Inflation in Laos continues to spiral out of control, and the country’s Bureau of Statistics announced this week that the country’s annual inflation surged to a 22-year high of 23.6 percent in June. According to report in the state-run Vientiane Times, the consumer price index jumped sharply last month above the government-mandated 12 percent ceiling that had already been breached last month when annual inflation hit 12.8 percent.
Worrying inflation numbers are the latest sign of an economic storm that continues to hit the country’s debt-laden economy. In recent months, Laos has been hit by twin shocks of rising oil prices and a rapidly depreciating currency, driving energy prices and consumer goods to run amok. The local currency, the kip, collapsed in value. Back in September, one US dollar was trading at just over 9,300 kip, a rate that has since overclocked to 15000.
As a result, the Vientiane Times informed that the prices of gasoline, gas and gold rose by 107.1 percent, 69.4 percent and 68.7 percent, respectively, in the year to June. It is also reported that “the cost of food, condiments, soft drinks, clothing, shoes, medicines, construction equipment, cars, spare parts and other imported goods has increased significantly.” According to the usually reputable newspaper, this upward pressure “continues to exacerbate hardship and create new problems for the Lao public.”
The fuel price crisis was perhaps the most visible indicator of the economic crisis, as motorists were forced to stand in line for hours in the capital Vientiane in May due to fuel shortages caused by the government’s lack of available foreign exchange. As diesel rises in price by the same margin as gasoline, the fuel crisis also threatens to cut agricultural production. stayas farmers struggle to keep the necessary machinery running.
In the background looms the question of debt. Laos currently owes $13.3 billion in sovereign debt, most of which has gone to finance the construction of large-scale infrastructure projects, many of which are backed by China, including the undoubtedly impressive but expensive high speed rail connecting Vientiane to the Chinese border. After COVID-19 hit the country in 2020, depleting its foreign exchange reserves and putting it at high default risk.
As David Hutt of The Diplomat recently pointed out, the economic crisis is now started to reach political dimension. Last month, Prime Minister Fanham Viphavan was forced reshuffle his office in an attempt to take control of the economic situation. June 6 Fankham belatedly formed a special task force to solve the economic problems of the country, in particular, to solve the problem of fuel shortages.
The country has since experienced a temporary respite from the fuel crisis after the government extended a line of credit to state-owned fuel importers, allowing them to import enough fuel to keep the country running through the end of August. The government also raised the national minimum wage to help those hardest hit by rising living costs.
But they are best seen as piecemeal measures that do little to address the structural problems facing the economy. These include rampant corruption and tax evasion, which the government own confession deprived the state of revenues, and the infrastructure-oriented development strategy left the country vulnerable to external shocks and indebted to one creditor (China).
The Lao government will no doubt take additional steps to prevent the worst effects of the crisis on ordinary people, but a more lasting solution to the country’s economic woes appears to be a long way off.