(KPL) Economic growth in the Lao PDR is forecast to be slower than expected due to weaker growth prospects in the People’s Republic of China, adverse weather conditions brought about by the late onset of the monsoon season, and macroeconomic pressures arising from unsustainable public debt and a weak Lao kip, according to the Asian Development Bank’s outlook (ADB) 20 Sept. 

The Asian Development Outlook (ADO) September 2023, an update of ADB’s flagship publication, lowered the growth forecast for the Lao PDR in 2023 to 3.7%, from an earlier 4.0% projection. The 2024 growth forecast was kept at 4.0%. Inflation is projected to remain high until year-end, lifting average annual inflation to 28%. Price adjustments linked with the depreciating local currency are expected to keep inflation high in 2024 at 10%.

“Rising food prices have affected households’ purchasing power, with many families coping by eating less,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “Sound macroeconomic management, including stronger coordination across fiscal and monetary policies, is urgently needed to address the country’s economic and financial challenges.”

Currency depreciation and high inflation tempered household spending in the first half of 2023. After falling by half against the United States (US) dollar and by 44% against the Thai baht in 2022, the kip depreciated from January to August 2023 by a further 13.6% against the US dollar and 14.8% against the baht.

Consumer price inflation remains elevated, having peaked at 41.3% year-on-year in February before gradually declining to 25.9% in August. Food price inflation has been higher, averaging 45.6% in the first 8 months of 2023, on imported food and higher production costs from imported agricultural inputs. 

Public debt, a large portion of which is external, was reported at 97% of gross domestic product in 2022, up from 76% in 2021. Even with a decline in nominal terms from $12.4 billion in 2021 to $12 billion in 2022, public debt is unsustainable. Resolving the country’s debt challenges will require efforts across the government and from creditors to make public financing practices more transparent and sustainable.

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