Country Report Laos

Outlook for 2008-09

The ruling Lao People's Revolutionary Party (LPRP) will remain firmly in control, with no serious challenge to its authority likely to emerge in 2008-09. The risk of a political backlash from accelerating consumer price inflation should not be underestimated, however. No major change in the party's ideology or policies is likely during the forecast period. The government will continue to pursue economic reforms, and will remain keen to attract foreign investment. Although efforts to join the World Trade Organisation may provide some impetus to reform, progress overall will be slow. Economic growth will average 6.5% a year in 2008-09, supported by trade growth and increased investment from Laos's neighbours. Consumer price inflation will accelerate to nearly 8% in 2008, from 4.5% in 2007. Despite rising exports, the current-account deficit will widen to almost 8% of GDP in 2009.

The political scene

The government continued in its attempts to control access to land and to introduce a system of land registration. Links with neighbouring countries were celebrated at the Greater Mekong Subregion summit in the capital, Vientiane. The repatriation of the Lao Hmong refugees from a Thai camp has begun.

Economic policy

The deputy finance minister has claimed that revenue collection is ahead of schedule to meet the target for fiscal year 2007/08 (October-September). The authorities are trying to control accelerating inflation. The Ministry of Agriculture reckons that rice production may not suffice to meet demand.

The domestic economy

The Asian Development Bank's Asian Development Outlook 2008 cites the expansion of agriculture to be a major economic challenge for Laos. In the first quarter of 2008 the consumer price index was up by 6.8% on the year-earlier period and was 10.3% higher year on year in May. Foreign investment in plantation commodities, including rubber, as well as in copper mining and hydroelectric power, has continued to increase.

Foreign trade and payments

Investment from China and Vietnam has continued to flow into the country. In January-March 2008 exports rose by 0.5% year on year, while imports remained unchanged from the same period in the previous year. Strong growth in trade with Thailand suggests that weaker demand in more developed countries, such as the US, is damping the overall export growth.