1. Lao PDR has so far avoided a health crisis but it has not been immune from the global economic downturn. The COVID-19 induce economic downturn has affected Lao PDR through multiple channels including tourism, trade and investment, commodity prices, exchange rates and lower remittances. Given the uncertainty regarding the duration, pervasiveness and severity of the COVID-19 outbreak both at the global and domestic levels, this report presents a range of growth estimates for 2020 under two scenarios. These scenarios reflect different assumptions regarding: (i) the duration and depth of outbreaks and lockdown in Lao PDR; (ii) the magnitude and effectiveness of economic relief policies; and (iii) the depth and duration of the global downturn. In the more favorable scenario, the Lao PDR’s economy is expected to grow at 1 percent while in the downside scenario the economy could contract by 1.8 percent. In either case, this will be the slowest growth rate since 1990.

2. COVID-19 will further aggravate the long-standing structural vulnerabilities of Lao PDR. The country has a legacy of weak macroeconomic management, resulting in limited fiscal and foreign currency buffers even before the global pandemic. The level of international reserves is at a multiyear low. The gap between the official and parallel market exchange rates has increased and is higher than historical norms. Despite lower public expenditure, weak revenue collection has resulted in an elevated fiscal deficit. The fiscal deficit is expected to rise to 7.5 to 8.8 percent of GDP and public debt to 65 to 68 percent of GDP in 2020, leaving the country at high risk of debt distress. Limited fiscal space, the mounting pressure of deficit financing and debt servicing will limit the ability of the Government of Lao PDR (GoL) to stimulate the economy, exacerbating the downturn.

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