Inflation Limits Lao Families’ Recovery From COVID-19, Says New World Bank Report

Inflation Limits Lao Families’ Recovery From COVID-19, World Bank Report Finds
Mothers and their children, Laos. ( Photo: World Bank )

While economic activity has recently picked up in Laos, the rising cost of living is having a widespread negative impact, with poorer families most severely affected, a World Bank survey released in May shows.

The World Bank’s latest Rapid Monitoring Phone Survey, conducted from December 2022 to January 2023, covers access to food, employment, and the impact of inflation on households, family businesses, and farms. The survey also addressed economic activities and income, coping mechanisms, and access to social assistance. It was accompanied by a qualitative community survey on how rural people perceive the impacts of both COVID-19 and the economic situation, particularly spiraling inflation.

The survey, presented at the National University of Laos, found that non-farm employment picked up in the second half of 2022, with some workers shifting from agriculture to services. Low-skilled and rural workers benefited most from this recovery, as labor wages increased, and the number of workers needing to take a second job declined. Revenues from family businesses also rose in 2022, particularly for agricultural and construction businesses, which are important for low-income and rural households.

Despite this recovery, increases in cash income were not sufficient to outweigh the impact of inflation, with the real value of income falling for most workers and households. Almost 90 percent of those surveyed were affected by inflation, with over half experiencing a “significant impact.” Inflation and currency depreciation were cited as the most pressing issues for the government.

“The devaluation of the kip in 2022 has affected Lao people by raising prices, especially for food and fuel,” said World Bank Country Manager Alex Kremer. “It is therefore critical that pressure on the currency is relieved, for example by reviewing tax exemptions and returning the Value Added Tax rate to 10 percent”.

Many families have responded to inflation by growing or foraging food, switching to cheaper options, or reducing how much they eat. With about 90 percent of family farms noting increased fuel and input prices, many reduced crop production. As a result of these pressures, people reported borrowing or using their savings to cope and also reduced spending on health and education. Children from low-income households were more likely to drop out of school.

Dr. Phouphet Kyophilavong, Dean of the Faculty of Economics and Business Management at the National University of Laos, said the monitoring work offered valuable insights into how the economic downturn affects ordinary people across the country. “The more we know about the real situation across the country, the better we can advise on policies that make a difference,” he said.