Laos' Economy Recovers, but Under Covid-19, it Fails Again

[ASEAN NOW]

 

Despite the second wave of Covid-19 denting the hopeful economic rebound made earlier in the year, Laos' economy is on track for somewhat increased growth in 2021.

According to the latest World Bank Economic Monitor for Lao PDR, A Path to Recovery, GDP growth would reach 3.6 percent in 2021, up from 0.5 percent in 2020.

 

This prediction is lower than the 4% growth anticipated in March 2021, and it is based on a number of assumptions, including economic recovery in bordering countries, increased vaccination rates across the country, and community outbreak mitigation for the rest of the year.

 

If the Covid-19 outbreak intensifies and strict lockdown measures remain in place, or if Laos is hit by a series of natural calamities like flooding, drought, or livestock disease outbreaks, growth might plummet much further.

 

Agriculture and industry are driving much of the expansion, with agricultural exports rising and power, mining, and manufacturing exports recovering from last year's trade slowdown. However, in tourism, hospitality, transportation, and other industries, lockdowns and prolonged restrictions on international travel have caused most businesses to struggle, depriving the government of a key source of revenue.

 

Alex Kremer, the new World Bank Country Manager, remarked, "Lao PDR is doing well to manage the coronavirus and get immunizations out to the entire population." “However, the government's options for stimulating the economy are limited by the possibility of debt problems, a weak market, and low government revenues. Reforms to encourage private investment, tax payments, and trade would be beneficial in this regard.”

 

According to the article, the kip's depreciation is producing inflation, which has led to concerns about food and basic goods availability. This issue is especially acute for poor individuals living in cities. The report's Impacts of Covid-19 on Businesses and Households section states that employment fell drastically in May of this year, and that over 30% of family businesses had closed since the pandemic began. According to World Bank business surveys, monthly sales plummeted by 48 percent from March to April 2021. Almost half of all businesses have experienced cash flow problems, and more than a quarter plan to go into debt in the next six months.

 

To mitigate the effects of the economic downturn, the research proposes that Laos accelerate business reforms and trade facilitation so that new infrastructure and trade agreements may be fully utilized. This can be accomplished by simplifying present investment regulations and procedures, improving ease of doing business, cutting transportation and logistics costs, and promoting enhanced product quality, particularly for agricultural exports.

 

According to the report, expanding government support programs for businesses, as well as better publicizing these programs, would help businesses stay afloat and provide vital income and revenue, while measures to encourage more Lao firms to invest in digital technologies or new delivery methods could help businesses turn crisis into opportunity.

 

The World Bank publishes the Lao Economic Monitor twice a year.