Country Report Laos June 2009


Outlook for 2009-10

There is little prospect of the ruling Lao People's Revolutionary Party (LPRP) will face a serious threat to its authority in 2009-10. As the risk of high inflation has receded, the main challenge for the LPRP is to address popular unrest stemming from the economic slowdown and a rise in job losses. No major change in the LPRP's ideology or policies is likely in the forecast period. The government will continue to pursue economic reforms, and will remain keen to attract foreign investment. Although efforts to join the World Trade Organisation may provide impetus for reform, overall progress will be slow. Economic growth will slow to an average of 4% a year in 2009-10, down from 7.5% a year in 2007-08, but there are downside risks to this forecast. Consumer price inflation will fall to 2.6% in 2009, from an estimated 8.6% in 2008. The current account will remain in deficit, owing to the deficit on the merchandise trade account and to the repatriation of profits and dividends by foreign mining firms.

The political scene

The prime minister, Bouasone Bouphavanh, has passed a decree that will permit the formation of local non-governmental organisations from November in a further relaxation of restrictions on civil society. However, the government has announced plans for a communications surveillance centre to monitor telephone calls and e-mail messages. Eventually, the government aims to establish monitoring stations in three different locations in the country at an estimated cost of US$20m-30m.

Economic policy

In May Bouasone called for foreign economic assistance amid the global downturn. A value-added tax (VAT), introduced on January 1st 2009, was officially withdrawn in March following pressure from the private sector. In April the cabinet approved plans to merge existing laws on the promotion of domestic and foreign investment. A single process for all investors should assist in the country's efforts to attract foreign investment.

The domestic economy

The government has lowered its forecast for real GDP growth in fiscal year 2008/09 (October-September) to 6-7%. Laos experienced deflation in April, with prices down by 0.2% year on year. Thailand is expected to resume work on two hydropower plants in Laos, the 525-mw Nam Theun I and the 1,300-mw Nam Ou plants, where construction was suspended earlier this year.

Foreign trade and payments

Thai imports from Laos have continued to contract on a year-on-year basis, falling by 26.2% to US$139.9m in the first four months of 2009.

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