Laos told to manage its debts

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laos emerging economyDebt-ridden Laos has been told by the International Monetary Fund (IMF) to tighten its policies to avoid a “major economic crisis”. An IMF mission held annual consultations recently with the government in the country’s capital Vientiane, raising concerns about its rising inflation, the banking system, public spending, the deteriorating current account deficit and falling international reserves, the fund said.

“A tightening of macroeconomic policies is urgently needed to reduce vulnerabilities, replenish international reserves and engineer a soft landing,” Ashvin Ahuja, who led an IMF mission from August 28 to September 12 and now presented the findings.

The IMF warning came amid a persistent shortfall in revenue, which led Prime Minister Thongsing Thammavong to order ministries and government agencies last month to closely control expenditures for Laos to pay its debts and avoid a financial crisis.

Finance Minister Phouphet Khamphounvong told the national assembly, the country’s parliament, in July 2013 that the government debt is  29.8 per cent of GDP. The debt to GDP ratio is one of the indicators of the health of an economy.

It is not immediately clear how much higher the debt level has risen since then but the prime minister has said, according to Vientiane Times, that “to turn the situation around” the government would delay paying monies owed to contractors carrying out its own projects to “take the strain off the country’s financial and currency concerns.”

IMF’s Ahuja said that inflation in Laos “is accelerating” as a result of rising fresh food prices and credit growth – partly driven by public spending – “raises concerns about the health of the banking system.”

He called for Laos to build up its international reserves “for precautionary needs,” cautioning that “ongoing fiscal expansion has exacerbated vulnerabilities,” adding that Laos’ fiscal policy needs to be put back on a “consolidation path” during the next few years. This will require improving tax collection by broadening the tax base and eliminating exemptions while rationalising expenditure to concentrate on priority social spending and investments.

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Reading Time: 2 minutes

Debt-ridden Laos has been told by the International Monetary Fund (IMF) to tighten its policies to avoid a “major economic crisis”. An IMF mission held annual consultations recently with the government in the country’s capital Vientiane, raising concerns about its rising inflation, the banking system, public spending, the deteriorating current account deficit and falling international reserves, the fund said.

Reading Time: 2 minutes

laos emerging economyDebt-ridden Laos has been told by the International Monetary Fund (IMF) to tighten its policies to avoid a “major economic crisis”. An IMF mission held annual consultations recently with the government in the country’s capital Vientiane, raising concerns about its rising inflation, the banking system, public spending, the deteriorating current account deficit and falling international reserves, the fund said.

“A tightening of macroeconomic policies is urgently needed to reduce vulnerabilities, replenish international reserves and engineer a soft landing,” Ashvin Ahuja, who led an IMF mission from August 28 to September 12 and now presented the findings.

The IMF warning came amid a persistent shortfall in revenue, which led Prime Minister Thongsing Thammavong to order ministries and government agencies last month to closely control expenditures for Laos to pay its debts and avoid a financial crisis.

Finance Minister Phouphet Khamphounvong told the national assembly, the country’s parliament, in July 2013 that the government debt is  29.8 per cent of GDP. The debt to GDP ratio is one of the indicators of the health of an economy.

It is not immediately clear how much higher the debt level has risen since then but the prime minister has said, according to Vientiane Times, that “to turn the situation around” the government would delay paying monies owed to contractors carrying out its own projects to “take the strain off the country’s financial and currency concerns.”

IMF’s Ahuja said that inflation in Laos “is accelerating” as a result of rising fresh food prices and credit growth – partly driven by public spending – “raises concerns about the health of the banking system.”

He called for Laos to build up its international reserves “for precautionary needs,” cautioning that “ongoing fiscal expansion has exacerbated vulnerabilities,” adding that Laos’ fiscal policy needs to be put back on a “consolidation path” during the next few years. This will require improving tax collection by broadening the tax base and eliminating exemptions while rationalising expenditure to concentrate on priority social spending and investments.

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