(KPL) Economic recovery in the Lao People’s Democratic Republic (Lao PDR) is expected to be slower than forecast in April 2022 on supply disruptions and rising commodity prices that have increased inflationary pressures, according to the Asian Development Bank (ADB) on Sept 21.

The update of ADB's flagship publication, Asian Development Outlook (ADO) 2022, lowered the forecast for gross domestic product (GDP) growth in 2022 to 2.5% from the earlier 3.4% projection and to 3.5% from 3.7% for 2023. Most businesses returned to normal operations in the first half of the year, and international tourist arrivals have begun to pick up. However, volatile prices, particularly for oil, have increased the cost of living, resulting in a softening of domestic consumption. Sharp increases in the prices of fertilizers, animal feed, food, and fuel discouraged activity in agriculture and manufacturing. These trends delayed economic recovery.

“Rising prices are threating the welfare of households in the Lao PDR, particularly poor households, entailing risks to food and nutrition security for families,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “This is creating challenges not only for the people, but also for public finances. Sound macroeconomic management, along with interventions to safeguard purchasing power, are needed to restore market confidence.”

The headline inflation rate in August reached a 22-year high of 30.0%, with the rate averaging 15.5% over the first 8 months of the year. Administered prices for fuel increased 13 times from January to September, resulting in a 90.3% rise in diesel prices and a 62.3% increase in gasoline prices. In parallel, the kip fell by one-third against the US dollar and Thai baht, respectively, from January to August. The forecast for inflation has been sharply revised up to 17.0% for 2022 on higher-than-expected oil prices and the weaker kip, before moderating to 4.5%.

Public and publicly guaranteed debt—a large portion of which is external—was also reported at 88% of GDP in 2021, up from 72% in 2020, as domestic borrowings were raised through bond issuances while the dollar value increased on weaker local currency. Debt relief from several creditors, accumulating to $984 million over 2019–2021, has helped mitigate near-term pressures. Coordinating these efforts among all creditors is critical for reducing the country’s high risk of debt distress.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

KPL