Laos Faces Economic Struggles Amidst Rising Inflation, Trade Deficit

Patuxay Monument (Photo: Laotian Times)

Laos is grappling with ongoing economic challenges, marked by a dual struggle against rising inflation rates and a widening trade deficit.

Although the year-on-year inflation rate decreased slightly from 24.98 percent in March to 24.92 percent in April, as per recent data from the Lao Statistics Bureau, the country experienced a significant rise in inflation in April. The month-on-month inflation rate surged to 1.6 percent, up from 1.33 percent in March.

According to the data, the Consumer Price Index also surged, rising from 218.83 in March to 222.34 in April, highlighting the escalating cost of living in the country.

Various factors contribute to this inflationary pressure, including the unstable prices of fuel, gas, and imported goods. Compounded by the depreciation of the national currency, the Lao Kip, specific challenges arise from its depreciation against the Thai baht and the US dollar. This situation poses difficulties in maintaining low prices for imported goods.

For instance, vegetable prices at local markets in Vientiane Capital hit record highs during the recent Lao New Year celebrations, putting further strain on household budgets, especially for low-income residents.

Transitioning to trade, Laos saw its two-way trade reach a total value of USD 1,268 million in March. Exports accounted for 594 million, while imports stood at 675 million, resulting in a trade deficit of approximately 81 million.

This trade deficit is significantly impacting the inflation rate, particularly exacerbating the depreciation of the Lao national currency, the kip. This is primarily due to the country’s shortage of foreign currency reserves.

Among Lao exports, cassava remained the leading export, valued at USD 78 million, followed by gold bars at USD 56 million, and copper ore at USD 51 million. Other key exports included paper products, cassava starch, rubber, wood pulp, and sugar.

On the import side, diesel emerged as the primary import for Laos, valued at USD 105 million, followed by land vehicles at USD 56 million, and mechanical equipment at USD 53 million. Other notable imports included electrical appliances, steel products, vehicle spare parts, gasoline, and plastic utensils.

While Laos has faced a trade deficit for the third consecutive month this year, the Lao Trade Portal, as usual, notes that the report does not take into account the value of electricity trade.

In terms of Lao trade partners, China maintained its position as the leading destination for Lao exports, valued at USD 206 million, followed by Thailand, Vietnam, Australia, and the United States. Meanwhile, Thailand emerged as the primary source for Laos, amounting to USD 311 million, followed by China, Vietnam, the United States, and Japan.

The rising inflation rate and trade deficit both reflect significant economic challenges facing Laos, demanding strong efforts from the government to tackle these issues effectively. 

In a recent April government cabinet meeting, led by Prime Minister Sonexay Siphandone, the Lao government discussed a range of economic issues and emphasized the need for bold action to address high inflation, regulate prices, ensure petrol supply, boost production, reduce imports, increase exports, and strengthen foreign currency reserves.

Additionally, earlier this year, Thongloun Sisoulith, Secretary General of the Lao People’s Revolutionary Party Central Committee and President, also pledged to guide the economy towards greater independence and local ownership to enhance resilience. Laos’ economy heavily relies on imports for domestic consumption, making it vulnerable to external shocks and disruptions.