Japan has submitted proposals to Laos on how to improve its fiscal stability as the country faces debt problems due to heavy borrowing from China.
The proposals by the Japan International Cooperation Agency experts stressed the need to make major infrastructure projects profitable and to scrap money-losing state-run companies, NHK reported.
They also pointed out that Laos depends on foreign currency borrowing and advised the country to shift to longer-term loans while maintaining confidence among investors.
NHK quoted Mr. Toshiro Nishizawa, a professor at the Graduate School of Public Policy of the University of Tokyo, as saying that Laos was overly optimistic when it procured the loans.
He added that it’s necessary for Laos to think about how ongoing infrastructure projects can contribute to economic development.
Laos is suffering mounting fiscal deficits amid its reliance on massive loans from China to finance its infrastructure projects, such as railway construction. Accordingly, China has asked Laos to grant rights to operate major infrastructure as collateral.
According to the World Bank, the Lao government is currently seeking to maintain macroeconomic stability by reducing the fiscal deficit and strengthening public debt management.
As a result, there has been fiscal consolidation, with the fiscal deficit expected to decline to 4.3 percent of GDP in 2019 from 4.4 percent in 2018 and 5.5 percent in 2017, according to the bank.
“The government is strengthening revenue administration and efficiency through the introduction of electronic tax payments and modernizing the tax collection system while containing wages and investment spending in 2019,” it added.
Fiscal consolidation is expected to slow down the accumulation of public debt in the medium term, the bank noted.