Depreciation of Lao kip impacts people’s livelihoods
Depreciation of Lao kip impacts people’s livelihoods
The Lao kip has continued to depreciate over the past week against the US dollar and the Thai baht, propelled by a supply-demand mismatch.
Meanwhile the deposits in foreign currencies increased from 60.78217 trillion kip ($5.2 billion) in June 2021 to 75.39539 trillion kip in December 2021, according to the Bank of Lao PDR’s (BoL) monetary statistics posted on its website.
According to BCEL exchange rates on March 16, $1 bought 11,580 kip and sold for 11,606 kip, and one baht bought 356.36 kip and sold for 359.05 kip, whereas on March 23, $1 bought 11,580 kip and sold for 11,606 kip, while one baht bought 372.68 kip and sold for 375.49 kip.
However, the value of the Lao kip has plunged further in the parallel market, since most businesses base the prices of their products on the foreign currencies they buy from the parallel market due to foreign currency deficit and restrictions in the official market.
At the cabinet’s monthly meeting held from March 21-22, the government ordered action to stabilise the exchange rate and to improve transaction mechanisms through the banking system.
The concerned sectors have been told to boost productivity for exports, and to address challenges related to trucks loaded with export goods stranded at the Laos-China border. The sectors responsible have been urged to strictly regulate fuel prices and mining projects to ensure the country has sufficient foreign currency reserves.
During 2022, Laos will apply a combined monetary policy that aims to stabilise the foreign exchange rate and improve the liquidity of the banking sector because stability of the Lao kip and the financial strength of the banking sector are among key factors for the national economy.
Economists have said stabilising the exchange rate is one of the most important actions for Laos to boost business and investor confidence and push further growth.
According to BCEL’s exchange rates as on June 14, 2017, $1 bought 8,216 kip and sold for 8,256 kip, while one Thai baht bought 242.93 kip and sold for 244.74 kip. The Lao kip has lost its value against the US dollar and Thai baht more than expected in recent months.
Such a sharp depreciation has never taken place since the Asian financial crisis of 1997-1998. The Monetary Policy Committee recently clarified the main reasons behind the foreign currency deficit despite a trade surplus of $1.32 billion in 2021.
The committee said foreign exchange inflows from the country exports represented only 26.45 per cent of the total export value, while actual foreign investment inflows through the banking system was much lower than the agreed value of investments.
The rising demand for external debt servicing and the demand for foreign currencies needed to import goods have resulted in the current foreign exchange pressure.
