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Monday, July 15, 2024

‘Unlocking’ Reform Policies Can Help Laos Realize Economic Potential

This Week

Laos is facing significant economic challenges but has the potential to develop sustainably and more equitably, according to a new World Bank report.

The latest Lao PDR Country Economic Memorandum, Linking Laos, Unlocking Policies, analyzes economic performance over the last 20 years and draws lessons from inside and outside Laos to recommend how the country might best use its natural advantages. The report was launched today with a panel discussion featuring representatives from government, the private sector and academia.

The report finds that following rapid growth in the early 2000s, Laos has become limited by an economic model dependent on capital-intensive resource industries such as mining and hydropower. While these sectors have generated economic growth, the benefits have not been widely shared — for example through job creation.

While poverty has decreased, it has done so more slowly than in other fast-growing economies, and growth has come at an environmental cost.

The panel at the launch event, including Sthabandith Insisienmay, Deputy Minister of Planning and Investment, and Manothong Vongsay, Deputy Minister of Industry and Commerce, discussed the report’s recommendations on how Laos can take advantage of its strategic location and natural wealth to rebalance the economy for more inclusive and sustained growth as the world moves beyond the COVID-19 pandemic.

Laos has considerable “natural capital”, such as forests, biodiversity, minerals, and water. It also has one of the youngest populations in the region, with potential for a substantial demographic dividend in coming decades. Its geographic location, neighboring some of the world’s fastest growing economies, is another significant asset, providing demand for Lao exports, cheap sources of imports, and opportunities for investment and connection with global supply chains, right at the country’s doorstep. These can all help Laos to grow and diversify its economy.

“The government has already started moving towards a new model by encouraging investment in export-oriented special economic zones, and by improving environmental protection.”

“However, lack of progress on reform implementation is limiting the country’s potential. While substantial investments are being made in railway and road infrastructure, reforms to improve transport, logistics, and the overall business environment are needed to ensure these investments help the country benefit from new trade opportunities and diversify from natural resources.” said Sebastian Eckardt, World Bank Manager for Macro Economics and Fiscal Management in East Asia and Pacific Region.

The report stresses that rather than creating new policy reforms, the government needs to “unlock” existing policies and follow through with implementation. The domestic business environment is currently unpredictable and restrictive. Combined with limitations in the labor market, this creates obstacles for Lao firms trying to compete regionally and internationally.

Laos could make significant strides in improving the business environment by allowing productive companies to invest and expand, and by letting efficient new firms enter the market and grow.

The Country Economic Memorandum offers a set of policy directions that can help leverage Laos’ strategic location and natural wealth to achieve more inclusive and sustainable growth. The immediate priority is to restore macroeconomic stability, which is crucial to the success of future structural reforms. The country can then use its advantages to improve socioeconomic conditions for its young and growing population, diversifying the economy toward job-creating, export-oriented sectors such as agri-food, light manufacturing, and services, and ensuring that the benefits of growth are shared more broadly.

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