The World Bank's biannual Lao PDR Economic Monitor released Tuesday has acknowledged Lao PDR's strong growth in recent years while highlighting the risks of accommodative macroeconomic policies.
"We encourage the government to increase efforts to tighten fiscal and monetary policies, so as to safeguard the economic achievements of recent years," said Keiko Miwa, World Bank country manager in Lao PDR.
According to the report, growth for 2014 is projected at 7.2 percent, a moderate slowdown compared to the figure of 8.1 percent recorded for 2013. Growth continues to be fueled by the resource sector due to accommodative macroeconomic policies and continued foreign direct investment (FDI) financed hydropower investment.
The resource sector is predicted to contribute less to the country's growth in 2014. Many major projects are under construction and are therefore unable to contribute to this year' s growth. 2014 is predicted to see higher copper production however this is likely to be offset by an expected lower gold production.
The report suggests more prudent medium-term expenditure planning and execution by the government going forward in order to narrow the fiscal deficit. According to the report, cuts in benefits by the government to narrow the fiscal deficit will be offset by new recruitment as well as salary increases for civil servants.
In 2013 foreign exchange reserves fell to their lowest level in a decade covering only 1.3 months of goods and service imports. According to the report the trend was fueled by the widening current account deficit driven by resource sector investment as well as strong domestic demand and accommodative fiscal policy. The World Bank report suggests authorities rebuild reserves to guard against adverse future shocks.
Over the course of 2013 the Lao kip weakened slightly against the U.S. dollar but strengthened against the Thai baht. The report continues to state "an overall real appreciation of the exchange rate implies a deterioration in the competitiveness of Lao PDR's tradable exports."
The Lao PDR Economic Monitor also highlighted a recent study that gave suggestions to improve the quality of Lao education. According to the study challenges to provide students access to education persist despite increased government spending in the sector.
According to the study, challenges include a low level of spending on "non-wage, public recurrent expenditure" which pays for school materials, equipment, teacher training and various other expenses. As such, families shoulder the majority of spending for school materials that in turn results in fewer learning materials and lower quality facilities.