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Wednesday, June 19, 2024

Human Capital, Green Sustainability: Two Priorities for Laos’ Future Economic Model

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Laos is currently facing challenges transitioning from commodity-driven growth to a more inclusive prosperity model, reveals a new report from the Organisation for Economic Co-operation and Development (OECD).

The report, titled “Multi-dimensional Country Review (MDCR) of Lao PDR,” was launched on 6 June in Vientiane Capital. It highlights the country’s development journey, noting sustained economic growth of over 7 percent annually from 2000 to 2019, driven by strong commodity exports and substantial external financing.

The report shows that foreign direct investment (FDI) increased in Laos from USD 187.4 million in 2006 to USD 1.69 billion in 2017. During this period, extreme poverty dropped from 25 percent to 7 percent, while household income, education, and healthcare also saw significant improvements.

However, Laos now faces challenges with its current development model, worsened by the impact of COVID-19, which has increased food and energy prices. Debt-financed investments, including public-private partnerships (PPPs), have fueled growth, but slow government revenue growth hinders the country’s ability to manage its growing debt and invest in human capital.

Moreover, economic growth and investment have been unevenly distributed, with certain sectors and state-owned enterprises (SOEs) dominating opportunities. Most of the workforce is still in informal sectors, and environmental issues including deforestation and air pollution continue.

To address these challenges, the report suggests a shift towards human capital development and green sustainability. This includes reducing the debt burden to create fiscal space, reforming the tax system to boost revenue, improving access to resources and infrastructure to attract sustainable investments, and increasing investment in education, healthcare, and social services.

Additionally, the report also emphasizes the need to enhance data collection and institutional capacity for green and climate finance, along with improving coordination among government agencies and development stakeholders.

As Laos navigates this critical juncture, the adoption of comprehensive reforms outlined in the MDCR could pave the way for a more resilient and sustainable future.

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