Country Report Laos June 2009

Outlook for 2009-10: Monetary policy

The main challenge facing the Bank of the Lao People's Democratic Republic (the central bank) remains that of reining in money supply growth as part of the overall effort to contain inflation. Monetary expansion has been driven by rising international reserves. However, the rate of reserves accumulation is likely to slow in 2009-10, owing to a fall in inflows of private investment, as well as to the continuation at around the present level of the repatriation of profits and dividends from foreign-invested mines. The rate of growth in narrow money (M1), which stood at 42% year on year in April 2008, will therefore continue to slow in 2009. There will be steady improvements in the competitiveness of the banking system, following gradual reforms (such as the lowering of entry barriers) initiated by the central bank, and, in addition, non-performing loans held by state-owned commercial banks have been falling.

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