Govt to channel loans to boost production
Govt to channel loans to boost production
The government plans to supervise commercial bank lending practices to release more loans to production based investment projects, which can generate secure returns and repay interest.
Minister of Planning and Investment Mr Somdy Duangdy presented the National-Socio Economic Development Plan for 2014/2015 to a National Assembly conference to consider and approve earlier this month; highlighting the need for the supervision of banks in offering loans to businesses producing goods for domestic consumption and export, which will generate quicker returns and economic benefits.
The government expects that state owned and private banks would be able to release loans worth 6,500 billion kip (US$812 million), accounting for 21 percent of GDP to boost the economy next fiscal year.
Over the past few years, bank lending in Laos has increased rapidly and played a significant role in driving economic growth. However, most of the loans were released to real estate and infrastructure projects, which many economists believe have fuelled higher inflation in the country.
The Lao National Economic Research Institute Director General Dr Leeber Leebouapao welcomed the decision, adding that the government should curb lending to investment projects which are unable to generate revenues or repay bank loans and interest.
Dr Leeber said Laos should direct loans to investment projects which produce goods and services for domestic supply and export. The government also must secure loans for small and medium enterprises as part of efforts to diversify the economic base and sustain economic growth.
He said that one of the major concerns, which Laos is facing, is a shortage in the supply of domestically produced goods, one of the main causes of high inflation.
According to a report from the Lao National Statistics Bureau, the average inflation rate of Laos was about 6 percent over the first six months of the current fiscal year. The main driving force of inflation was the rising price of food.
Food prices saw an average increase of 10 percent in the first half of the 2013/2014 fiscal year.
The Bank of the Lao PDR Governor Dr Somphao Phaysith told the National Assembly conference the central bank would try its best to supervise the commercial banks to release more loans to boost the production of goods in accordance with the government policy.
However, he admitted it was not easy to force commercial banks to provide loans for particular investment projects, adding the commercial banks would lend to those investment projects from which they will get a return on investment.
He said what the central bank could do was supervise the Nayobay policy bank to release more low interest loans to farmers in the poor districts.
The policy bank offers low interest loans of about 7 to 9 percent a year depending on the loan period
Economists said the government needs to offer incentives so local and foreign banks will release loans for the commercial investment projects.
vientiane times
