IMF Concludes 2013 Article IV Mission to Lao P.D.R.

Press Release No. 13/383
October 2, 2013

An IMF mission team led by Mr. Ashvin Ahuja visited Vientiane to conduct the 2013 Article IV consultation discussions with the Lao P.D.R. during August 28–September 12. The mission met with the Lao authorities, donors, private sector representatives and other stakeholders. Consistent with the mandate of the IMF, the mission focused on an assessment of macroeconomic and financial sector developments and outlook for the Lao P.D.R. economy.

At the conclusion of the mission, Mr. Ahuja issued the following statement:

“Since the global financial crisis, the Lao economy has been growing at an average annual rate of 8 percent, supported by brisk credit expansion and robust foreign direct investment (FDI) inflows. The country has also made significant progress toward achieving the Millennium Development Goals (MDGs).

“Real GDP growth was about 8 percent in 2012, buoyed by domestic demand. Headline inflation is accelerating, as a result of rising fresh food prices. 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. International reserves need to be built up for precautionary needs. Ongoing fiscal expansion has exacerbated vulnerabilities.

“A tightening of macroeconomic policies is urgently needed to reduce vulnerabilities, replenish international reserves and engineer a soft landing. Fiscal policy needs to be put back on a consolidation path during the next few years. This 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 should move in line with market conditions and external developments. The credit and broad money (M2) growth targets should be lowered. Financial sector supervision should be strengthened and regulatory measures put in place to reduce leverage. If these policies can successfully be put in place, it would help to achieve high, sustainable growth over the medium term.”

The mission's findings will be reflected in the 2013 Article IV Staff Report which will be discussed by the IMF Executive Board in coming months.



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