Real gross domestic product (GDP)growth, which was estimated at 7 percent in 2009, isexpected to increase to 7.8 percent in 2010 driven largelyby resource sectors. Out of this growth of 7.8 percent,around 3.3 percentage points comes from power sector (mainlyNT2 - nearly 3 percentage points), 0.9 percentage pointsfrom agriculture, around 0.4 percentage points for each ofmining and construction, 0.8 percentage points frommanufacturing and about 1.7 percentage points from servicessector (tourism and retail trade, financial sector servicesas a result of the recent sharp increases in bank lending,and transport and telecommunication services). Real grossnational income (GNI) is expected to slow to nearly 6percent this year compared to 9.5 percent in 2009 due tosignificant outflows of income (profit repatriation andinterest payment) from resources sectors (mining andhydropower). Although international reserves remained fairlystable during the last six months, net foreign assetsdropped by 25 percent. Gross official Reserves at the Bankof Lao PDR were estimated at about $635 million during Oct2009-Mar 2010 of which $65 million can be attributed to anincrease in the International Monetary Fund's(IMF's) SDR allocation in late 2009 and $63 millionhave been borrowed from domestic banks through sales offoreign currency denominated bonds by the Bank of Lao (BoL).Net foreign assets declined by 25 percent in 2009 and 23percent in Mar 2010 due to rapid credit expansion and importgrowth. The current account deficit is projected to declinefrom 10.6 percent of GDP in 2009 to 7.7 percent in 2010supported by strong export growth, and in particular NT2exports of electricity to Thailand. The capital accountsurplus is expected to decrease slightly from 10.6 percentof GDP in 2009 to 10.1 percent this year although FDIstarted to rebound. The overall balance is likely to turninto surplus in 2010 to about 2.4 percent of GDP. Creditgrew rapidly in 2009 and in the first quarter of 2010 but isexpected to slow by end?2010. Credits grew by about 90percent last year and during Jan-Mar 2010 partly due toBOL's direct lending to local projects to financepublic infrastructure and associated imports (about 22percentage points of total credit growth). As the Governmentof Lao (GOL) made a decision to stop quasi?fiscal activitiesin September 2009 and bank liquidity tightened (loan todeposit ratio increased significantly to 73 percent byend-2009 from 55 percent in 2008), credit growth is expectedto slow in 2010.
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