Lao economy stable: analyst
Lao economy stable: analyst
Laos is able to maintain macro economic stability despite rising concerns over public debt management, according to a senior economist.
“In recent months, what we have seen is that Laos continues to enjoy macro economic stability,” Director General of the Lao National Economic Research Institute, Dr Leeber Leebouapao, told Vientiane Times on Wednesday.
The veteran economist, who is keeping a close eye on the economic situation, made the comment amid rising concern over public debt management, which could drive Laos into financial crisis if badly handled.
The government is under pressure over its inability to collect sufficient revenue to meet its expenditure targets and pay debts owed to construction companies that have financed public infrastructure development projects.
Some of these companies have taken out bank loans and need the government to repay the loan and interest to the bank. If this doesn't happen soon the banks will have insufficient capital and this could have an adverse impact on overall macro economic stability.
Dr Leeber said one of the main indicators that the economy was in good health was that economic growth remained high at 7.5 percent, even though this was down from the earlier projection of 8 percent.
“Laos' economic growth rate remains the highest in the region despite the slight drop. China has experienced much lower economic growth,” he said.
He also noted that the average inflation rate was about 5 percent, which was normal and below the GDP growth rate, while the exchange rate was flexible within a set range of five percent.
Dr Leeber said economists had expressed concern over rising public debt and management, explaining that public debt should not exceed 40 percent of GDP.
There is no data available on the amount of public debt but Prime Minister Thongsing Thammavong has admitted that Laos has a huge debt and needs to tighten its belt to safeguard macro economic stability.
The premier has announced the suspension of public infrastructure development projects as part of efforts to curb the rising tide of debt and ward off a financial crisis.
The International Financial Institute has warned Laos to prepare for a soft landing after enjoying robust growth over the past five years.
Economists say that many countries that have suffered financial crises, notably in Europe, were dragged down because of their inability to manage public debt, explaining that if a government cannot pay its debts on time it often resorts to printing more bank notes, which frequently drives up inflation.
Experts say Laos can help to prevent a financial crisis by creating confidence among investors so that they continue to invest, thereby creating jobs and boosting incomes.
Laos should also improve its business climate to boost private investment because investment by the government is set to decline due to budget cuts, they added.
vientiane times
