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Sound Public Financial Management Key to Economic Recovery in Lao PDR – ADB

The economy of the Lao PDR is forecast to grow 3.4% this year and 3.7% next year thanks to the country’s investments to boost exports, according to the Asian Development Outlook (ADO) 2022 released by the Asian Development Bank (ADB) on Apr 6.

Sound management of the country’s finances will be key to the recovery, which remains fragile and faces headwinds including the ongoing coronavirus disease (COVID-19) pandemic, high inflation, and the impacts of the Russian invasion of Ukraine.

“The Lao PDR’s economy in 2021 gradually recovered from its worst performance in decades, but new virus variants and rising inflation could derail the momentum,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “The government will need to remain vigilant by fully vaccinating as many people as possible and bolstering transparency in public financial management to restore market confidence and attract resilient, sustainable investments.”

A second COVID-19 wave in April 2021 forced the government to impose a series of lockdowns, which disrupted economic activity in domestic services, including hotels, restaurants, and transportation.

To spur recovery in domestic markets, including tourism, the government in January 2022 relaxed COVID-19 control measures and speeded up vaccination. It aims to have 80% of the population fully vaccinated by the end of 2022, compared with 50% as of December 2021.

Industrial and agricultural exports contributed to last year’s economic recovery. Favorable weather allowed many hydropower plants to operate at full capacity and maximize energy production for exports.

Agricultural exports rose across most categories, partly to meet robust demand from the People’s Republic of China. Growth in exports will likely continue this year and next, thanks to anticipated investment inflows to support the development of wind, solar, and other low-carbon electricity for the export markets.

Rising oil prices and the depreciation of the kip, which led to 5.3% inflation in December 2021, may push the country’s average rate of inflation to 5.8% in 2022 and 5.0% in 2023. Inflation will add to the country’s debt distress, which is already at high risk.

The report urges the government to boost transparency in the management of external public debt, which will help open doors for the Lao PDR to access sustainable development finance.

The ADO 2022 says the country has made solid progress toward achieving its nationally determined contributions under the Paris Agreement, aimed to achieve net-zero emission, especially in the areas of hydropower development and the expansion of household electrification.

The country’s policy commitments on forestry, transportation, and renewable energy, however, were “not on track.” To correct that, the government has taken steps to secure international investment, though it must first make progress in addressing gaps in climate policy and institutional frameworks, as well as increasing project preparedness.

Source: Lao News Agency