December 03, 2017

Heavy debt load in Laos

By:  David Hutt, Asia Times News, November 4, 2017

Twenty years since the 1997 Asian financial crisis, analysts are once again looking skeptically at potentially unsustainable debt piles in the region. Largely untouched by the ’97 collapse, Laos could get pulled into a new era of financial turmoil.

An International Monetary Fund (IMF) report released this year said that the risk of “external debt distress” in Laos, Southeast Asia’s second smallest economy, has risen from “moderate to high.” The country owes for various big infrastructure projects, including foreign borrowing for massive hydropower dams.

The IMF found that Laos’ external public and publicly guaranteed (PPG) debt rose from US$5.4 billion in 2014 to about US$6.5 billion by the end of 2015, or roughly 52% of gross domestic product (GDP). The figure is estimated to be even higher now.

Debt sustainability concerns are rising as Laos’ recent fast economic growth, averaging around 8% from 2011 to 2014, has more recently started to taper off.

The Asian Development Bank (ADB) expects growth of 6.9% this year and around the same clip for 2018. Longer term, the IMF projects 6.3% average real GDP growth between 2016 and 2036.

There are several reasons for the decline, most not the government’s fault. Economic slowdowns in Laos’ main trading partners, including China, and lower global commodity prices are primary causes. Analysts also point to poor weather conditions over the last few years for a weakening agriculture sector.

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