Overview of Laos’ Economy in 2021 and Forecast for 2022

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Overview of Laos' Economy in 2021 and Forecast for 2022.

The Lao National Socio-Economic Research Institute has released a report on the state of the economy in Laos for 2021, as well as predicted trends and forecasts for 2022.

Here is a brief overview of the report provided by 10Story

  1. Foreign Direct Investment

In the first nine months of 2021, the total value of foreign direct investment reached USD 8.16 billion, an increase of 13.2% from the same period the previous year. The main sources of capital inflows into Laos were for the construction of the Laos-China Railway, the Vientiane Logistics Park, products and services in special economic zones, agriculture and mining, road construction, and projects related to the energy sector.

  1. Exports 

Exports in 2021 will continue to grow in line with the recovery of the international regional economy and will be the main source of foreign exchange earnings to replace declining tourism revenues. The value of exports for the whole of 2021 was USD 7.495 billion, an increase of 21.7%. Exports to China were valued at USD 2.220 billion US dollars, Vietnam at USD 1.220 billion, and Thailand worth USD 2.509 billion US dollars. Major exports in 2021 included electricity, unprocessed coffee, minerals, ore, and bananas.

  1. Production

In terms of production, electricity, minerals, and the processing industry were prominent in 2021, while the agricultural sector also performed well due to lesser incidence of natural disasters, pest outbreaks, and animal diseases. There was also an increased demand for foods, both domestically and internationally. 

  1. Tourism

Domestic tourism in 2021 did not perform as well as during 2020 due to household income constraints and restrictive Covid measures in place from late April until the end of 2021. The number of domestic tourists in 2021 reached only 831,493 people, down from 1,581,100 in 2020. However, the opening of the Laos-China Railway at the end of 2021 and the reopening of the country in 2022 may be an important factor in attracting and facilitating both domestic and foreign tourists.

 

  1. Employment

The Covid-19 outbreak has affected employment across the country as businesses, factories, companies, and investment projects have reduced production, services, or temporarily suspended operations, and in some cases shut down permanently. According to the Ministry of Labor and Social Welfare, there will be a total of 496,000 unemployed workers in 2021, making for an unemployment rate of 21.8% (up from 9.4% in 2017).

 

Overall Financial Stability

Overall, macroeconomic stability remains fragile, with inflation on the rise, while the exchange rate continues to depreciate, and the country retains limited foreign exchange reserves. Despite better performance in 2021 than the previous year, implementation of revenue collection failed to meet targets, with tax collection still low, and a significant increase in budget revenue stemming from non-tax sources. Meanwhile, an experiment to collect revenue from cryptocurrency mining operations and exchanges still faces a number of challenges.

Lao Economic Trends

The economy of Laos is expected to grow by 4.0% in 2022, provided that key economic sectors are able to maintain growth close to that of the previous year, while the reopening of the country to tourism should help the service sector recover at a faster pace.