While growth in M2 money supply remained strong at 31%, and in credit at 36.2%, credit expansion moderated from the very high rates of previous years (Figure 3.25.5). The central bank reduced its dire...
ct lending for infrastructure and slowed the registration of new commercial banks to dampen growth in credit. Foreign exchange policy focused on keeping
the Lao kip broadly stable against the US dollar and the Thai baht. The kip appreciated by 0.3% against the dollar and by 2.4% against the
baht in 2012. Dollarization declined to about 44% of M2, maintaining a gradual downtrend.
Fiscal accounts benefited from buoyant revenue from mining and hydropower, coupled with rising income from a value-added tax
introduced in 2010 and external grants. The fiscal deficit, including grants
and excluding off-budget spending, narrowed to 1.5% of GDP in FY2012
(ended 30 September 2012).
Growing credit and domestic demand propelled merchandise imports up by an estimated 17% to $5.4 billion in 2012. Exports rose by a relatively
sedate 9% to $3.4 billion, resulting in a trade deficit of $2.1 billion.
Receipts from tourism rose, but so did payments abroad of interest
and income by resource-based companies, so that the current account
deficit widened to an estimated 22.6% of GDP. Foreign direct investment
increased to $1.4 billion last year, doubling since 2010. However gross
international reserves of $708 million provided cover for just 1.6 months
of goods and services imports.
Structural reforms in 2012 included improvements to trade and
investment regulations instituted to satisfy commitments made to join
the World Trade Organization (completed in early 2013) and the ASEAN
Economic Community at the end of 2015. The government established
the State Accumulation Fund to finance its responses to future natural
disasters, economic downturns, and revenue shortfalls when global
mineral prices slide. Fund resources are to come from additional mining
revenue and any budget savings.
The International Monetary Fund and the World Bank analyzed
debt sustainability in the Lao People’s Democratic Republic (PDR) and
consequently reclassified its risk of debt distress to moderate from high.
The country’s stock of external public and publicly guaranteed debt was,
at $3.7 billion in 2011, equivalent to 44.4% of GDP, showing a decline from 50.3% in 2010 because of economic growth and the appreciation of the kip against the US dollar. However, the share of non-concessional debt has expanded over recent years.
Note: Available data for 2012 is from January to November only.
Source: Bank of Lao PDR http://www.bol.gov.la/
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