Publication: Lao People's Democratic Republic Economic Monitor, April 2024: Accelerating Reforms for Growth - Thematic Section : Education for Growth and Development
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2024-05-06
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2024-05-06
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Economic growth remains below pre-COVID-19 levels, mainly owing to protracted macroeconomic instability. Economic growth is estimated at 3.7 percent for 2023, with positive contributions from the services sector (for example, tourism, transport, and logistics) and mining. Electricity generation, mostly from hydropower plants, was tempered by low rainfall. Meanwhile, foreign investment increased substantially, linked mainly to the electricity and mining sectors. In contrast, public spending and household consumption remained constrained by limited fiscal space and high inflation. Merchandise export growth was limited, affected by supply-side constraints (for example, labor shortages) and subdued external demand. Amid limited foreign exchange liquidity and high external debt service obligations, depreciation and inflationary pressures persist. In 2023, the annual average official kip/US dollar exchange rate weakened by 31 percent, while the average parallel rate depreciated by 27 percent. The parallel exchange rate premium was about 13 percent in March 2024. Depreciation appears to coincide with periods of large public debt service repayments, usually between March and September. Given the high import dependence, depreciation brings changes in domestic prices. Headline inflation averaged 31 percent in 2023 and remained at about 25 percent for eight consecutive months from August 2023, with food, transport, hotel, and restaurant price increases the main contributors. In 2024, real GDP is projected to grow by 4 percent as potential growth will remain constrained by structural challenges. This outlook assumes no new debt service deferrals in 2024 and beyond, while deferrals accumulated during 2020–2023 would continue to be deferred. Economic activity is expected to benefit from recovered performance in tourism, transport and logistics services, and investment in the power sector and some special economic zones. Despite the slight uptick this year, economic growth will remain below pre-COVID levels, weighed down by macroeconomic instability and structural constraints such as a shortage of skills, both in quality and quantity, and a challenging business environment.
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“World Bank. 2024. Lao People's Democratic Republic Economic Monitor, April 2024: Accelerating Reforms for Growth - Thematic Section : Education for Growth and Development. © World Bank. http://hdl.handle.net/10986/41505 License: CC BY 3.0 IGO.”
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