IMF commends Laos' sound economic policies
IMF commends Laos' sound economic policies
The International Monetary Fund (IMF) has welcomed Laos' efforts to maintain strong economic policies this year.
IMF Executive Directors posted the comment on the Fund's official website after completing the Article 4 Consultation process with the Bank of the Lao PDR and the annual economic growth assessment last month.
IMF officials said these sound economic policies have played a significant role in helping Laos, the smallest economy in Asean, to maintain impressive economic growth, reduce poverty, lower inflation, and improve debt dynamics this year.
“The directors encourage the authorities to take advantage of these favourable conditions to maintain macroeconomic and financial stability, build external and fiscal buffers, and achieve sustainable and broad-based growth,” the IMF statement said.
However, IMF officials recommended a further tightening of monetary policy to help address the risks stemming from rapid credit growth, adding that quasi-fiscal lending to local governments should be phased out. The pace of monetary expansion should be reduced through sterilisation and higher reserve requirements, the officials warned.
The IMF also encouraged the authorities to strengthen the monetary policy framework and avoid pursuing multiple policy objectives. Moving to an explicit inflation target range in the medium term would help enhance the effectiveness of monetary policy and anchor inflation expectations.
The officials stressed the importance of replenishing international reserves, to be supported by tightening macroeconomic policies and taking advantage of the prospective large capital inflows. They also emphasised the need to strengthen banking supervision to maintain financial sector stability. Improving the regulatory and pr udential toolkit would ensure the quality of credit amid financial deepening.
IMF also encouraged the authorities to participate in the Financial Sector Assessment Programme in due course, and welcomed the efforts underway to address the shortcomings in the Anti-Money Laundering and Combating the Financing of Terrorism regime.
The officials welcomed the commitment to prudent fiscal policy and building buffers to deal with future shocks. They encouraged the authorities to exercise restraint in civil service wage increases which could crowd out higher priority spending. The directors recommended anchoring fiscal goals around the non-mining deficit.
They also welcomed the establishment of the State Accumulation Fund sourced from excess revenues and underspending, which will strengthen the ability of the budget to respond to future shocks.
They recognised the improved debt sustainability assessment and called for further strengthening of the debt management framework and maintaining prudent borrowing policies.
vientiane times
