Laos debt pressure on rise, owes large sum of foreign debt to China: Experts

Nong Khai [Thailand], September 8 : The economic situation of Laos continues to worsen as the country is under a severe shortage of foreign reserves and owes a hefty sum of foreign debt to China as the country is suffering from twin deficits, a senior economist at Thailand's Krungsri Research said in a statement.
"The country is "suffering from twin deficits -- fiscal deficit and current-account deficit amid thin foreign exchange reserves," said Sathit Talaengsataya, a senior economist at Thailand's Krungsri Research, as per Nikkei Asia.
In another statement, the executive director at AidData, a research lab at William & Mary college in the US Bradley Parks calculated that Laos racked up USD 5.57 billion in official debts to China during a borrowing spree from 2000 to 2017.
Consequently, Laos' total "debt exposure to China is worth approximately USD 12.2 billion, or 64.8 per cent of GDP," Parks told Nikkei Asia.
Earlier in May, the Laos government also invited ambassadors from three countries for a discussion with relevant agencies and private banks to "resolve the current economic crisis," said Japanese scholar Norihiko Yamada, a Laos specialist who has worked in many government ministries there.
"The results and the content of the consultations are not yet known, but it is possible that not only China but also Vietnam and Russia [may get involved] in assisting Laos," he said.
However, the contradiction between experts continues as Laos is one of 17 "least developed" countries where China is the single largest bilateral lender.
The crumbling local currency has prompted Thai analysts to alarm over a severe shortage of foreign reserves in Laos, currently estimated to be roughly USD 1.3 billion. Nikkei Asia reported citing sources and added it will only cater to just 2.2 months of imports.
In Laos, "the macroeconomic situation is very challenging," said Alex Kremer, country manager at the World Bank, warning that many in the nation were at the brink of falling into poverty, especially in towns and cities.
The poor economy of Laos has resulted in drivers with Laotian license plates reaching to gas stations in Nong Khai, a quiet Thai town on the western banks of the Mekong River as Laos' gasoline prices were up by 107.1 per cent, Nikkei Asia reported.
The amount of Laos' exact debt to China is debatable. The World Bank reckons it's almost half of the country's official debt of USD 14.5 billion, which would put it around USD 7.2 billion.
For years, critics of China's global expansion and its infrastructure-led foreign policy have warned that poorer nations like Laos risk falling into Chinese "debt traps."
Last year, the PBC extended USD 300 million loans to Laos' central bank to support its foreign exchange reserves. But Laos' financial problems are becoming more urgent as end-of-year debt servicing payments come due. And while a Lao default would be self-inflicted, it would also give new momentum to the China "debt trap" diplomacy.