Keep budget deficit below 5 percent of GDP, govt advised
Keep budget deficit below 5 percent of GDP, govt advised
Economists have warned that the government should not increase the budget deficit above 5 percent of Gross Domestic Product (GDP) in the long term as it might push the country into chronic debt.
A senior economist from the National Economic Research Institute, Dr Leeber Leebouapao, told Vientiane Times yesterday that raising the budget deficit above 5 percent should only be done in the short term, but even then the government needs to cautiously manage debt.
According to a recent government report, the budget deficit has increased from 5,787 billion kip (equal to 5 percent of GDP) to 7,418 billion kip (equal to 6.43 percent of GDP).
The National Assembly (NA) has approved the government's proposal to reduce the 2015-16 fiscal year budget after the country's failure to collect sufficient revenue over the past six months.
This means the plan for revenue collection this fiscal year is adjusted down from 26.159 trillion kip to 23.7 trillion kip and budget expenditure from 31.946 trillion kip to 31.118 trillion kip.
The move comes after revenue collection over the past six months of this fiscal year amassed only 8.013 trillion kip, equal to 30.6 percent of the yearly plan.
Dr Leeber said the government will face greater challenges in sourcing funding to repay the budget deficit which can be done by borrowing and issuing bonds to the private sector or to other countries.
“We understand that expenditure on salary and allowances for officials cannot be cut despite the revenue shortfall. Of course, the government will face an even greater debt by raising the deficit above 5 percent. What I recommend is that the government should not do this in the long term given that our debt might spiral out of control,” he said.
“If we fail to control the deficit, our chronic debts could escalate beyond our capacity to manage them.”
Laos has faced a revenue shortfall for the past three years. The shortfall is linked to several factors including falling commodity prices, especially of minerals and oil. Secondly, there are loopholes in revenue collection that need to be addressed.
Despite the revenue shortfall, the government adjusted budget expenditure down by only 828 billion kip. In contrast, it will cut the target for revenue collection by 2,459 billion kip.
Economists say the new gov ernment needs to work harder to close loopholes in revenue collection and strongly punish officials who violate the laws.
Last year, many companies declared that they had not made a profit and so did not pay profit taxes. This matter needs to be closely inspected to check whether these companies really did not make a profit.
Laos is a least developed country with a GDP of 102.320 trillion kip (US$12.7 billion) and economic growth of 7.6 percent this year.
