The economic expansion of the Lao PDR is expected to remain steady at 7.7 percent in 2011 and at 7.8 percent in 2012, as the economic recovery in Asia takes shape and exports of electricity and commodities expand, says a key Asian Development Bank report on April 6.
A key challenge for the whole region will be to control inflation due to rapidly rising food and oil prices, according to ADB's flagship annual economic publication, Asian Development Outlook 2011(ADO). In Lao PDR upward pressure on prices will continue due to higher prices for imported food and fuel, couple with continued credit growth. Inflation is forecasted to be around 6.5per cent this year.
Near-term challenges include achieving higher growth levels with continued macroeconomic stability, requiring tighter fiscal and monetary policies, strengthening of banking supervision to respond to the strong growth in the number of banks and maintaining exchange rate and price stability.
Strong demand for exports of metal and electricity, coupled with a recovery in tourism, spurred GDP growth in 2010. Simillar factors are forecasted to underpin a slight higher expansion this year and next. But inflation has been rekindled, so far at moderate levels. A central challenge is to preserve macroeconomic stability while pursuing growth, according to Deputy Country Director, Mr. Barend Frielink.
Higher prices for imported oil, coupled with growth in credit and impossible further depreciation of the kip against the Thai baht, will maintain upward pressure on inflation, which is projected about 6.5 per cent in the forecast period, said Mr. Barend.
Over the medium term, the country needs to diversify its economic base and generate more jobs for the growing labour force. A key issue is the need step up efforts to improve the business environment, especially for small and medium enterprises, to further develop the private sector. The social and environmental impacts of the planned mega projects need to be closely monitored and mitigated to ensure that future economic growth can be of high quality and will be sustainable. Merchandise exports are forecast to rise 25 per cent in value in 2011, underpinned by buoyant copper and gold prices and rising exports of hydropower in particular from the Nam Theun 2 and Nam Ngum 2 hydropower plants. Merchandise imports are projected to increase at slower rate than exports, but imports of machinery and materials for new projects are likely to pick up in 2012. The current account deficit is projected to narrow to around 8 per cent in 2011.
Industrial production, representing about 26 per cent of GDP, grew by 17 per cent in 2010; output of electricity increased by 140 per cent as Nam Theun 2 started production. Mining production rose by 19 per cent last year as projection at the two largest mines expanded.