IMF recommends further economic reforms for Laos
IMF recommends further economic reforms for Laos
The International Monetary Fund (IMF) has advised Laos to undertake more reforms aimed at diversifying the economy, boosting private sector activity, and improving the business climate.
The IMF Executive Board concluded the Article IV consultation [1] with Laos recently, saying they welcomed progress on product and labour market openness and gains in poverty reduction.
�Trade integration and improvements in education and health infrastructure were encouraged. Enhancing financial deepening and financial access by small and medium-d enterprises would also support macro stability and growth,� IMF Executive Directors said.
The Directors welcomed the authorities' interest in improving the quality and publication of economic and financial data, with technical assistance from the Fund and other development partners as needed.
Laos has experienced rapid growth based on capital intensive investments in the energy sector.
As one of the least developed countries in Asia with a total GDP value of 108.709 trillion kip (US$13.27 billion), Laos is a member of the Asean Economic Community which has a combined market of over 600 million people.
Las has made progress in achieving the Millennium Development Goals, but the poverty level remains high, inequality has increased, and Laos' growth model needs to become more inclusive, in particular by integrating the mainly agrarian population into more productive activities.
The authorities have maintained macroeconomic stability by anchoring inflation to a stable exchange rate and bringing down the fiscal deficit in fiscal years 2013-14 and 2014-15.
However, fiscal progress was reversed in fiscal year 2015-16 and the economy has accumulated vulnerabilities in the form of high public debt, a progressively overvalued real exchange rate and pockets of weakness in the banking sector.
With few buffers to address shocks, the economy remains vulnerable to a rapid deterioration in the external environment, a sustained deterioration in the fiscal position, or a rapid reversal of foreign capital flows.
The IMF has forecast that Laos' GDP will grow at a rate of 6.8 percent this year and 6.7 percent next year, which is lower than the government's projected rate of 7 percent.
Growth remains strong, although it has slowed as the economy faces headwinds from major trading partners, low metals prices and a slowdown in agriculture. Inflation has risen slightly but remains contained. Domestic risks include a sustained reversal of fiscal consolidation, high public debt and weak public banks.
The IMF said resuming fiscal consolidation will support sustainability, increase fiscal space, help contain the current account deficit and accumulate reserves in Laos.
Building capital buffers in banks and improving regulation and supervision will increase resilience to shocks. Removing caps on interest rates will support efficient allocation of credit, market development and de-dollarisation. Accumulating international reserves will help address external risks.
Concerning structural policies, the IMF said addressing constraints in the ease of doing business, upgrading human capital and financial inclusion will help support diversification, competitiveness, and more inclusive growth.
