Economic growth in Lao PDR expected to remain moderate in 2018: ADB

Agriculture is expected to grow by 2.0% this year, while electricity generation is expected to increase by 8%, with mining outputs projected to decline by 2.0%.

Economic growth for the Lao People’s Democratic Republic (Lao PDR) is expected to moderate in 2018, as agriculture and mining outputs are forecast to underperform, although an expansion in electricity generation, construction, and services will partially offset these adverse effects, according to a new Asian Development Bank (ADB) report.

In an update of its flagship annual economic publication, Asian Development Outlook (ADO) 2018, ADB projects Lao PDR’s gross domestic product (GDP) to grow by 6.6% in 2018 and 6.9% in 2019, slightly lower than its April estimates of 6.8% for this year and 7.0% for next year.

“Despite that a series of floods damaged farm outputs and disrupted transport services in the Lao PDR, growth in electricity export, foreign direct investment-related construction, and services, boosted by increased tourist arrivals, should help sustain the country’s economic growth momentum,” said ADB Country Director for the Lao PDR Mr. Yasushi Negishi.

Agriculture is expected to grow by 2.0% this year, while electricity generation is expected to increase by 8%, with mining outputs projected to decline by 2.0%. Construction is benefiting from foreign direct investment in hydropower and transport projects, such as the railway line from Vientiane to the border with the People’s Republic of China, which is now under construction.

The sharper depreciation of the Lao Kip against the US dollar in the open market, compared with the official exchange rate from January 2018 to July, points to continued vulnerability to stress in external payments. Inflation is now forecast to be 2.5% in 2018 and 3.1% in 2019, which are about half a percentage point higher than ADO 2018’s projections.

The current account deficit in percent of GDP is projected at 13.8% in 2018 and 13.0% in 2019, lower than the April estimates of 14.9% and 13.7%, respectively. Despite Lao PDR’s expected improvement in the current account deficit, net international reserves are forecast to remain below $1 billion by December 2018, covering only 1.5 months of imports due to a large trade deficit weighing on the balance of payments.

Downside risks to the outlook in the near term include external payments vulnerability and the possibility of recurrent natural disasters.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in co-financing.