Lao PDR’s GDP growth slightlydecelerated to 6.9 percent in 2017, but remained robust. Theeconomy is expected to further ease to 6.7 percent in 2018.Recent expansion of labor-intensive industries (agriculture,manufacturing and services) and robust remittances inflowsare expected to continue to support poverty reduction.Macroeconomic vulnerabilities remain significant despitesome improvement in economic management. The large deficithas resulted in public debt reaching around 61 percent ofGDP in 2017. The current account deficit narrowed in 2017 onthe back of strong exports of electricity, manufacturing andagriculture products, while improved metal prices supportedhigher mining exports. Monetary conditions were slightlyloosened near the end of 2017; however, the monetary policytransmission mechanism remains weak. The fiscal deficit isexpected to gradually decline while the external deficitwill temporary widen. These and other economic developmentsand the economic outlook are discussed in the first sectionof this report. The second section focuses on the high costof paddy production for farmers and the operationalinefficiencies among multiple players in the value chainthat are responsible for high consumer rice prices. Thestudy finds that Lao farmers receive relatively highfarm-gate price, yet high production cost eats theirprofits. These constraints are largely structural and theyrequire: (i) facilitating value chain linkages betweenfarmers and millers through productive partnerships; (ii)enhancing access to finance of farmers and millers; and(iii) improving quantity and quality of public servicescritical to reduce the currently high production costs andenhance commercialization, e.g., seed, applied research,mechanization, cooperatives, and good agriculturalpractices. Reducing farm production costs appears to be themost important challenge and opportunity at this point oftime for Lao PDR.
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