Lao People’s Democratic Republic
Country briefing note <download pdf file>
Economic growth is strong; the country joins the WTO
- The economy continued to expand rapidly, by 8.3% in 2012, at a similar pace to that in 2011, driven largely by gold and copper mining and hydropower investments.
- Economic growth was also supported by the rising contribution of garments and tourism, as well as a recovery in agricultural production following the floods in 2011. Public construction activities for the Asia-Europe meetings held in November 2012 also made contributions. More importantly, services such as telecommunications have seen a steady increase in recent years, in line with rising incomes and growing domestic demand.
- In early 2013, the country became the newest member of the World Trade Organization. Just as important as gaining better market access as a result of accession to WTO is the provision of incentives for and the anchoring of domestic reforms.
- The country is expected to maintain high growth of 8.1% in 2013, supported by strong mining and hydropower exports as well as increased foreign investment in the light of its accession to WTO.
- The 7th Five-year National Socio-Economic Development Plan (2011-2015) targets include: annual GDP growth of 8% or above; per capita income of $1,700 in 2015; achieving the Millennium Development Goals by 2015; moving out of Least Developed Country status by 2020; ensuring sustainable development; regional and global integration; and acquiring modern technologies and infrastructure.
- Overall, the country seems to be well on track to meet these targets. The economy has been growing at around 8% in recent years. Per capita income increased from $300 in 2001 to $1,200 in 2011.
- In addition to country-specific circumstances, the creation of the Association of Southeast Asian Nations (ASEAN) Economic Community will be an important determinant for the country's outlook.
Inflation softens owing to stable food prices
- Average annual inflation rate declined from 7.6% in 2011 to 4.3% in 2012, owing to stable food prices and relatively moderate fuel prices. Inflation may increase in 2013, partly because of an across-the-board increase in public sector wages.
Fiscal and monetary policies are supporting economic development
- While domestic resource mobilization remains a particular challenge for low-income countries, the Lao People's Democratic Republic has been more successful in raising the tax-to-GDP ratio. For instance, non-natural resources-based revenue increased with the introduction of value added taxes in 2010.
- The Government established a State accumulation fund in 2012 to be used in the event of natural disasters or major economic shocks.
- Monetary policy continued to rely largely on regulation-based instruments. With the rapid growth of domestic credit and the opening of stock exchanges, enhanced supervision and regulation of the financial sector have become more important.
FDI inflows increase; exports remain strong
- Foreign direct investment increased sharply, mainly for hydropower projects, covering a substantial portion of the current account deficit, which remained high at nearly 22% of GDP in 2012.
- Exports continued to benefit from high global prices of copper and gold.
Human resources development challenges
- An important concern is the wide socioeconomic gaps remaining between ASEAN's more developed members and less developed CLMV (Cambodia, Lao PDR, Myanmar and Viet Nam). The literacy rate in Lao People's Democratic Republic remains low at around 75%, compared to the other ASEAN members' 90-95% (except for Cambodia). Public spending on education is also relatively low at around 3% of GDP. A wide gap also exists in the average years of schooling. An average worker in CLMV countries today has 5.5 years of schooling, compared with 8.4 years for his or her counterpart in the more developed ASEAN members.
- In order for CLMV countries to fully benefit from the ASEAN Economic Community, the focus on education needs to be enhanced. CLMV countries would be able to participate more actively in the regional production networks with a skilled labour force. Employer surveys often cite the shortage of skilled labour as a major constraint. Studies also show that education is an important factor in determining labour productivity.
- Given the budgetary constraints in the CLMV countries, more developed ASEAN countries could introduce or scale up financial and technical assistance to the CLMV countries in the areas of education and training. Currently, some more developed ASEAN countries operate individual programmes, but a more systematic approach could also be considered; for instance, setting up an “ASEAN education fund”.
- In addition, given the shortage of well-trained teachers in CLMV countries, an ASEAN-wide volunteer teaching programme could enable young, qualified teachers from more developed ASEAN countries be seconded to primary and secondary schools in the CLMV countries for a given period, during which the sending Governments would pay for the salaries of those teachers.