According to the Asian Development Bank (ADB), economic growth in Laos will be slower than expected due to weaker growth prospects in China, adverse weather conditions brought about by late monsoons, and macroeconomic pressures arising from unsustainable public debt and a weak Lao kip.
The Asian Development Outlook (ADO) September 2023, an update of ADB’s flagship publication, lowered the growth forecast for Laos in 2023 to 3.7 percent, from an earlier 4 percent projection. Maintaining a stable outlook for the future, the 2024 growth forecast was kept at 4 percent. Inflation is projected to remain high until year-end, lifting average annual inflation to 28 percent. Price adjustments linked with the depreciating local currency are expected to keep inflation high in 2024 at 10 percent.
“Rising food prices have affected households’ purchasing power, with many families coping by eating less,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “Sound macroeconomic management, including stronger coordination across fiscal and monetary policies, is urgently needed to address the country’s economic and financial challenges.”
Currency depreciation and high inflation tempered household spending in the first half of 2023. After falling by half against the United States (US) dollar and by 44 percent against the Thai baht in 2022, the kip depreciated from January to August 2023 by a further 13.6 percent against the US dollar and 14.8 percent against the baht.
Consumer price inflation remains elevated, having peaked at 41.3 percent year-on-year in February before gradually declining to 25.9 percent in August. Food price inflation has been higher, averaging 45.6 percent in the first 8 months of 2023, on imported food and higher production costs from imported agricultural goods.
Public debt, a large portion of which is external, was reported at 97 percent of gross domestic product in 2022, up from 76 percent in 2021. Even with a decline in nominal terms from USD 2.4 billion in 2021 to USD 12 billion in 2022, public debt is unsustainable. Resolving the country’s debt challenges will require efforts across the government and from creditors to make public financing practices more transparent and sustainable.
Meanwhile, due to reduced exports, the ADB also lowered the 2023 growth outlook for Southeast Asia to 4.6 percent, from an earlier projection of 4.7 percent.
Laos’ main trading partner, Thailand, saw an increase in economic growth projection from 3.3 percent to 3.5 percent for 2023 and up to 3.7 percent for next year.