Country Report Laos June 2009

The domestic economy: The government lowers its growth forecasts

The Lao government has lowered its forecast for economic growth in fiscal year 2008/09 (October-September) by 1-2 percentage points to 6-7% owing to falling merchandise exports and lower income from mining and tourism. Although the Asian Development Bank (ADB) is less bullish, forecasting growth of 5.5% in 2009, this is still the bank's highest growth forecast for a South-east Asian country. Meanwhile, a government think-tank, the National Economic Research Institute, has forecast growth of 7%. The government expects agriculture to expand by 3%, industry by 13.4% and services by 7.2%. It has also predicted that the inflation rate will remain in single digits, while government revenue collection will reach 15% of GDP and expenditure 20% of GDP. According to the Ministry of Planning and Investment, in the first half of 2008/09 merchandise exports fell by 5.6% year on year to US$533m. Merchandise imports also fell, by 8%, to US$554m, leaving a trade deficit of about US$39m. The ministry estimated that total foreign direct investment in the country reached US$2.8bn, with another US$800m coming from domestic sources.

The ADB has said that it will help the government achieve its 2008/09 revenue targets after the bank projected a 10% shortfall in expected government revenue owing to the global financial crisis. The government expects revenue to fall about K740bn (US$87m) below its target of K8.3trn (US$980m) due to lower prices for its main exports, such as agricultural commodities and minerals. Delays in building new hydropower projects have also affected revenue. The ADB will provide about US$5m in grants to a programme aimed at supporting small and medium-sized enterprises if the government is able to meet certain expenditure conditions. The ADB has pre-existing plans to provide grants worth US$85m to Laos in 2009. Meanwhile, the EU has said that it will provide additional funding of about US$14m over three years for the specific purpose of countering the effects of the global recession. The funds will be provided in addition to already arranged grants worth US$50m. The EU ambassador to Laos, David Lipman, has expressed concern that the economic downturn will increase hunger among poor people.

© 2009 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information