The Asian Development Bank (ADB) 's Asian Development Outlook 2014 has projected a 7.3 percent GDP growth for Laos in 2014 but warns of the country's susceptibility to economic shocks due to macroeconomic imbalances.
The projected 7.3 percent growth in 2014 falls slightly short of last year's 7.6 percent.
"The Lao PDR economy remains one of the top performers in the region in terms of economic growth," said ADB Country Director Sandra Nicoll on Tuesday.
"It is clear, however, that the economy has become more vulnerable to internal and external shocks, and the challenge for the government is to make the economy more resilient by addressing the macroeconomic imbalances that exist today."
The ADB's Lao growth prospects are affected by the fiscal challenges facing the government and a small slowdown in mining and construction.
ADB Deputy Country Director Barend Frielink told Xinhua that the most urgent issue facing the Lao government was its fiscal constraints.
"The economy may not be resilient enough to withstand shocks under the current circumstances so the priority should be to address the fiscal imbalances," he said.
The ADB report attributes Laos' 7.6 percent growth last year to the country's expansionary fiscal and monetary policies. Services expanded by 9 percent supported by robust consumer spending. A 12 percent increase in tourist arrivals benefited hotels, restaurants and transportation.
In 2013 mining and hydropower outputs expanded, but at a slower rate than in previous years. Hydropower output increased by 3.6 percent, copper production increased by about 3.5 percent and gold production was up by 6.6 percent. Agriculture growth was 2.7 percent despite severe flooding in the third quarter.
Inflation for Laos in 2013 stood at 6.4 percent, comfortably beneath the GDP growth rate of 7.6 percent.
Into the future, the ADB predicted that investment flowing into hydropower and mining coupled with construction will continue to drive GDP growth along with private consumption and foreign direct investment. Services are likely to maintain solid growth, particularly tourism-related services, telecommunications and wholesale retail trade.
According to the ADB, the country's sizable fiscal deficit coupled with persistent payment arrears is likely to negatively affect the economy in 2014. Inflation is expected to be 5.5 percent throughout 2014, slightly lower than 2013's figure of 6.4 percent.
"The outlook for 2014 for the economy of the Lao PDR remains solid, as various sectors continue to contribute strongly," said Nicoll.
"One of the main challenges is to reduce expenditure to drive the fiscal deficit down to a more sustainable 3 percent of GDP. Another challenge is to rebuild the foreign reserves which fell to a very low level in 2013, leaving the country vulnerable to adverse shocks," she said.