Stronger Financial Markets Needed to Boost Lao PDR’s Resilience to Shocks
VIENTIANE — The Asian Development Bank (ADB) is maintaining its economic growth forecast for the Lao People’s Democratic Republic (Lao PDR), while the outlook for consumer prices has worsened, according to the Asian Development Outlook (ADO) 2022 Supplement released today.
Inflation continues to accelerate in economies throughout Asia and the Pacific on high energy and food prices, mainly due to the Russian invasion of Ukraine, said ADB in the report. While global oil, gas, and food prices have fallen from their peaks earlier in the year, prices remain higher than before the invasion. The report estimates that headline inflation in the Lao PDR will average 23% in 2022, before falling to 10% in 2023.
“Inflationary pressures are expected to continue in the near term, aggravated by central banks’ policy tightening globally amid a weaker local currency,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “It is important that coordinated efforts are made to address the effects of currency weakness on domestic inflation—especially for food and fuel items—as price volatility on these goods disproportionally impacts the poor and vulnerable.”
A new ADB case study released today, Developing a Local Currency Government Bond Market in an Emerging Market in the Wake of COVID-19, highlights how development of the local currency government bond market in the Lao PDR can help strengthen economic recovery momentum and build resilience against future shocks.
“Deepening domestic financial markets, particularly through local currency bonds, offers diverse benefits, including raising the capacity of an economy to respond to shocks and providing the government with a stable source of funding at a reasonable cost and desirable maturity,” said ADB Advisor to the Economic Research and Regional Cooperation Department Satoru Yamadera. “Those economies that have made progress in deepening their local currency markets are more insulated from sudden currency shocks.”
Leveraging experience from the Asian Bond Markets Initiative, the case study outlines short- and medium-term measures that can help improve the efficiency of the government’s bond market, including effective management of the government’s cashflow and its public debt.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.