Laos at risk of sovereign debt default

The China-Laos railway project, originally meant to bring economic growth, is pushing Laos deeper into debt

The small landlocked Southeast Asian country of Laos, among the poorest in the region, has come under substantial debt distress as its foreign exchange reserves have fallen below $1 billion, less than it is supposed to repay its international creditors annually, according to a Financial Times report.

Laos became heavily indebted by energy and infrastructure projects mainly loan-financed by China, and experts are seeing the country having fallen into the so-called China debt trap.

Rating agency Moody’s warned on August 14 that Laos is likely unable to meet its debt obligations and also had no credible strategy to improve the situation. As a result, Moody’s cut the country’s sovereign credit rating two notches to Caa2 from B3, which implies the material probability of default in the near term.

The Laos government has $1.2 billion of debt payments due before the end of the year and $1 billion on average each year until 2025, but faces virtually no economic growth this year due to the Covid-19 crisis.

Debt burden of more than $20 billion

Overall, Laos has sovereign debt estimated by rating agency Fitch of $12.6 billion, or 65 per cent of GDP, while Ėlectricité du Laos, the state power company and largest government-owned firm, has an estimated $8 billion of debt.

However, the country’s foreign exchange reserves stood at just $864 million as of June, according to latest available data.

“The absence of a transparent financing strategy and the opacity around how maturing debt obligations have and will continue to be met raises uncertainty about the capacity of the government to secure financing in time and at affordable costs,” Moody’s said.

Meanwhile, the Financial Times wrote that the Laos’s minister of finance has asked China, by far the country’s biggest creditor, for advice on a possible debt restructuring and relief.

Another large creditor is Thailand, which Laos has tapped regularly in recent years for commercial financing in the bond market. A default could hit Thailand, which itself suffers from severe economic contraction, hard.



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The China-Laos railway project, originally meant to bring economic growth, is pushing Laos deeper into debt The small landlocked Southeast Asian country of Laos, among the poorest in the region, has come under substantial debt distress as its foreign exchange reserves have fallen below $1 billion, less than it is supposed to repay its international creditors annually, according to a Financial Times report. Laos became heavily indebted by energy and infrastructure projects mainly loan-financed by China, and experts are seeing the country having fallen into the so-called China debt trap. Rating agency Moody’s warned on August 14 that Laos is...

The China-Laos railway project, originally meant to bring economic growth, is pushing Laos deeper into debt

The small landlocked Southeast Asian country of Laos, among the poorest in the region, has come under substantial debt distress as its foreign exchange reserves have fallen below $1 billion, less than it is supposed to repay its international creditors annually, according to a Financial Times report.

Laos became heavily indebted by energy and infrastructure projects mainly loan-financed by China, and experts are seeing the country having fallen into the so-called China debt trap.

Rating agency Moody’s warned on August 14 that Laos is likely unable to meet its debt obligations and also had no credible strategy to improve the situation. As a result, Moody’s cut the country’s sovereign credit rating two notches to Caa2 from B3, which implies the material probability of default in the near term.

The Laos government has $1.2 billion of debt payments due before the end of the year and $1 billion on average each year until 2025, but faces virtually no economic growth this year due to the Covid-19 crisis.

Debt burden of more than $20 billion

Overall, Laos has sovereign debt estimated by rating agency Fitch of $12.6 billion, or 65 per cent of GDP, while Ėlectricité du Laos, the state power company and largest government-owned firm, has an estimated $8 billion of debt.

However, the country’s foreign exchange reserves stood at just $864 million as of June, according to latest available data.

“The absence of a transparent financing strategy and the opacity around how maturing debt obligations have and will continue to be met raises uncertainty about the capacity of the government to secure financing in time and at affordable costs,” Moody’s said.

Meanwhile, the Financial Times wrote that the Laos’s minister of finance has asked China, by far the country’s biggest creditor, for advice on a possible debt restructuring and relief.

Another large creditor is Thailand, which Laos has tapped regularly in recent years for commercial financing in the bond market. A default could hit Thailand, which itself suffers from severe economic contraction, hard.



Support ASEAN news

Investvine has been a consistent voice in ASEAN news for more than a decade. From breaking news to exclusive interviews with key ASEAN leaders, we have brought you factual and engaging reports – the stories that matter, free of charge.

Like many news organisations, we are striving to survive in an age of reduced advertising and biased journalism. Our mission is to rise above today’s challenges and chart tomorrow’s world with clear, dependable reporting.

Support us now with a donation of your choosing. Your contribution will help us shine a light on important ASEAN stories, reach more people and lift the manifold voices of this dynamic, influential region.

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Donation Total: $10.00

 

 

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