Laos' purchasing power will remain high despite allowance cut: economists
Laos' purchasing power will remain high despite allowance cut: economists
Purchasing power in Laos will remain high despite the government's decision to cancel the living allowance for state employees, according to a senior economist.
The Lao National Economic Research Institution Director General, Dr Leeber Leebouapao, made the comment on Monday amid concern among businesspeople that purchasing power would be lower than previous years because of the suspension of the allowance.
“The government has not lowered overall budget expenditure as many understood, it only diverted money from one expenditure plan to another,” Dr Leeber said in an interview with Vientiane Times.
The government stopped paying state employees the living allowance of 760,000 kip (US$95) per person per month they were previously entitled to on October 1.
In doing so, the government hoped to save 2,000 billion kip (US$250 million) this fiscal year and use the money to pay off its debts, which have resulted from unplanned development projects and natural disaster recovery efforts.
Dr Leeber said since the government had not tightened its belt and the amount of money it spends this fiscal year will remain unchanged, the suspension of the living allowance will not be enough to cause a slow-down in purchasing power.
The government has recently gained approval from the National Assembly to spend 29,745 billion kip (US$3.7 billion) this fiscal year while it expects to collect only 25,261billion kip (US$3.1 billion) in revenue, according to a report from the Ministry of Planning and Investment.
It also plans to borrow 4,528 billion kip (US$566 million) to address the budget deficit.
Dr Leeber said state employees would have lower purchasing power but not business people as they would still have enough money to spend. The government has made a commitment this year to pay off the debt it owes to businesspeople.
Dr Leeber said one of the biggest macroeconomic issues facing the country was inflation rising as the government failed to meet revenue targets, which will eventually result in a large amount of money circulating in the public.
The government was able to collect 95 percent of its revenue target, according the ministry's report.
Other economists said the government was only able to collect revenue worth 19 percent of its GDP, which is lower than other countries in the region.
Most of the countries in the region are able to collect revenue worth around 25-27 percent of their GDPs, which gives their governments the power to manage inflation and shore up budgets for future expenditure plan
The economists said the government must work harder to collect more revenue as the economy grew to safeguard economic stability.
Most of the economists were still optimistic about economic stability and growth in 2014, and said the influx of foreign investment and the natural resources sector, especially hydropower, would keep the Lao economy growing by 8 percent per year.
vientiane times
