Laos is expected to grow 7% this year and 7.2% in 2016, driven mainly by mining and hydropower which account for 18% of gross domestic product, forecasts the Asian Development Bank (ADB).
But despite the strong prospects, the Southeast Asian nation needs to increase focus on improving its macroeconomic stability given the sizeable fiscal deficit and low foreign reserve levels, according to the development bank’s president Takehiko Nakao.
He added that shortfalls in tax revenue collection are expected to continue despite recent improvements, highlighting the need for efficient budget management, as well as effective tax enforcement.
“The economy continues to grow vigorously and it is encouraging to see private consumption emerging as a new driver of growth, along with rising industries like tourism and construction,” said Nakao.
“Further efforts to diversify the economy and improve macroeconomic management would help the country fulfill its undoubted economic potential.”
Nakao commended the government’s commitment to eradicating poverty as a key step towards its target of graduating from least-developed country status by 2020.
He stressed the importance of reforms to foster private sector development as an engine of economic growth. With the help of ADB, the government recently opened the Centre for Regulatory Impact Assessment for Draft Legislation which assesses the impacts of draft legislation on the private sector.
“The private sector can grow if complex business regulations are simplified, the tax structure is clear and predictable, and access to finance strengthened particularly for smaller businesses,” Nakao said.
An improved business climate would support the growth of public-private partnerships (PPPs) as a means of providing finance and expertise to much-needed infrastructure such as roads, airports, and urban services, said Nakao. He commended recent government efforts to establish a clear legal and policy framework for PPPs, which have been used to build a number of hydropower projects in the country.
Laos, officially known as Lao People’s Democratic Republic (Lao PDR), located at the heart of the Greater Mekong Subregion (GMS), is the only GMS country to share a border with the subregion’s five other member-nations. It is therefore ideally placed to benefit from regional cooperation and integration, especially along the three GMS economic corridors (North-South, East-West, and Southern).
Nakao said a key challenge facing the country is to ensure it obtained jobs and investment from integration, and is not merely used as a transit point for trade among its neighbors.
ADB assistance to Lao PDR has also focused on the energy sector through financing for large hydropower projects such as Nam Theun 2 and Nam Ngiep 1.
Other priorities include upgrading the quality of agricultural infrastructure and rural roads, strengthening tourism infrastructure and management, expanding water supply and urban infrastructure and services, improving access to health services by building and renovating provincial and district hospitals, and assisting small businesses.
Nakao reaffirmed ADB will allocate $116.6 million from its Asian Development Fund over the two-year period 2015-2016 to strengthen education, develop economic corridors, enhance transport sector governance, and improve health services delivery.
Photo: Aaron Smith
