Lao People's Democratic Republic: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Lao PDR

This 2023 Article IV Consultation discusses that in Lao People’s Democratic Republic marked exchange rate depreciation following the global terms of trade shocks at the start of 2022 year brought high inflation and deteriorating living standards and caused substantial increases in the domestic currency values of public debt and bank liabilities. The authorities have achieved substantial improvement in the fiscal balance, which will need to continue for an extended period to help restore debt sustainability. Greater reliance on tax revenue mobilization would be better for growth. Persistent expenditure arrears necessitate urgent action on public financial management. Monetary policy should seek to raise retail interest rates through a combination of issuing central bank bonds and raising reserve requirements and the policy rate, to stabilize domestic currency usage and ease pressures on banks. Complementary policies are crucial to facilitate greater private sector employment and growth and boost foreign exchange earnings. Governance should be improved including with greater transparency and consistent implementation of regulations; and tackling corruption concerns remains crucial.