Laos economic growth is picking up this year and expected to continue growing in the next year. According to the report from Asian Development Bank (ADB), this growth is supported by the expansion of production, sale of electricity, buoyant service center growth and constriction of the cross-border railway. The Gross Domestic Product (GDP) of Laos is increasingly high, forecasted to reach 6.9% in 2017 and 7.0% next year. A slight increase from last year that was recorded 6.8%.
“Despite fiscal constraints and weaker global demand for minerals in recent years, the Lao PDR economy remains one of the strong performers in the region with an average growth at above 7.0% for the last decade,” said Mr Yasushi Negishi, Country Director, Lao PDR Resident Mission of ADB.
The service sector saw a strong growth at 9.0%, supported by the expansion of wholesale and retail trading, hotels and restaurant, financial services and telecommunications, while the industrial sector maintained a sturdy growth at 8.0%, although mining output declined slightly.
This sector was boosted by higher output of electricity generation –especially the Hongsa Lignite Power Plant – and the development of residential and commercial buildings.
Despite a drought early last year, growth in agriculture edged up from 2.0% in 2015 to 2.5% in 2016 due to improved weather in the latter part of the year.
The current account deficit has slightly improved from 16.8% of the country’s GDP in 2015 to 14.1% in 2016, but is projected to rise to 19% this year and 20% next year as large imports of construction materials and machinery for the Laos-China railway project are expected.
Meanwhile, foreign exchange reserves are unlikely to see much improvement soon.
Better commodity prices, an expanding service sector, construction works on the Laos-China railway project, power plants, and commercial and real estate development will help strengthen growth in 2017 and 2018.
Expected stronger domestic economic activities and higher oil prices resulting in rising inflation will put pressure on the trade balance. The inflation rate is likely to rise gradually, from 1.6% in 2016 to 2.5% in 2017 and 3.0% in 2018.
Risks include reversal of the fiscal consolidation programme, and the sharper than expected slowdown in the People’s Republic of China.
A developmental challenge for the Lao PDR is to make growth more inclusive and reduce poverty in pace with the rate of economic growth.
“Although the Lao PDR’s GDP growth has been strong, the rate of poverty reduction has not been commensurate with the strength of economic growth,” said Mr Negishi “Diversifying the sources of growth toward more labor-intensive manufacturing and services is key to making growth more inclusive”.