Laos in 2022: No Post-pandemic Bounce Just Yet

Summary

The year 2022 proved to be a challenging one for the Lao PDR, with stability of the economy taking centre-stage once again. As the adverse impacts of the COVID-19 pandemic began to abate in the early part of the year, they were promptly replaced by a number of macro-economic concerns that brought some degree of anxiety to both the public and private sectors. By mid-2022, it had become clear that this was not going to be the year of the post-pandemic economic bounce that some had hoped for. In September, the Asian Development Bank (ADB) adjusted down its 2022 GDP growth forecast for Laos from 3.8 per cent to 2.5 per cent, up just 0.2 per cent on the previous year's figure, when the impact of the pandemic was very much apparent and borders remained closed. Meanwhile, the ADB's 2023 forecast for Laos is a modest growth of 3.5 per cent.

Financial Woes

The principal (but not only) culprit has been a marked decline in the value of the Lao kip, which then triggered a steep rise in inflation given Laos's dependence on imports for a range of essential inputs, including petroleum, fertilizers and animal feed, among others. In September, the ADB revised up its inflation forecast for Laos in 2022 from 5.8 per cent to 17.0 per cent. That same month, the yearon- year figure for inflation was estimated to be 34 per cent—the highest level recorded since late 1999, having steadily crept up over the spring and summer months. Month-on-month inflation was 3.6 per cent, and the critical food inflation was running at 35.5 per cent year-on-year in September. With the exception of Sri Lanka, the Lao currency was the worst performing Asian currency in the first half of 2022, behind both Pakistan and Myanmar.

In May and June, petrol stations in Vientiane and other cities reported running out of both diesel and petroleum to sell, resulting in long queues of cars forming to purchase the modest amounts of fuel still available, albeit at high prices, and the introduction of some rationing. The lack of access to foreign exchange with which to import petrol seems to have been the root cause, forcing the Ministry of Finance to introduce temporary lines of credit to help import more fuel and thereby keep the Lao traffic moving.