Laos - IMF: Future bright for Laos over medium term

The International Monetary Fund (IMF) projects that the Lao economy will see 8.25 percent growth this year despite the economic uncertainty that prevails globally.

The Fund’s Resident Representative Office in Vientiane issued a media release this week after ending its mission to conduct the 2012 Article 4 consultation with the Bank of the Lao PDR from June 26 to July 5.

The IMF mission focused on an assessment of macro-economic and financial sector development and the outlook for the Lao economy.

The preliminary assessment will be reflected in the 2012 Article 4 staff report, which will be discussed by the IMF Executive Board on August 30 in Washington DC, USA.

The IMF team, led by Mr Denis Botman, met with Bank of the Lao PDR Governor Mr Somphao Phaysith last week. They also met with Ministry of Finance officials, donors, and private sector representatives in Laos.

In the press release, the IMF forecasts that the Lao economy will see strong growth ranging from 7.5 to 8 percent over the medium term with continued strong contributions from the mining and hydropower sectors.

Foreign direct inflows, robust growth in Laos’ main trading partners – in particular Asian countries including Thailand, Vietnam and China – will also help the country to maintain strong economic growth over the next few years.

The IMF also forecasts that average Consumer Price Index (CPI) inflation will stay below 5 percent over the medium term and that the current account deficit can be financed.

Despite the strong FDI inflows and official bilateral assistance, the IMF warns Laos to have appropriate sound economic policies and further strengthen policy frameworks, which will support sustainable and broad based inclusive growth.

While meeting with the Bank of the Lao PDR Governor, the IMF team expressed concern over high credit growth. They believe rapid credit growth could lead to a decrease in foreign reserves, which will be a challenge for Laos in maintaining economic stability.

The IMF has urged the Bank of the Lao PDR to raise the reserve requirement rate as a measure to curb credit growth.

But the central bank said it was not the right time to raise the reserve requirement rate as it was feared this would have a negative impact on commercial banks.

Source: Vientiane Times

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