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Growth to Continue but Economy Faces Significant Risks

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Economic growth in Laos will remain buoyant however the region still faces significant risks to growth, according to a new World Bank report.

The outlook of the Lao economy remains favourable overall but with increasing downside risks GDP growth is projected to remain at around seven percent in 2017 and 2018, supported by the healthy pipeline of power projects and growing opportunities for the non-resource sector resulting from closer ASEAN integration and efforts to improve investment climate reforms.

Higher power exports and continuation of recent trends in agriculture and manufacturing is expected to improve the external balance.

However, the risks have increased the outlook on commodity prices and development needs may continue to weigh on the fiscal position and public debt in the near term.

Efforts by the government to strengthen non-resource taxation, review exemptions and improve public finance management are expected to help improve the fiscal outlook in the medium term.

The risks to the financial sector remain, particularly from the health of some state owned banks, which still account for about half of the sector’s assets.

To fully reap the benefits of its hydropower potential, it is important to secure markets for the rapidly growing power generation and develop the required transmission systems.

Additional risks include a slowdown in key trading partners such as China and Thailand that might affect trade and investment.

To reduce risks, the report required East Asia and Pacific countries to take measures to reduce financial and fiscal vulnerabilities.

Over the long term, the report recommends that countries address constraints to sustained and inclusive growth including by filling infrastructure gaps, reducing malnutrition and promoting financial inclusion.

“The outlook for developing East Asia and the Pacific remains positive with weakness in global growth and external demand offset by robust domestic consumption and investment,” World Bank’s Vice President for East Asia and Pacific, Mr. Victoria Kwakwa said via video conference from Washington D.C.

The long term challenge is to sustain growth and make it more inclusive including by shrinking gaps in income and access to public services especially in China, improving infrastructure across the rest of the region, reducing persistent child malnutrition and harnessing the potential of technology to stimulate financial inclusion,” he said.

The report offers a comprehensive analysis of the outlook for East Asia and Pacific against a challenging global backdrop including sluggish growth in advanced economies, subdued prospects in most developing economies and stagnant global trade.

The report expects domestic demand to remain robust across much of the region, continued low commodity prices will benefit commodity importers and keep inflation low across most of the region.

Finally, the report recommends that countries harness the potential of technology in transforming financial services and increasing financial inclusion.

The region is technologically advanced with a high level of mobile phone penetration but lags in access to financial services.

To reap the gains from financial innovation, countries will need to strengthen legal and regulatory frameworks and enhance consumer protection.


Source: Vientiane Times

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