Laos Economy Recovers, Falters Again Under Covid-19

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Laos economy in 2021
Vientiane Life Center (Photo: Phaen YTK)

The economy of Laos is on course for moderately improved growth in 2021, despite the second wave of Covid-19 denting the promising economic recovery made early in the year.

The World Bank’s latest Economic Monitor for Lao PDRA Path to Recovery — predicts that GDP growth will rise to 3.6 percent in 2021, against a figure of 0.5 percent in 2020.

This forecast is down from the 4 percent growth projected in March 2021, and depends on various assumptions, including economic recovery in neighboring countries, accelerated vaccination rates nationwide, and mitigation of community outbreaks over the rest of the year.

Growth could yet fall further if the Covid-19 outbreak worsens and strong lockdown measures persist, or if Laos again suffers repeated natural disasters such as flooding, drought, or outbreaks of livestock disease.

Agriculture and industry are driving much of the growth, with agricultural exports increasing, while electricity, mining, and manufacturing exports have rebounded from the trade slowdown last year. In tourism, hospitality, transport, and other services however, lockdowns and the continued curbs on international travel mean that most firms are struggling, depriving the country of a major income source.

Lao PDR is doing well to contain the coronavirus and get vaccinations out across the population”, said Alex Kremer, the new World Bank Country Manager. “However, the risk of debt distress, a weak kip, and low government revenues continue to limit the government’s options for reviving the economy. Reforms that would boost private investment, tax payments, and trade would help in this matter.

According to the report, the falling value of the kip is causing inflation to rise, which in turn has led to worries about access to food and basic goods. This problem is particularly pressing for poor people in towns and cities. In a thematic section, Impacts of Covid-19 on Businesses and Households, the report shows that employment dropped sharply in May this year, while over 30 percent of family businesses have closed since the start of the pandemic. Business surveys conducted by the World Bank indicate monthly sales fell by 48 percent in March to April 2021. Almost half of all firms have reported cashflow shortages, and more than a quarter of businesses expect to fall into debt over the next six months.

To ease the effects of the economic slowdown, the report recommends that Laos increase the momentum on business reforms and trade facilitation so that it can properly benefit from new infrastructure and from trade agreements. This can be achieved by streamlining current investment regulations and procedures, increasing the ease of doing business, lowering transport and logistics costs, and supporting improved product quality, especially for agricultural exports.

Expanding government support programs for businesses, along with better promotion of these assistance schemes, would help companies stay afloat and provide vital income and revenue, while measures to help more Lao firms invest in digital technologies or new delivery methods could help companies turn crisis into opportunity, according to the report.

The Lao Economic Monitor is published twice yearly by the World Bank.