Stronger financial markets needed to improve Laos resilience to shocks
VIENTIANE, PEOPLE’S REPUBLIC OF LAOS (December 14, 2022) – The Asian Development Bank (ADB) is standing by its economic growth forecast for the Lao People’s Democratic Republic (PDR Laos), amid a deterioration in the consumer price outlook, it said Asian Development Outlook (ADO) 2022 Supplement released today.
Inflation continues to accelerate in economies across Asia and the Pacific on high energy and food prices, mainly due to the Russian invasion of Ukraine, ADB said in the report. While global oil, gas and food prices have fallen from their highs earlier in the year, prices remain higher than before the invasion. The report estimates that headline inflation in Laos DPR will average 23% in 2022 before falling to 10% in 2023.
“Inflationary pressures are expected to persist in the near term, exacerbated by global central bank monetary tightening amid a weaker local currency,” said Sonomi Tanaka, ADB country director for Lao People’s Democratic Republic. “It is important that coordinated efforts are made to address the impact of currency weakness on domestic inflation – particularly for food and fuel – as price volatility of these goods disproportionately affects the poor and vulnerable.”
A new ADB case study published today, Development of a local currency government bond market in an emerging market post COVID-19highlights how the development of the local currency government bond market in Laos DPR can help to strengthen the momentum of economic recovery and strengthen resilience to future shocks.
“Deepening of domestic financial markets, particularly through local currency borrowing, offers several benefits, including increasing an economy’s ability to respond to shocks and providing the government with a stable source of funding at a reasonable cost and desirable maturity,” ADB said -Advisor to the Department of Economic Research and Regional Cooperation Satoru Yamadera. “Those economies that have made progress in deepening their local currency markets are better protected from sudden currency shocks.”
Drawing on lessons learned from the Asian Bond Markets Initiative, the case study outlines short- and medium-term measures that can help improve the efficiency of the sovereign bond market, including effectively managing sovereign cash flow and sovereign debt.
ADB is committed to a prosperous, inclusive, resilient and sustainable Asia and the Pacific while continuing efforts to eradicate extreme poverty. It was founded in 1966 and is owned by 68 members – 49 of them from the region.
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