Business banking in Laos has taken a severe hit in the past few years as government officials have started limiting funds that have been typically granted to developers for implementing infrastructure projects in the past.
Construction of roads, mining, land concessions and various infrastructure projects have all been suspended due to companies facing financial difficulties and struggling to be approved for loans from banks.
Priority projects which have been approved by government officials have a higher likelihood of being approved for bank loans, as opposed to the private companies who seek funding.
According to the government’s latest report, the overall investments in 2016 reached 42.8 trillion kip, which was 24.2 percent more than planned, and accounted for 33.1 percent of GDP, increasing the value of bank financing from 6.7 trillion kip to 10.8 trillion kip.
Economists assert that the increase in bank credit is an indication that the Lao economy is growing, given that more money has been disbursed into the investment sector.
In an effort to ensure the effective use of the state budget in order maximize the interests of the nation, the Lao Prime Minister has signed off on Prime Ministerial Order No.9, stipulating various measures to control spending, including the suspension on all construction of public office buildings until 2020.
With a recent projection indicating that only 96 percent of the revenue targeted for 2017 will be collected, the government has planned to tighten budget expenditure by trimming its administrative budget.
State banks have been urged to supply more loans in order to promote productivity and facilitate the growth of small and medium businesses..
Laos is considered one of the least developed countries, with the value of its economy amounting to US$15.9 billion. In 2016, the Lao economy grew at a rate of 7.02 percent, driven by the industrial sector, particularly hydropower projects with GDP per capita reaching US$2,408.