Lao People’s Democratic Republic: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Lao People’s Democratic Republic

IMF Staff Country Reports, March 23, 2018

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The economy of Lao People’s Democratic Republic continues to perform well, supported by a favorable external environment and strong flows of foreign direct investment from its dynamic neighbors.
Growth in 2017 was supported by the expansion of electricity exports, construction activity and financial services, but moderated to 6.8 percent as a result of the prohibition on illegal logging, tighter credit conditions and fewer tourist arrivals.
Looking ahead, the outlook is positive, with growth on the order of 7 percent per year.
Downside risks stem from high public debt and deficits, pockets of weakness, high dollarization in the banking sector, and a vulnerable external position with low gross international reserves.

Growth and drivers:
- 2017 growth: 6.8 percent.
- Main contributors: expansion of electricity exports, construction activity, financial services.
- Moderating factors in 2017: prohibition on illegal logging, tighter credit conditions, fewer tourist arrivals.
Outlook:
- Projected growth: on the order of 7 percent per year.
Risks and vulnerabilities:
- High public debt and deficits.
- Pockets of weakness in the economy.
- High dollarization in the banking sector.
- Vulnerable external position with low gross international reserves.

Address high public debt and deficits to reduce fiscal vulnerabilities.
Strengthen the banking sector to mitigate risks associated with high dollarization.
Improve external resilience given low gross international reserves.
Tackle pockets of economic weakness and support diversified, sustainable growth despite short-term moderating factors (illegal logging prohibition, tighter credit, reduced tourism).

Subject: Commercial banks, Economic and financial statistics, Expenditure, External debt, External sector statistics, Financial institutions, Government finance statistics, Public debt
Keywords: administration reform, authority, Commercial banks, CR, credit growth, deficit, External sector statistics, flexible regime, Global, Government finance statistics, highly-dollarized banking system, ISCR, Lao P.D.R. authorities, Mekong, reform agenda