Lao People's Democratic Republic: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Lao PDR

IMF Staff Country Reports, May 22, 2023

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Canonical URL: Lao People's Democratic Republic: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Lao PDR

Marked exchange rate depreciation following the global terms of trade shocks at the start of 2022 year brought high inflation and deteriorating living standards and caused substantial increases in the domestic currency values of public debt and bank liabilities.
The authorities have achieved substantial improvement in the fiscal balance, which will need to continue for an extended period to help restore debt sustainability.
Greater reliance on tax revenue mobilization would be better for growth.
Persistent expenditure arrears necessitate urgent action on public financial management.
Complementary policies are crucial to facilitate greater private sector employment and growth and boost foreign exchange earnings.
Governance should be improved including with greater transparency and consistent implementation of regulations; and tackling corruption concerns remains crucial.

Monetary policy should seek to raise retail interest rates through a combination of issuing central bank bonds and raising reserve requirements and the policy rate, to stabilize domestic currency usage and ease pressures on banks.
Stabilizing domestic currency usage is emphasized to ease pressures on banks and the financial sector.

Continued fiscal consolidation is required: the improvement in the fiscal balance needs to continue for an extended period to help restore debt sustainability.
Persistent expenditure arrears require urgent action on public financial management.
Policy recommendation: greater reliance on tax revenue mobilization rather than other revenue sources to support growth.

Policies to facilitate greater private sector employment and growth are highlighted as complementary to macroeconomic stabilization.
Boosting foreign exchange earnings is a priority alongside monetary and fiscal measures.
Governance improvements are needed, including greater transparency, consistent implementation of regulations, and tackling corruption concerns.

Subject: Debt service, Exchange rates, External debt, Foreign exchange, International organization, Monetary policy, Public debt
Keywords: Asia and Pacific, Debt service, exchange market pressure, Exchange rates, Global, IMF statistics Department, Lao P.D.R. authorities, liquidity pressure, National Accounts statistics, transparency policy