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World Bank optimistic about economic growth in Laos

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Christian Fernsby ▼ | August 13, 2019
The World Bank is optimistic about economic growth in Laos, which is projected to rebound to 6.5 percent in 2019, rising from 6.3 percent recorded in 2018.
Laos street
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Despite continued fiscal tightening, the pickup is expected to be driven by robust investment in mega infrastructure projects including the China-Laos railway, according to the World Bank's Lao Economic Monitor released on Monday in Lao capital Vientiane.

Topics: World Bank Laos

Economic growth will also be driven by a resilient services sector led by wholesale and retail growth associated with robust construction.

Meanwhile, Lao government remains committed to fiscal consolidation to contain public debt in the medium term by tightening public spending and improving revenue administration. This should result in a decline in the fiscal deficit from 4.4 percent of GDP in 2018 to 4.3 percent in 2019.

Economic growth is rebounding after declining in 2018 partly due to the impact of floods, local daily Vientiane Times on Tuesday quoted World Bank Country Manager for Laos, Nicola Pontara as saying at the launch of the World Bank's Lao Economic Monitor report in Vientiane.

However, he warned, Laos is at high risk of debt distress and several measures needed to be undertaken to deal with this situation.

"Strengthening revenue collection is important to create fiscal deficit space and reduce the burden of public debt," Pontara said.

"Looking forward, it will be important to improve the business environment to support private sector development, including the growth of small and medium enterprises. These measures can contribute to maintaining a stable macroeconomic environment, promoting job creation and reducing poverty and inequality," he added.

Lao Senior Economist at The World Bank Lao Office, Somneuk Davading, said compared to other countries in the region, economic growth in Laos remains strong and the nation is one of the top five countries in this dynamic region.

Nevertheless, he said, Lao government needs to continue its reform measures and further improve the investment climate to attract more capital.

One of the main challenges for Laos is to ensure environmentally-friendly and quality growth, which generates job opportunities for local people. Instead of relying on the export of natural resources and raw materials, it is essential to ensure that value-added products are also exported, said the report.

Laos is vulnerable to external impacts and natural disasters, which can add fiscal pressure. Likewise, if compared to other countries in the region, foreign reserves in Laos are lower, according to economists.

The depreciation of the kip against the U.S. dollar and Thai baht is another concern for Laos, which could impact on debt serviceability, according to the report.

The World Bank report also notes the key constraints faced by small and medium enterprises such as access to finance, competition with informal firms, and electricity outages. The report confirms that strengthening the performance of SMEs can improve the quality of jobs, generate income and contribute to the greater well-being of the Lao people.

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