Laos GDP could slow to 6.1% due to Covid-19: AMRO

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MARCH 20, 2020 - 9:34 PM

LAOS could see its economy grow 6.1 per cent in 2020, with recovery from last year's natural disasters stymied by the Covid-19 pandemic, a preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) found.

Laos was hit by severe floods in the the second half of the last year, resulting in a lower-than-expected full-year gross domestic product (GDP) growth of 6 per cent. Hopes of any recovery in 2020, dimmed by the coronavirus outbreak, are only expected to bring GDP up a notch.

AMRO came to this conclusion after its 2020 annual consultation visit to the country from Feb 24 to March 3 this year. As of Mar 20, Laos has logged zero coronavirus cases, while nearby Malaysia, Indonesia and Thailand are battling rapid jumps in the number of cases daily.

Even so, AMRO said Laos' economy is expected to experience negative spillovers from the impact of the coronavirus outbreak in the region, particularly on the tourism, construction and manufacturing sectors.

“To strengthen macroeconomic resilience, steady implementation of the fiscal consolidation program and enhanced debt management are essential,” said AMRO lead specialist Seung Hyun Hong, who led the mission to Laos.

The current account deficit has narrowed in 2019 as imports slowed down faster than exports, AMRO said.

The macroeconomic surveillance organisation said although interest payments on external debt rose markedly, the current account deficit narrowed to 6.7 per cent of GDP in 2019, from 7.9 percent in 2018, reflecting the fall in trade deficit.

Overall balance of payments recorded a small surplus and gross international reserves rose to US$997 million at the end of 2019 from US$873 million at the end of 2018, it added.

AMRO lauded Laos' refinement of tax laws, which it said can strengthen compliance and improve tax revenue collection, but said that improving expenditure efficiency is key in enabling focused and effective government spending to support economic growth amid the limited fiscal space.

It said Laos should consider enhancing its debt management capacity to better manage the relatively high public debt and contigent liabilities.

It also said structural reforms and economic diversification are needed to boost Laos' growth potential and the country’s economic resilience.

"To derive greater benefits from existing and upcoming large infrastructure investments such as the railway, expressway and hydropower plants, the government should lay out clearly its plans and objectives for the projects to ensure that sufficient jobs and opportunities are created for the Lao people," AMRO said in a statement.

AMRO added that the significant impact of natural disasters and adverse weather conditions on the Lao economy in recent years has highlighted the need to enhance the resilience of the economy against such shocks.