Laos is facing significant economic challenges as its national currency continues to depreciate against foreign currencies, notably the US dollar and the Thai baht. This trend poses a significant challenge to the stability of the Lao economy.
As of 7 May, the Bank of Laos (BOL) set the exchange rate at LAK 21,391 to the US dollar and LAK 596.90 to the Thai Baht. However, commercial banks, including Banque Pour Le Commerce Exterieur Lao Public (BCEL Bank), Phongsavanh Bank, and others, are currently selling at different rates, offering LAK 21,393 for a US dollar and LAK 657.90 for a Thai baht.
In contrast, unofficial or “shadow” rates are notably higher, exceeding LAK 24,000 for the US dollar and surpassing 666.00 for the Thai Baht, according to a local money exchange shop.
The latest wave of depreciation of the Lao kip began in August 2020, coinciding with the economic challenges brought about by the COVID-19 pandemic. This decline has been significant, with the kip nearly tripling against the US dollar and more than doubling against the Thai baht. In early August 2020, local banks in Laos were selling at only LAK 8,868 for 1 USD and LAK 300 per THB 1.
In November 2021, the Lao national currency hit a 15-year low, trading at LAK 10,689 to the US dollar. Just last year, in September, the Lao kip reached another record low, trading at over 20,000 for the US dollar.
Several factors contributed to this decline, notably the country’s trade deficit, which heavily relied on importing a significant portion of fuel and food consumption, with the country facing a third consecutive month of trade deficit in the first three months of this year.
Meanwhile, the recent report also revealed that while the year-on-year inflation rate decreased slightly from 24.98 percent in March to 24.92 percent in April, the country experienced a significant rise in inflation in April, with the month-on-month inflation rate surging to 1.6 percent, up from 1.33 percent in March.
This pressing challenge has caused Lao residents to face financial difficulties, especially for workers whose salaries are insufficient to meet their daily needs due to low wages and currency depreciation. Consequently, this has led to a labor shortage in the country, as many workers are leaving to seek job opportunities abroad, notably in Thailand, South Korea, Malaysia, and Japan.
To address the issue, the Lao government pledged to promote exports and reduce imports, especially consumer goods and products that can be produced in Laos. Recently, the BOL has also introduced a new regulation requiring foreign investors to open a Foreign Direct Investment Bank account (FDI) within 15 days of obtaining a business license, either in Lao Kip or a convertible foreign currency. This regulation aims to monitor and facilitate capital flows, encouraging direct foreign investment in Laos.
Despite these efforts, the trend of depreciation of the Lao kip currency is likely to persist, necessitating more concerted efforts to address this pressing issue.
