The Prime Minister of Laos has warned that the small Southeast Asian nation may be unable to rise out of Least Developed Country status by 2020, as targeted in a 2001 government plan, according to a report in the state-run Vientiane Times.
Least Developed Countries (LDCs) are assessed using three criteria: the human asset index, which takes into account health and education targets, an economic vulnerability index, and gross national income per capita.
The newspaper cited a speech by Prime Minister Thongloun Sisoulith, who said the country’s gross national income per capita is US$1,996 now, which is above the $1,230 threshold, and the human asset index stands at 72.8, which is also over a threshold of 66 or above.
But Laos “failed” on the economic vulnerability index which was 33.7, while the threshold is 32 or below. According to a UN website, Laos could meet all three targets by 2024, if present development policies remain in place.
PM Thongloun said it was sad news that Laos could not achieve their goal as desired. “We announced a target to graduate [from LDC status] by 2020, but we can’t. We must endeavor further,” he was quoted as telling Parliament, in response to questions asked by MPs.
Reduced aid could increase national debt
A key factor is removal from the list of LDCs would also mean that Laos would become a developing country, and that would also result in a reduction of Official Development Assistance (ODA) and assistance under the Generalized Scheme of Preferences granted to exporters by many developed countries.
The reduced amount of ODA (grants and low-interest loans) would, in turn, force the government to find other sources of finance — and for already debt-ridden Laos, that could lead to an even heavier loan burden.
In 2017, public debt totaled 70.5% of the country’s Gross Domestic Product, up from 68% in 2016, according to World Bank figures. Laos’ maximum level of public debt based on the country’s economic circumstances should not exceed 40%, according to the World Bank.
However, Laos has borrowed heavily from Chinese banks to pay for its share of the cost of a high-speed railway from the border with China’s Yunnan province to the capital Vientiane. Western donors have expressed concern over the cost of the rail line, but the Lao government believes it can manage repayments by attracting more foreign investment.