Lao growth remains reliant on infrastructure development

VIENTIANE (Vientiane Times/ANN) - Laos’ economic growth will continue to be driven by the construction of large infrastructure projects and the operation of power plants in the short- to medium-term. 

The World Bank recently projected that growth in the construction and service sectors would remain robust in the short- to medium-term due to continued infrastructure investment.

Similarly, the upcoming completion of several large power plants is expected to add an extra 2,200MW of capacity. For instance, the Xayaboury hydropower plant is scheduled to become operational in October this year.

The completion of these hydropower plants should boost generation capacity to almost 10,000MW by 2020, of which the majority is exported, according to the World Bank’s report.

Conversely, the mining sector’s contribution is projected to steadily drop as the current investment matures without any new exploration while the moratorium remains effective.

Meanwhile, the Lao government is committed to pushing the progress of mega infrastructure projects, mainly the US$5.9 billion Laos-China railway and Vientiane-Vangvieng expressway.  

As of July construction of the Laos-China railway was 70 percent complete and is scheduled for completion in 2021, according to the government’s report.

Authorities have deemed the Vientiane-Vangvieng Expressway 33 percent complete after a concession agreement was signed earlier this year.

The government holds a 5 percent stake in the project with a Chinese company holding the remainder over a 50-year concession period. The project will be carried out under the Build-Operate-Transfer (BOT) model.

The government is paying more attention to private sector growth as a result of the country’s revenue shortfall and budgetary tension.

From now until the end of 2020, the government is not approving spending proposals that are unlikely to result in direct economic returns, such as new vehicle purchases and construction of public office buildings.

Instead, capital investment will concentrate on financing ongoing projects and repaying debts to maintain the country’s financial liquidity.

The World Bank is generally optimistic about Laos’ economic growth despite the country encountering financial difficulties and falling foreign currency reserves.

The bank has forecast that growth will rebound to 6.5 percent in 2019, up from 6.3 percent in 2018.

However, the bank said Laos might face difficulty in responding to economic shocks given the low level of foreign currency reserves and significant external public debt.

A priority for Laos is to create fiscal space through improving tax policy and administration as well as building up reserve buffers to respond to shocks.

Furthermore, it is essential to improve the nation’s position in the global ease-of-doing business ranking. This is particularly important for small and medium-sized enterprises which contribute to job creation, poverty reduction and in turn greater macroeconomic stability, according to the World Bank.

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