We estimate that the merchandise trade deficit narrowed in 2010, to US$384m, from US$408m in 2009, as exports, buoyed by electricity receipts from Thailand, grew at a slightly faster pace than imports. However, these trends will be reversed in 2011-12, when higher global oil prices and imports of equipment required for infrastructure development will cause the import bill to swell. Other factors that will support imports include lower tariff barriers in line with Laos's commitments as part of the ASEAN-China Free-Trade Area (ACFTA) and the poor competitiveness of local products. Sales of electricity to Thailand will become a major source of export revenue in 2011-12 as new hydropower projects come on stream. Tourism revenue will also increase as Laos attracts greater numbers of foreign visitors. The repatriation of profits and dividends by foreign-invested mining projects will keep the income account in deficit, although this will be partly offset by the surplus on the transfers account, which mainly reflects inflows of development assistance from international donors.

We estimate that Laos had a very narrow current-account deficit in 2010, equivalent to 0.3% of GDP, with a widening income deficit more than offsetting a rise in the services surplus. The current account will strengthen in 2011-12, with the deficit eliminated in 2011 and a forecast surplus of 1.5% in 2012. Growing services exports will be the main driver of this improvement. Private investment inflows are rising, transfers from official donors will continue and foreign-exchange reserves have been built up in recent years. As a result, the country's ability to meet its external financing requirement is not an immediate concern.