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Lao Economy

Somphavan Inthavong

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Ekor-Laotian women villlagers at Muong Sing District, Luangnamtha Province, Northern Lao, 1997...(picture taken by Somphavan INTHAVONG)

28 September, 2003 dDate -->dDate -->

Recent salient figures estimated on Lao Economy, for Fiscal Year 2002-2003 are as follows: GDP Growth Rate = 5.8%, Total (nominal)GPD=21,422 Billion(Lao)Kips, in which Agricultural, Industrial and Services Sectors' contributions were 49%, 25%, and 26%, respectively. Projected Targets for Fiscal Year 2003-2004 are as follows: GDP Growth Rate = 6.3%, Total(nominal)GDP =24,464 Billion Kips, in which Agricultural, Industrial and Services Sectors' contributions will be about 48.2% ,26.0% ,and 25.8%, respectively.

Last Economic Data on the Lao P.D.R.: According to the spokesman of the National Assembly, Mr. Thongsa Panyasith (who is also Head of the National Assembly Secretariat), the Second Ordinary Plenary Session of the National Assembly of the Lao P.D.R., opened on 30 October 2002, has examined the Report on the Execution of the past (2001-2002) Plan of Social and Economic Development ( PSED ) of the Lao PDR and on the Draft ( 2002-2003 ) Plan of PSED, and also the Report on the Execution of the (2001-2002) fiscal year Budget and on the Draft (2002-2003) Budget, as presented by the Government. For fiscal year 2001-2002, the economic growth of the country has recorded the following levels: Gross Domestic Product (at constant prices): 5.7% : Per capita GDP at annual market price level : 3.15 million Lao Kips ; Number of former poor families having been able to get out and above Poverty Level Standards : 27 500 ; Reduction of poppy 's cultivation area : 3200 ha. ( Reference : PHATHETLAO DAILY, number 441 dated 4 October 2002, page 1-E-mail:PTL@laonet.net).

I would like to add the following comments : The Lao Government target for poppy cultivation reduction is still to definitively liquidate all poppy cultivation by year 2005, with the assistance of the international community and specialised agencies. The E.U, the U.S.A, Japan, Sweden, France, Germany, Korea, A.S.E.A.N, Australia,etc.., are being most helpful with their consistent assistance to the Lao Government and People. The main difficulty in this question of poppy cultivation is the fact that the people who cultivate poppy are, in their majority, ethnic minorities living in remote Mountains areas with difficult/no access to urban centers. To provide them with access roads, new skills and better ways to get a living would therefore be the approach to get rid of their traditional slash-and-burn practices of poppy cultivation, and also, above all, to help them get out of poverty and diseases.

(1)Reference : Report on the Round Table Process Information Meeting, National Steering Committee of the Round Table Process , Committee for Planning and Cooperation, Vientiane, December 14th, 2001:

Macro-economic features of the Lao economy in Fiscal Year 2000-2001:

Population : 5.5 million (mid-2001) , Average per capita Gross Domestic Product ( GDP ) : 2.8 million Kips ( equivalent to US$ 327 per capita ) , GDP growth rate : 6.4 % , Inflation rate : 8.6 % , Average value of the Kip ( Exchange rate ) : 8,600 Kips to the US$. Exports : US$ 325 Million , Imports : US$ 528 Million, i.e. a Trade Deficit of 11.7 % of G.D.P. , Total value of Official Development Assistance (ODA) received : US$ 385.7 equivalent of which 74 % are grant aid , Total Public Investment : 2,000 Billion Kips . Foreign Direct Investment ( FDI) : US$ 72 Million , 52 foreign investment projects were approved which amounted to a value of US$ 52 Million , reflecting the overall slow recovery of the Region' economy and the global slowdown, in the aftermath of the 1997-1998 Crisis. Institutional reforms and macro-economic issues which were given major emphasis included the following measures : The Committee for Investment and Cooperation ( CIC ) , in charge of domestic and foreign investment and international economic assistance, and formerly under the Prime Minister's Office, was ( again) re-inserted within the State Planning Committee, the latter organization being, consequently, renamed as 'Committee for Planning and Cooperation' (CPC ) and empowered to decide on the approval of all grant-aid projects, and domestic and foreign investment projects, up to a value not higher than US$ 10 Million for foreign investment and Kip10 Billion for domestic one ; the implementation of the Prime Minister's Decree No. 150 on the organization and activities of the Committee for Planning and Cooperation; the setting of guidelines on the policy on poverty eradication by a Prime Minister Decree (Instruction No.10/PM dated 25 June 2001) which linked poverty eradication program to the program of stabilization of slash-and burn farming and to that of the opium production elimination.

Main Objectives of the Socio-economic Development Plan for Fiscal Year 2001-2002 :

GDP growth rate : 6.0 % to 6.5 % , Inflation rate : < 10 % , Trade deficit : 11 % GDP , Budget Revenues : 15 % GDP , Budget deficit : 8 % to 9 % GDP , Total investment : 25 % 30 % GDP , in which Public Investment : 12 to 13 % GDP and Foreign and Domestic Investment : 13 to 17 % GDP , Reduction of poverty : 45,000 poor households will achieve a level above the poverty line, slash-and burn cultivation practice areas will be reduced by 20,000 hectares, i.e., about 20 % of the total slash-and burn areas ; opium production areas to be eliminated : 4,300 hectares , i.e. , about 25 % of the total areas now under cultivation . 40% of the Public Investment Program of the government will be allocated to relevant sectors, provinces and districts to implement projects aiming at achieving the Poverty Reduction Program.

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(2) Reference: Labor Market Issues, Lao People's Democratic Republic, Asian Development Bank (A.D.B), Publication Stock No.030696 (1997):

The above reference A.D.B publication describes the labor market situation in Lao P.D.R, based on two surveys conducted in 1992 and 1994 and other related economic data, suggests policy options for the Lao Government .  Several labor market issues are addressed including those related to women, poverty, vulnerable groups, foreign labor and job creation challenge with an annual rate of 50,000 new entrants to the labor market. The ADB consultants in charge of the study found that the Lao Government new reform policy ( nayobay pianpaeng mai, in Lao ), launched in 1986, and also known under the name of New Economic Mecanism ( Konkai Sethakit Mai ) or NEM, which combined elements of stabilization, structural adjustment and liberalization, including fiscal and enterprise reforms, the adoption of a unified and market-based exchange rate, price and trade liberalization and financial sector reform, yielded quick results in terms of macro-economic performance. Growth has been maintained at the level of 7.5 % annually since 1988, with trade, services and the construction and garment industries recording the most substantial growth. Although agriculture sector output value continues to dominate GDP at 57.6 %, some diversification began to appear in the fact that the share of industry rose from 11 % of GDP, in 1987 to 18 % in 1994 while service sector accounted for 24.3 %.

Table 1.1  :  Annual GDP Growth rates by industrial Origin at 1990 Constant Market Prices for the period of years (1990-1994), in %.

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In terms of  growth rates, Table1.1 at page 2 of this ADB's publication shows that the industry sector has consistently maintained high growth rates, since1990, except for year 1992 when growth rate fell below 10 %. Manufacturing sector was growing at record rates up to year 1991. The following years, i.e., from 1992 to 1994, the growth rate declined but continued to achieve a level of about 7%.Construction and services appear to be also a fast-growing industrial sub-sector, while Services, in general, did not show a particularly high growth rate , except its 'Hotels & Restaurants " , wholesale & retail trade and banking sub-sectors which recorded impressive progresses.