Economic recovery in Laos slowed amid a second wave of the Covid-19 pandemic that has led to lockdowns and lower consumer spending, according to a report released by the Asian Development Bank (ADB).
The country’s economy is expected to grow by 2.3% in 2021, compared with the 4.0% expansion forecast in April, according to the Asian Development Outlook (ADO) 2021 Update. The global recovery is expected to spur domestic growth in 2022, albeit lower than projected in ADB’s previous forecast.
“Policies to reduce the spread of the coronavirus have curbed output in manufacturing and hurt growth in the retail trade, transport, and tourism services,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “Curtailed economic activity has increased joblessness and reduced household incomes, especially among women and those with lower education. A swift recovery from the pandemic depends on policies that support businesses and households to adapt to the ‘new normal’.”
With lower domestic demand, inflation stayed at 3.1% on average in the first 7 months of this year. The kip has depreciated against foreign currencies, with the spread between official and parallel rates for the kip and US dollar exceeding 20% during July, reflecting a domestic shortage of currency following large external public debt payments. Revenue collections are yet to return to pre-pandemic levels, with public finances remaining constrained.
The report says the country’s economic recovery will be supported by the issuance of new mining licenses and earnings from electricity exports, as well as the planned opening of a railway linking the Lao PDR with the People’s Republic of China. With a forecast of warmer temperatures and rainfall on-trend, rice and cash crop harvests are expected to be stable.
Challenges remain. New measures to contain Covid-19 outbreaks and the pace of the vaccine rollout will impact the country’s economic prospects. Measures to strengthen macroeconomic management and improve investor sentiment remain essential to the economic recovery and household welfare, as reported in ADO 2021 in April.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.
