IMF Executive Board Completes the 2017 Article IV Consultation with Lao People’s Democratic Republic
IMF News, March 23, 2018
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- Published: March 23, 2018
Economic performance and recent developments
- Growth in 2017 moderated to 6.8 percent, supported by expansion of electricity exports, construction activity and financial services, but affected by the prohibition 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 17 percent year-on-year in 2017.
- The current account deficit was 13 percent of GDP in 2017; about half the deficit is estimated to reflect imports related to large foreign direct investment projects, including the Kunming-Vientiane railway project.
- Gross international reserves remain low at about 1 month of prospective imports.
Fiscal position and public debt
- Authorities are implementing a gradual fiscal consolidation focused mainly on tax policy and administration reforms.
- Public finances (selected figures):
- Revenue and Grants: 16.7 percent of GDP in 2017; projected 17.0 percent in 2018 and 17.4 percent in 2019.
- Expenditure: 21.5 percent of GDP in 2017; projected 21.2 percent in 2018.
- Expense: 13.5 percent of GDP in 2017; projected 13.1 percent in 2018 and 13.4 percent in 2019.
- Overall balance: -4.8 percent of GDP in 2017; projected -4.1 percent in 2018.
- Nonmining balance: -5.0 percent of GDP in 2017; projected -5.1 percent in 2018.
- Public and public guaranteed debt: 61.1 percent of GDP in 2017; projected 65.3 percent in 2018 and 65.9 percent in 2019.
- Directors stressed the importance of gradual fiscal consolidation to place public debt on a credible but realistic downward path and recommended improving fiscal revenue, developing a medium‑term revenue strategy, rationalizing expenditures, reorienting spending to health and education, containing the wage bill, stronger debt management, and more rigorous selection of public investment projects.
Banking system and financial sector vulnerabilities
- Authorities are strengthening the banking system via recapitalization and restructuring of public banks, restructuring loans related to infrastructure projects, and improving regulation and supervision.
- Directors welcomed progress but noted further efforts are needed to:
- Reduce foreign currency lending risks.
- Identify non‑performing loans.
- Strengthen capital buffers.
- Directors took positive note of prospects for crisis management and prompt corrective action frameworks and progress in developing the AML/CFT regime.
- Directors recommended removal of interest rate caps (a number of Directors urged removal).
External position, exchange rate, and reserves
- External vulnerabilities: overvaluation of the exchange rate, high current account deficit, and low external reserves.
- Directors welcomed the gradual depreciation of the exchange rate and recommended allowing the exchange rate to move gradually within the official band to support competitiveness and help accumulate reserves, while adopting a cautious approach due to possible currency mismatches in the non‑bank private sector.
- Directors noted the need for further reforms to improve functioning of the interbank and domestic debt markets as preconditions for greater exchange rate flexibility.
Structural reforms, inclusion, and data
- Authorities are integrating the Sustainable Development Goals (SDGs) into their 5-year development plan to promote inclusion and environmental sustainability.
- Directors highlighted the need for more inclusive and sustainable growth, economic diversification, development of public infrastructure, improved conditions for private investment, and improvements in human capital (workforce training, public education, and health services, particularly for women and children) to reduce regional and gender disparities.
- Directors called for improvements in economic statistics and welcomed the authorities’ interest in joining the General Data Dissemination System.
Outlook and risks
- Outlook: Positive, with growth on the order of 7 percent per year and gradual economic diversification matched by integration with ASEAN and China.
- Downside risks:
- High public debt and deficits.
- Pockets of weakness and high dollarization in the banking sector.
- Vulnerable external position with low gross international reserves.
- Addressing these risks and implementing the authorities’ reform agenda are necessary to ensure sustainable and inclusive growth and graduation from LDC status.
Executive Board assessment (summary of Directors’ views)
- Directors welcomed Lao P.D.R.’s record of high growth and stable inflation but noted vulnerabilities: high fiscal deficit and public debt, weak external sector and low reserves, and a highly‑dollarized banking system.
- Directors encouraged the authorities to continue addressing these risks, emphasizing gradual fiscal consolidation, revenue mobilization, expenditure rationalization, stronger debt management, banking sector reforms, reserve accumulation, exchange rate flexibility within a cautious framework, and measures to promote inclusion and human capital.
Selected economic and financial indicators (2013–19, as presented)
- Real GDP growth: 2013: 8.0; 2014: 7.6; 2015: 7.3; 2016: 7.0; 2017: 6.8; 2018: (Proj.); 2019: (Proj.)
