Solid export performance from the power and manufacturing sectors continues, while tourism is expected to recover. Macroeconomic management is improving, with stronger efforts to increase revenues, keep spending under control, and clear arrears, with greater flexibility in the exchange rate. Inflation remains low at around 2%, but had started to pick up as oil prices recover.
The medium-term outlook remains broadly favorable, if fiscal consolidation and debt management progresses, along with reforms in the business environment and measures to strengthen the financial viability of the power sector. Promoting a vibrant private sector and investing in human capital will also help sustain growth into the future. “Lao PDR’s continued strong growth over the past decade has improved living conditions and services for much of the Lao population,” saidWorld Bank Acting Country Manager for Lao PDR, Viengsamay Srithirath. “Improvements in the business environment could help Lao PDR’s economy grow outside of the natural resources sectors, resulting in more jobs. Opportunities in agriculture, agro-processing, tourism, trade, and manufacturing have the potential to reduce poverty even further.”
Risks include high public debt, estimated at around 61% of GDP at the end of 2017, with a growth in the share of debt on less concessional terms. Parts of the financial sector also remain weak and foreign reserves need to improve. Lowering risks will require taking bolder steps on fiscal discipline, such as reconsidering the large portfolio of public investment and improving spending efficiency.
The report includes a thematic analysis on the rice value chain in Lao PDR. While rice remains the dominant crop, and is a critical food source for Lao PDR, the analysis suggests farmers have comparably low profit margins, while consumers are paying one of the highest prices for rice in the region. With high production costs and operational inefficiencies contributing to the imbalance, improvements will depend on more productive partnerships between farmers and millers, as well as more streamlined business regulations, improved public services to enhance rice commercialization, and better access to finance. These efforts will reduce farm production costs and increase the quality of rice, addressing some of the sector’s key challenges.
The Lao Economic Monitor is published twice yearly by the World Bank office in Lao PDR.