Laos Vows to Stabilize Currency, Cap Inflation to Avoid Default

(Bloomberg) -- The Laos government has vowed to address rising public debt to avoid “being dragged into default,” state-run Vientiane Times reported Monday.

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Prime Minister Phankham Viphavanh, during a cabinet meeting last week, ordered unnamed officials to halt the depreciation of its currency, the kip and cap inflation that grew a record 30% last month. They were also told to quickly address debt accumulated by state-owned enterprises like Lao State Fuel Enterprise and reform troubled state electricity provider, Electricite du Laos.

Economists have warned the likelihood of sovereign defaults is growing with frontier nations, including Laos and Myanmar at risk after Sri Lanka failed to pay its foreign debt earlier this year. Laos is most exposed to default due to high external borrowing, a surging import bill and dipping foreign reserves.

The government is looking to see through foreign-funded development projects to ensure cash inflows and has pledged to scrutinize such investments more closely, the Vientiane Times reported Monday, citing government spokesperson Thippakone Chanthavongsa.

The Southeast Asian country of 7.5 million people has seen widespread fuel shortages this year. That, along with the drop in the value of the kip, are the main forces pushing inflation. Last month, the cost of commercial transport and delivery charges in Laos rose by 51.7% year-on-year due to the cost of fuel, which rose 96.4% over the same period, the news outlet reported earlier.

Read more: Looming Debt Crunch Positions Laos as Next Possible Asia Default

The country’s long-term issuer default rating was downgraded by Fitch to CCC- last month, reflecting the further rise in external liquidity risks driven by the spike in commodity prices and tightening global financing conditions. Laos’s foreign-exchange reserves remained stable at around $1.2 billion through March despite the building pressure on the kip, the agency added.

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