- CPI (annual average): 2013: 6.4; 2014: 4.1; 2015: 1.3; 2016: 1.6; 2017: 0.9; 2018: 2.3; 2019: 3.1
- CPI (end year): 2013: 6.6; 2014: 2.4; 2015: 2.5; 2016: 2.6; 2017: 2.9
- Revenue and Grants (percent of GDP): 2013: 20.9; 2014: 21.0; 2015: 17.9; 2016: 15.8; 2017: 16.7; 2018: 17.0; 2019: 17.4
- Of which : Resources: 2017: 2.1; 2018: 1.7; 2019: 2.0
- Of which : Mining: 2017: 1.8; 2018: 0.7; 2019: 1.0
- Of which : Hydro power: 2017: 0.8; 2018: 0.6
- Of which : Grant: 2017: 4.8; 2018: 4.5; 2019: 2.2; 2019 (alternate): 1.4
- Expenditure (percent of GDP): 2013: 25.2; 2014: 23.8; 2015: 22.4; 2016: 20.5; 2017: 21.5; 2018: 21.2
- Expense (percent of GDP): 2013: 14.0; 2014: 13.8; 2015: 14.2; 2016: 14.5; 2017: 13.5; 2018: 13.1; 2019: 13.4
- Net acquisition of nonfinancial assets 1/: 2013: 11.1; 2014: 10.1; 2015: 8.1; 2016: 6.0
- Overall balance (percent of GDP): 2013: -4.3; 2014: -2.8; 2015: -4.5; 2016: -4.6; 2017: -4.8; 2018: -4.1
- Nonmining balance 2/ (percent of GDP): 2013: -6.2; 2014: -5.4; 2015: -5.5; 2016: -5.7; 2017: -5.0; 2018: -5.1
- Public and public guaranteed debt (percent of GDP): 2013: 56.3; 2014: 57.9; 2015: 57.7; 2016: 58.5; 2017: 61.1; 2018: 65.3; 2019: 65.9
- Reserve money (annual percent change): 2013: 7.7; 2014: 30.3; 2015: -1.4; 2016: 9.9; 2017: 9.4; 2018: 10.2
- Broad money (annual percent change): 2013: 18.8; 2014: 23.4; 2015: 14.7; 2016: 10.9; 2017: 12.9; 2018: 22.8; 2019: 22.0
- Bank credit to the economy (annual percent change): 2013: 34.5; 2014: 16.8; 2015: 15.0; 2016: 18.5
- Bank credit to the private sector (annual percent change): 2013: 36.3; 2014: 11.7; 2015: 19.3; 2016: 16.5
- Exports (millions of U.S. dollars): 2013: 3,501; 2014: 4,299; 2015: 3,743; 2016: 4,379; 2017: 5,084; 2018: 5,303; 2019: 5843
- Exports (percent change): 2013: 5.4; 2014: -12.9; 2015: 16.1; 2016: 4.3; 2017: -
- Imports (millions of U.S. dollars): 2013: 7,163; 2014: 7,817; 2015: 7,366; 2016: 6,636; 2017: 7,538; 2018: 8,313; 2019: 8822
- Imports (percent change): 2013: 15.1; 2014: 9.1; 2015: -5.8; 2016: -9.9; 2017: 13.6; 2018: 10.3; 2019: 6.1
- Current account balance (millions of U.S. dollars): 2013: -3,400; 2014: -2,657; 2015: -2,586; 2016: -1,903; 2017: -2,204; 2018: -2,728; 2019: -2751
- In percent of GDP: 2013: -28.4; 2014: -20.0; 2015: -18.0; 2016: -12.0; 2017: -13.0; 2018: -14.9; 2019: -13.7
- Gross official reserves (millions of U.S. dollars): 2013: 662; 2014: 816; 2015: 987; 2016: 815; 2017: 979; 2018: 1,023; 2019: 1224
- In months of prospective goods and services imports: 2013: 1.2; 2014: 1.5
- Official exchange rate (kip per U.S. dollar; end-of-period): 2013: 8,030; 2014: 8,096; 2015: 8,119; 2016: 8,231; 2017: 8,279
- Real effective exchange rate (2010=100): 2013: 113.9; 2014: 120.9; 2015: 131.1; 2016: 134.5; 2017: 125.9
- Nominal GDP (in billions of kip): 2013: 93,868; 2014: 106,797; 2015: 117,252; 2016: 129,279; 2017: 140,019; 2018: 152,822; 2019: 168,514
- Nominal GDP (in millions of U.S. dollars): 2013: 11,974; 2014: 13,266; 2015: 14,363; 2016: 15,916; 2017: 16,984
Press Release No. 18/103, March 23, 2018 — IMF Communications Department
