Some 65 per cent of households cut spending on education and health. - VT
VIENTIANE (Vientiane Times/Asia News Network): Skyrocketing inflation and income loss due to the Covid-19 pandemic are eroding the purchasing power of households in Laos, forcing them to slash expenditure on health and education.
According to the World Bank’s latest economic update, two-thirds of households have cut spending on health and education, which will likely undermine long-term human capital development.
Some 65 per cent of households cut spending on education and health.
Although labour market indicators improved by mid-2022 and poorer households are still recovering, their purchasing power and living standards have been severely impacted by rapidly rising prices.
Year-on-year inflation surged by 36.75 per cent in October, up from 34.05 per cent recorded in September and 30.01 per cent in August, according to the latest report from the Lao Statistics Bureau.
Continuing depreciation of the kip means households have lost income in real terms, with many people saying that their earnings have not kept pace with inflation.
The “Lao Economic Monitor for October 2022: Tackling Macroeconomic Vulnerabilities”, released on Monday, indicates that food price inflation reached 39 per cent in October.
“The welfare cost of high inflation is considerable, particularly for the urban poor, because more of their income share is spent on food and fuel,” the World Bank said.
With less money spent on education, this poses greater challenges for young people coming from poor families to free themselves from the poverty cycle, and could have a huge effect on human capital development.
According to the World Bank, support programmes to help households cope with inflation were constrained by limited fiscal space.
Families had to reduce food consumption (34 per cent of respondents), switch to cheaper food options or foraging (39 per cent) and resort to self-production (47 per cent) in response to food price inflation.
In addition, 65 per cent of households cut spending on education and health to cope with additional burdens from rising prices.
These coping strategies are detrimental to long-term human capital development, and the situation is expected to have worsened after food inflation rose from 5.7 per cent year-on-year in April, then to 8.2 per cent in May and to 36 per cent in August.
It is estimated that the household purchasing power of the richest has decreased by 20 per cent as a result of inflation over the past year.
Nevertheless, with high disposable incomes and financial buffers, these households are more likely to be able to absorb the rising cost of necessities.
The World Bank said it is crucial to invest in human capital to stimulate economic diversification, focusing on basic education, and to partner with the private sector to build industry-specific skills.
Vocational training programmes can also address skills shortages and mismatches if aligned with private sector needs and implemented on a sufficiently large scale.
