IMF urges Laos to reduce public debt

VIENTIANE (Vientiane Times/ANN) - The International Monetary Fund (IMF) has expressed concern at the rising level of public debt in Laos, saying this will have a strong negative impact on macroeconomic stability. 

“Directors stressed the importance of a gradual fiscal consolidation to bring the public debt on a credible but realistic downward path over the medium term,” the IMF said in a media release available on its official website.

The IMF made this announcement on the current state of Lao fiscal policy and economic development after its officials completed a consultation with their Lao counterparts in accordance with IMF Article 4 at the end of last month.

According to data that IMF collected from Lao officials and concerned sectors, the level of public and public guaranteed debts was projected to rise from 58.5 percent of GDP to 61.1 percent in 2017, to 65.3 percent in 2018, and to 65.9 percent in 2019.

 The Lao GDP was valued at US$16 billion in 2016.

 In order to curb the rising public debt, the IMF strongly recommended that Lao authorities should continue to develop and put into practice a medium term revenue strategy, as such a move would help to strengthen the country’s fiscal policy.

Apart from rising public debt, the IMF expressed concern over low external reserves, and a highly dollarised banking system, adding that the current fiscal status was very vulnerable to domestic and external shocks.

“While the outlook is for continued high growth, risks could materialise if government finances do not improve, or if external conditions deteriorate, which could be amplified in the domestic economy through negative macro-financial feedback loops. Directors encouraged the authorities to continue to address these risks,” the IMF said.

While Laos is facing a number of challenges, the IMF sees some improvement in the current state of economic development.

Laos’ economy continues to perform well, supported by a favourable external environment and strong flows of foreign direct investment from its dynamic neighbours.

Growth in 2017 was supported by the expansion of electricity exports, construction activity and financial services.

However, growth will be moderated to 6.8 percent as a result of the ban on illegal logging, tighter credit conditions and fewer tourist arrivals.

Inflation remained low at 0.2 percent in December 2017, reflecting a stable exchange rate and a decline in food prices. Private sector credit growth was robust at 17 percent year-on-year in 2017, a pace consistent with dynamic economic activity and moderate financial deepening, according to the IMF.

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