Laos is on track to join the World Trade Organisation (WTO) as early as 2012 – and hopes to secure much-coveted “middle-income” country status over the next decade.
Finance minister Somdy Douangdy told Emerging Markets that Laos had already completed six meetings with WTO representatives and that the process of joining the global trading body is nearing completion.
“We would like to join the WTO as soon as possible but it’s not dependent on us. We definitely expect to join the WTO over the next two and maybe three years.”
But much depended on economic stability and robustness, he added. GDP is on track to increase by an average of 8% a year between now and 2020, Douangdy said. This compares to 6.5-7.5% growth in recent years, due largely to strength in agriculture, services, mining, forestry, tourism and the export of dollar-earning hydroelectric power to neighbours Thailand and Cambodia.
But Laos, a landlocked country that borders five coastal nations including China and Vietnam, remains very much an economic laggard.
Douangdy said: “We are the least developed country in the region. The need for development is very high but the revenue we have to get there is very limited.”
Now, he says, the challenge is to maintain macroeconomic and financial stability. Food security is not an issue: Laos produces a surfeit of rice and other staple crops that it exports to other Asian nations. Prices are rising by around 6% annually, considerably lower than the inflation rate in Vietnam. The budget deficit is low, too, at around 5% of GDP.
There is one dark cloud though: rising fuel prices. Fuel inflation dogs Laos, which has no major reserves of oil and gas. Hydroelectric power is a growing industry, but plans to build a major dam on the upper stretches on the Mekong river has been delayed, due to concerns from downstream neighbours Cambodia and Vietnam.
“The big challenge we are facing is fuel prices,” Douangdy said. “If fuel costs continue to rise, we will have to take measures – maybe we will have to subsidize [consumers] by cutting taxes on imports, just in the short-term [and] by a few percentage points.”
This, though, will have a negative impact on the country’s budget at a time when it is trying to maintain economic growth at all costs without reducing public spending.
And Laos needs to come to terms with its main geographical limitation: its status as a landlocked nation with richer neighbours in all directions. This, believes Douangdy, can be seen as a blessing as well as a curse.
A high-speed rail line connecting China with Singapore will link all regional nations once completed. Laos stands at the heart of the region, a natural transit link between Thailand, Vietnam, China and Cambodia. Road and rail links will continue to spur the development of Laos’s economy.
But, adds Douangdy, Laos needs to find ways for people to want to remain in the country, not just motor through, on the way to somewhere else. “We can be a transit country as we are [situated between] nations,” he says. “But we need to make people want to stay in Laos. There are so many beautiful places to visit here.”