Debt-Laden Laos Told To Tighten Policies Amid Economic Concerns
Delay payments
It is not immediately clear how much higher the debt level has risen since then, but the prime minister has said, according to Vientiane Times, that "to turn the situation around" the government would delay paying monies owed to contractors carrying out its own projects to "take the strain off the country's financial and currency concerns."
IMF's Ahuja said in a report this week that inflation in Laos "is accelerating" as a result of rising fresh food prices, and that credit growth—partly driven by public spending—"raises concerns about the health of the banking system."
"The current account deficit has deteriorated significantly, which is a product of a currency appreciation in real terms, a growing fiscal deficit, and strong domestic demand," he said.
He called for Laos to build up its international reserves "for precautionary needs," cautioning that "ongoing fiscal expansion has exacerbated vulnerabilities."
Ahuja said Laos's fiscal policy needs to be put back on a "consolidation path" during the next few years.
This, he said, will require improving tax collection by broadening the tax base and eliminating exemptions while rationalizing expenditure to concentrate on priority social spending and investments.
The kip, Laos's currency, should move in line with market conditions and external developments, he said.
Credit targets should be lowered, financial sector supervision strengthened, and regulatory measures put in place to reduce leverage, said Ahuja, who had met with the Lao authorities, donors, private sector representatives, and other stakeholders during his visit.
"If these policies can successfully be put in place, it would help to achieve high, sustainable growth over the medium term.”
