Laos chalks up US$2.1 billion trade deficit: ADB
Laos chalks up US$2.1 billion trade deficit: ADB
Laos recorded a huge trade deficit last year due to the rapid surge in domestic demand, according to a key report from the Asian Development Bank, highlighting how import-dependent the country remains.
The bank released its flagship annual economic publication, the Asian Development Bank Outlook, on Tuesday. The report shows that in 2012 the value of Laos' imports climbed to US$5.4 billion, while over the same period the value of exports was just US$3.4 billion, resulting in a trade deficit of US$2.1 billion.
The report said the rapid increase in the value of imports can be attributed largely to strong credit growth and strong domestic demand due to increasing foreign direct investment.
Credit value saw 36 percent growth in 2012, remaining considerably high. However credit expansion was moderate compared to the previous year after the Bank of the Lao PDR reduced its direct lending for infrastructure projects and slowed the registration of new commercial banks to dampen the growth in credit.
Continuing inflows of Foreign Direct Investment (FDI) also helped to increase the value of imports to Laos in 2012. Foreign Direct Investment reached US$1.4 billion last year, double the amount in 2010.
However, Laos' international reserves stand at US$708 million, which can secure the importation of goods and services for a period of only 1.6 months, according to the ADB report.
Officials at the Bank of the Lao PDR admitted that foreign reserves were low at about US$700 million. However, they stressed that this amount could secure the importation of essential goods and services for about five months, saying that most of the goods imported are not general consumables but construction equipment and materials for investment projects.
Bank officials said the importation of construction materials for foreign investment projects would not put strong pressure on the management of foreign reserves or the supply of foreign currencies to secure the import of consumer goods.
Officials said the central bank was able to secure foreign currency for imports, adding that the increase in the value of the baht against the kip has nothing to do with foreign reserves. They said the value of the kip has been increasing steadily against the dollar, thus bolstering purchasing power.
They also said the increase in the trade deficit is due mostly to foreign investment, which is a positive signal for the development of the country. They pointed out that projects such as hydropower plants will generate large amounts of income for the country in the years ahead.
The bank officials also said the rapid build up of the trade deficit due to the surge in foreign investment projects will, in future, help Laos to achieve a trade balance and surpluses, once these projects produce exports.
Analysis shows the rapid credit growth was due to strong competition among banks to release loans to SMEs and middle income earners for the purchase of vehicles. Many financial institutions now offer leasing services for the buyers of cars and pickup.
vientiane times
