In a bid to curb inflation and stabilize the Lao economy, Prime Minister Sonexay Siphandone unveiled a strategic plan on 14 August. This new initiative, targeting the last five months of 2024, aims to bring inflation under control, manage the currency exchange rate, and ensure economic stability.
The Lao government’s plan focuses on bolstering domestic production and reducing reliance on imports as key measures to address the nation’s economic challenges. With the goal of lowering inflation to below 20 percent by December, the strategy also seeks to stabilize the exchange rate and limit the growth of the money supply (M2). M2 includes cash, checking deposits, and other readily accessible funds.
Monetary Measures
The plan includes a series of adjustments to monetary policies. The Bank of Laos will revise its basic interest rates, closely monitor deposit and loan rates, and employ various tools to control the money supply. To manage the discrepancies in the monetary base, the government will implement compulsory fees, promote open market operations, and issue bonds and deposits with the national bank to absorb excess liquidity in the banking system.
Foreign Exchange Management
A significant aspect of the plan is the establishment of a centralized foreign exchange market, or FX Platform, which will oversee transactions for individuals, businesses, and interbank exchanges. This system is designed to allow exchange rates to fluctuate within flexible limits, thereby better managing foreign exchange activities and addressing transactions occurring outside the formal system.
Promotion of Local Currency and Goods
To strengthen the use of the Lao kip and reduce dependency on foreign currencies, the government plans to encourage the public to prioritize local goods and services. Measures will be taken to discourage the use of services outside of Laos, including imposing consumption taxes, reducing quotas on non-essential products, and restricting the import of goods that can be produced domestically.
Additionally, the government will enforce strict regulations to ensure that all goods are priced in kip, with tax stamps or labels on products. Violators of these regulations will face stringent penalties. The official notice didn’t specify the details of such penalties.
Earlier, on 7 August, the Ministry of Finance signed an agreement with TL Holding Co., Ltd. to establish the Lao Bullion Bank. The goal is to build gold reserves, strengthen the Lao Kip, and improve financial stability. The government believes that this Bullion Bank will help Laos become more self-sufficient and better positioned in regional and global markets.
By promoting local production, controlling inflation, and stabilizing the exchange rate, the government is taking steps to secure a more stable economic future for the nation.
