Laos is drowning in debt with at least $400 million due in loans this year that can’t be repaid, with cash flows crippled in the country because of a shutdown of the economy due to COVID-19 and another $1 billion coming due each year from 2022-2025, experts say.
State officials and Lao researchers say they now see no way the one-party communist state can meet the debts it owes foreign lenders, mostly in China but also in Thailand and Vietnam, amid the global pandemic.
“It will be hard to Laos to repay all the debts that have been outstanding for so many years now,” an official in the Lao state inspection agency said, speaking to RFA on condition of anonymity. “Laos can’t pay off its debts even if it makes payments over the next ten years. It’s just a huge sum of money,” he added.
Laos’ external debt repayment profile “remains challenging,” according to a Fitch Ratings report dated Aug. 9, “with around U.S. $422 million due over the remainder of 2021 and an average of U.S. $1.16 billion due per annum between 2022 and 2025.”
Lao debts are tied mainly to the development of infrastructure projects including hydropower dams and transportation systems, one Lao researcher said, also asking that his name not be used. “But the more development we do, the more money we borrow,” he said.
“And in the meantime, the national tax revenue being collected is much smaller than it used to be. The revenue that used to come in from gold mining is almost gone, for example,” he said.
Laos’ debt challenge was avoidable “and is closely related to overly ambitious, and poor coordination and implementation with dam building and other megaprojects,” said Keith Barney, a senior lecturer at the Crawford School of Public Policy at Australian National University.
“It is an environmental tragedy of the highest order that key rivers in Laos, such as the majestic Nam Ou, have been sacrificed to build these dams for an outcome that has seen not state revenues and sustainable development for the people of Laos, but elevated debt burdens and financial stress,” Barney said.
‘In a tight corner now’
Tax and tariff collections in Laos have also fallen off as businesses close and people lose work amid shutdowns, especially in the tourism and service sectors, caused by the spread of coronavirus in the country, sources say.
“Everyone is in a tight corner now, and living under tough conditions. We lack cash flow now because of the outbreak of COVID-19,” said a Lao businessman, who requested his name be withheld.
Laos must additionally find funds to accommodate and quarantine the hundreds of thousands of migrant workers—many of whom when employed sent money back to their families in Laos—now returning home from Thailand and other neighboring countries.
Around 100 shelters are now being built housing 1,000 workers each, with food costing each shelter around 40 million kip (U.S. $4,000) each day, sources say.
New program launched
The administration of Lao Prime Minister Phankham Viphavanh has recently launched a new program ordering high-ranking state officials to return their luxury vehicles, modernizing the country’s tax collection system, and producing goods for export to earn money for national savings.
“We have to build a base of producing goods for export and economizing expenses so that we can have more foreign currencies in reserve to stabilize savings,” Viphavanh said in a recent government meeting, adding that the Ministry of Finance now has no money in the state treasury.
“So the Ministry is asking the Bank of the Lao PDR to repay its debts in advance so that we don’t get into this kind of trouble again,” Viphavanh said, referring to Laos by its formal name, the Lao People’s Democratic Republic.
The government is also now emphasizing reform of the country’s state-owned enterprises to increase transparency in their management, said Finance Minister Bounchom Ubonpaseuth, addressing the 1st Extraordinary Conference of the National Assembly on Aug. 6.
“Many different state agencies would like to take control of the state enterprises, but when these collapse no one wants to take responsibility for their losses,” he said.
Laos has a history of widespread government corruption. The Berlin-based Transparency International reported in January 2021 that Laos’ corruption ranking had worsened, dropping from 130 in 2019 to 134 in 2020 out of 180 countries.
Reported and translated for RFA’s Lao Service by Ounkeo Souksavanh. Written in English by Richard Finney.