Laos’ GDP forecast to contract by 2.5 percent: ADB

Vientiane (VNA) – Economic expansion of Laos is forecast to contract this year for the first time since 1980s due to impacts of the COVID-19 pandemic, but the economy will recover in 2021, according to the Asian Development (ADB)’s recent report.

The Asian Development Outlook (ADO) 2020 Update predicts Laos’ GDP to contract by 2.5 percent in 2020, marking its first negative economic growth since 1986-1987. The growth is expected to rebound to 4.5 percent in 2021, suggesting a slow recovery as the pandemic outbreak is said to subside slowly.

ADB Country Director for Laos Yasushi Negishi said the COVID-19 outbreak has not only affected the economic growth in 2020 but also hampered the government’s prospect to collect revenues.

The Lao government needs to improve macro-fiscal framework and accelerate public finance reform to create more fiscal space to buffer shocks, he stressed.

The bank’s report also shows that agriculture would grow at 1.9 percent this year, slower than the 2.5 percent projected in April due to lower rainfalls, while the industrial sector growth is projected at 1.4 percent for the whole year.

The service sector is said to post minus 5.5 percent growth as tourist arrivals falling by 60 percent in the first half of this year and expected to cease altogether, and contraction in wholesale and retail trade, transportation and hospitality.

Disruption of FDI inflows will shrink all investments in the country by 17.5 percent.

The inflation rate in the nation will increase to 5.5 percent this year, sparked by higher food prices and Lao Kip depreciation. For the first half of the year, Kip exchange rate depreciated by 1.6 percent against the US dollar in regulated commercial banks rate, and by 5.7 percent on the parallel market rate.

Inflation in 2021 is projected to ease to 4.5 percent as food prices are expected to fall thanks to a better harvest.

The current account deficit is expected to narrow this year more than earlier projected on the back of lower oil prices and lower demand for imports, as well as higher electricity exports, but will widen again in 2021./.