Country Report Laos June 2009

Outlook for 2009-10: Policy trends

The main priority for the government is to reduce the impact of the global downturn on the domestic economy. Although Laos is less integrated into the global economy than any country in South-east Asia except Myanmar, it has benefited from increasing trade and investment flows in recent years. In May Bouasone said that the government had revised down its growth forecast for fiscal year 2008/09 (October-September) by 1-2 percentage points to 6-7%. Laos will certainly suffer as a result of economic contractions in neighbouring countries, such as Thailand, where real GDP is expected to shrink by 4.5% in 2009. Slower economic growth in China and Vietnam will also have an adverse impact on the Lao economy during the forecast period, as will lower world agricultural and mineral prices, which will depress rural incomes and export earnings. So far, the government has responded to the downturn in a piecemeal manner, promising to press on with pro-market reforms in an attempt to attract foreign investment. In truth, the government does not possess the fiscal resources for a large stimulus package and it will depend on the largesse of foreign donors to finance any measures to prop up domestic demand. However, foreign investment has continued to flow into Laos. Chinese and Vietnamese state-owned companies have channelled funds into the mining sector. Meanwhile, Thai investors are expected to resume work on hydropower projects that were postponed earlier this year.

The government is expected to make progress on reforming Laos's foreign trade regime in the next few years, with the primary objective of achieving membership of the World Trade Organisation (WTO) by the end of 2009. A Lao delegation to the WTO's headquarters in Geneva, Switzerland, in July 2008 stated the case for the country's accession to the organisation. The minister of industry and commerce, Nam Viyaketh, told the WTO accession working party that his country had made progress on improving laws related to trading standards, intellectual property, customs and enterprises, to bring regulations into line with WTO requirements. However, Nam recently refused to put a date on Laos's accession to the WTO.

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