Debts mounting but Laos won’t default: finance minister

VIENTIANE (Vientiane Times/Asia News Network): The annual amount of debt-service payment has risen from US$1.2 billion in 2018 to US$1.4 billion this year, a top government official has revealed.

Minister of Finance Bounchom Ubonpaseuth (pic) clarified the main reasons for the nation’s growing public debt and possible solutions to the problem when addressing National Assembly members on Monday.

The minister assured the NA that the government would not allow the country to slide into default.

“Huge debts have been accumulated following massive loans borrowed for national development between 2010 and 2016,” the minister told the ongoing 3rd Ordinary Session of the NA’s 9th legislature.

“In 2010, our external debt-service payments amounted to just US$160 million, which could be paid for out of domestic revenue.”

Bounchom attributed the main reason for the growing public debt to the high demand for capital needed to develop Laos, one of the world’s least developed countries.

“Over the past 47 years, Laos has borrowed about US$5 billion to invest in infrastructure and roughly US$4 billion to invest in commercial production for export purposes. These loans were necessary for the development of our country in past years,” he said.

In 2020, total public and publicly guaranteed debt stock stood at US$13.3 billion, accounting for 72 per cent of GDP, according to the Ministry of Finance’s public debt bulletin.

A World Bank report issued in May stated that public and publicly-guaranteed debt increased to 88 percent of GDP in 2021, with the energy sector accounting for over 30 per cent of the debt stock.

Bounchom assured the NA that domestic revenue is now sufficient for domestic expenditure, notably for administrative work, the payment of salaries and allowances to state officials, and for domestic investment.

However, a number of Assembly members raised questions concerning possible income streams and how the government would lessen the debt burden in the coming years.

In response, Bounchom said Laos had huge potential to earn income from natural resources including mining and other sources of production, which could be used as surety to repay the debts owed to foreign countries.

As part of the national agenda to address economic and financial difficulties until 2023, the government has pledged to modernise the tax collection system in order to boost national income.

Bounchom acknowledged that there was some doubt about the revenue collected from 131,000 businesses by the government, saying that some businesses operated dishonestly and their operations were not transparent because they attempted to avoid paying taxes to the government.

This was linked to inadequate law enforcement and dishonesty and embezzlement on the part of government officials, he said.

The government has pledged to use electronic systems to plug loopholes that have the potential for financial leaks.

In addition, the government is eyeing other possible sources of revenue, including tourism, exports and service charges from the transport of freight on the Laos-China Railway.