The Lao economy: capitalizing on natural resource exports

Trade and investment reforms in the Laos since the mid-1980s have boosted natural resource-based exports, underpinning recent economic growth. This paper examines how the Lao export-led growth can be channeled into directions that deliver the greatest benefit to the Lao people.

The paper states that the effect of the economic growth on people depends on how the government uses these revenues.

Findings are that:

• a high proportion of the proceeds from Lao boosted exports accrue directly to the national government
• almost all of the resource revenues are currently being absorbed into the domestic economy
• identically, the level of foreign exchange reserves, as a proportion of GDP has not increased

Conclusions encompass:

• domestic absorption of Lao revenues earned from natural resource-based exports undermines the competitiveness of traditional traded goods industries
• expanded spending should be focused on rural spending, and on social services such as education and health
• furthermore, the government is recommended to assist those people who are affected negatively, enabling them to find productive opportunities in other sectors of the economy
• on the other hand, a policy of gradual absorption of the resource revenues is desirable for Laos under its current circumstances
• indeed, slowing the rate of absorption give the Lao public service more time to plan how to spend the revenues wisely, while rapid absorption is seriously risky
• nevertheless, the optimal rate of absorption of the proceeds of the export boom depends on the rate at which the revenues can be absorbed productively

The author also makes a point that retraining and adjustment assistance is required rather than protectionism in responding to the adverse impacts of current model of absorption.