country is facing a challenge in managing its domestic demand, the World Bank said in a recent country report.

The landlocked country, one of South East Asia’s least developed nations, has had its economy boosted through growth driven by the construction, services, industry and agriculture sectors on the supply side, the report found.

While the World Bank has reclassified Laos’ risk of debt distress from high to moderate and higher than expected external grants and mining income had improved fiscal performance for the financial year 2011/12, the report noted that high credit growth is pressuring falling reserves.

Foreign reserves fell by about 9 per cent year-on-year at the end of 2012, reaching a critically low level of about $620 million in December, or 2.5 months of non- resource imports.

The overall balance of payments remained in a deficit of 0.7 per cent of GDP at the end of 2012 as a result of continued demand for imports due to rising domestic demand.

The report identified a number of risk areas which required focus to preserve macroeconomic sustainability and sustainable growth. These risk areas were, apart from low reserves coverage, increased exposure to mining revenue, fast banking expansion with limited supervision and a large number of new investment projects. A planned wage increase is expected to slightly widen the fiscal deficit in the present financial year.

Laos’ GDP growth is forecast by the World Bank at 7.5 per cent in both 2013 and 2014, down from 8.2 per cent in 2012.

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