Inflation, weak kip drive Laos economic slowdown
Inflation, weak kip drive Laos economic slowdown
The increasing inflation rate and the weak kip are partly to blame for the slow growth of the Lao economy.
In the first five months of this year, the rate of inflation averaged 2.66 per cent. This was lower than during the same period last year but is an increasing trend, according to the Ministry of Industry and Commerce’s National Institute for Economic Science and Society.
Other reasons for the struggling economy are an insufficient supply of goods and the rising cost to transport goods from Laos to other countries. The rising price of fuel and Covid-19 prevention and control measures are also posing challenges for the transportation of goods.
The weak value of the kip compared to the Thai baht and US dollar is driving inflation because most businesses have to import raw materials and use items purchased from other foreign countries.
The depreciating value of the kip means that all costs are higher, driving up the cost of production as well as overall living costs.
In the first six months of 2021, the difference in the exchange rate between the kip and dollar rose by 6.5 per cent compared to the same period last year, while the kip-to-baht exchange rate increased by 9.9 per cent.
The US dollar and other regional currencies are strong compared to the kip, which means that everyone in Laos purchasing goods in these currencies must pay more when using kip. This drives up the cost of imports, as well as debts owed.
Revenue collection is also lower than in the past, largely due to a slump in the number of foreign tourists, direct foreign investment, and reduced payments by planes flying through Lao airspace.
According to the Ministry of Finance, the amount of revenue collected over the past six months totalled 11.05 trillion kip ($1.16 billion), equalling 40 per cent of the amount planned for the whole year. Of this figure, domestic revenue accounted for 9.9 trillion kip, equalling 40 per cent of the target for this year.
The ministry predicts that revenue will fall short of the target for 2021, saying that only 23.6 trillion kip would be amassed this year, equal to 86 per cent of the target figure.
The projected revenue shortfall could result in the budget deficit rising from 3.9 trillion kip, or 2.17 per cent of gross domestic product (GDP), to 7.9 trillion kip – 4.33 per cent of GDP.
However, the government won’t revise the budget for this year because it has pledged to boost national revenue and manage budget expenditure.
