Laos’ current account deficit remains high

VIENTIANE (Vientiane Times) - Laos’ current account deficit is expected to widen to 12 per cent in 2019 as imports are projected to grow faster than exports, according to a recent report from the World Bank.

The rising trade deficit is driven by strong demand for imports relating to investment in mega infrastructure projects, particularly the under-construction Laos-China railway.

From January to May 2019, the export sector remained stable due to the fact that strong exports of crops and semi-processed products offset a drop in mining exports triggered by lower metal prices.

Electricity exports remained stable compared to last year while manufacturing exports such as electronic parts declined, according to the latest edition of the World Bank’s Lao Economic Monitor.

“This reflects the spillover effect due to the appreciation of the Thai baht. However, this trend was compensated by an increase in exports of rubber, crops (cassava and fruits) and wood pulp to China (about US$80 million in the first five months of 2019 or a seven-fold increase compared to the same period in 2018),” said the report.

In the meantime, imports somewhat grew and the increase in demand for machinery and equipment more than offset the fall in fuel imports.

The growth of the import sector was mainly driven by construction equipment, vehicles and machinery to support large projects. The import of construction equipment and machinery, mainly from China, increased by 26 percent year on year from January to May this year.

Meanwhile fuel imports fell by 11 percent in value terms due to lower average oil prices during the first five months of 2019 compared to the same period in 2018.

According to a government report, the value of imports is expected to reach US$5.77 billion in 2019 and the value of exports is projected to reach US$5.51 billion, with the trade deficit at US$259 million. 

One of the main challenges for Laos is to boost agricultural productivity and the processing industry for export and to promote tourism so that more foreign currency flows to the country.  

Last year, Laos suffered the most costly floods in a decade after the collapse of a dam at the Xe Pian-Xe Namnoy hydropower plant in Attapeu province.

More than 600,000 people across the country were affected by flooding, and 64 people lost their lives. The total damage from last year’s floods was estimated at US$371.5 million, equivalent to 2.1 percent of the country’s projected 2018 GDP, and 10.2 percent of Laos’ annual budget, according to the World Bank.

The government has forecast that the agriculture sector will grow by only 2.8 percent this year despite the fact that the majority of the population is employed in this sector.

Economists recommend that Laos should attract more investment in agriculture to boost exports by cutting red tape and providing more incentives for agriculture businesses.   

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