In an update of its annual economic publication – Asian Development Outlook 2019, the ADB revised down the forecast, saying it was because expansion in the industry and services sectors softened in the first half of 2019 as a result of lesser international tourist arrivals and near stagnation in electricity exports and generation.

The report said in the first four months of this year, merchandise exports have slightly increased compared with the same months last year as electricity exports grew only at 2.3 percent, much slower than 7 percent a year earlier.

Tuk Tuks carrying tourists on a street in Luang Prabang. (Photo: AFP)

This indicates a slowdown in industry growth in the first half of the year and a deepened contraction in mining output. Meanwhile, growth in tourism, a proxy for the services sector, softened as international tourist arrivals slowed from 6.1 percent in the first half of 2018 to 5 percent in the same period this year.

The Lao Kip appears to be overvalued, considering the significant premium over the official exchange rate paid on the open market for hard currency.

The ADB forecast the country’s inflation to be around 2.3 percent in 2019 and 2020, slightly higher than the 2 percent projection in April due to continued pressure on food prices and local currency depreciation.

Despite the Lao government’s expected improvement in the current account deficit, gross international reserves are forecast to remain below 1 billion USD by December 2019, covering only a month of imports, making the country’s position vulnerable to external financial shocks.

The tight fiscal condition, as Laos’ public debt remains high, holds back the government’s spending and investment in the country, said ADB Public Management Specialist for Laos Rattanatay Luanglatbandith.

Laos being hit by major natural disasters over the two consecutive years have also prevented its economic growth to reach the projected level.

Rattanatay recommended the Lao government to accelerate the pace of public finance reform, further improve business environment to promote private sector investment, and produce a skilled labor force to support the labor market demand as these solutions would help spur investment and boost employment and economic growth that benefit everyone./.