After installing the banner “Aid from China” in front of the Patuxai Monument in Vientiane. It was built to honor those who fought for Lao’s independence from France. The photos delighted many in this Southeast Asian country.
But the red-on-black message, titled “For a Shared Future,” appears difficult for Laos social media users to ignore. At a time when the country is facing a long-term economic crisis. Many fear that the country’s sovereignty could be undermined again.
According to the International Monetary Fund (IMF), Laos’ public debt and government-guaranteed debt will represent 123% of the country’s GDP in 2023, and its main creditors are China. Which has funded many large-scale infrastructure constructions in Laos over the years
Many economists call this situation “debt trap diplomacy” where various projects cause Laos to have difficulty repaying its debts and China lends money without transparency. Deliberately concealing the true size of the debt. This has heightened concerns about China’s growing influence in the country.
Marissa Currie is a senior economist at the Center for Indo-Pacific Development from the Lowy Institute in Sydney. This creates a model for economic trends in Lao. In an interview with the Nikkei magazine, he said: “The Laos debt crisis is more serious than the world realizes. This is largely due to the concealment of troubling information and the publication of poor-quality statistics and information.”
The largest Chinese-financed infrastructure project in Laos The launch of the $5.9 billion (212 billion baht) railway in December 2022, which will connect the city of Koning. Southern China and Vientiane, the capital of Laos.
Railway between Laos and China This line helps in establishing important communications. From Beijing’s efforts to build railways in Southeast Asia that are part of the Belt and Road Initiative (BRI)
The Chinese government-owned company, which owns 70% of the Laos-China railway and 30% of the Laos government, will need $1.9 billion in debt to build the railway.
Although Laos aims to become an electricity exporter in the region, the country is still burdened with huge debt over the past decade, as Laos has built dozens of dams on the Mekong River and its tributaries. With the help of foreign countries, Laos in 2021 faced debt problems. The government granted a concession to the Electricity of Laos (EDL-T), a newly established company. The owners are mostly Chinese. This is a concession to control most of Laos’ power grid for 25 years.
“Most foreign investment is invested in the use of natural resources and water,” commented Keren Sims, a development academic from James Cook University in Australia. “Including expanding infrastructure, but Laos has not developed labor skills. Or investment in education and health services.” mission at all.”
The Lao government still refuses to comment on this matter.
Meanwhile, Asian Development Bank data show that spending on infrastructure construction and as a result the Lao government will have to bear annual public service costs averaging $1.2 billion over the next five years.
Emma Allen, chief economist for Laos at the Asian Development Bank, estimates that Laos’ GDP could reach just $14.09 billion in 2023.
Currently, Hong Kong’s public debt level has reached a critical level. It reflects the risk of debt repayment. Which will ultimately affect Laos’ economic growth.
Cooray also warned that if the current Lao Kep were unstable, “public debt could rise” and if Laos continued to implement policies that weakened the Kep. Paying off debt may be difficult by 2025
The Lao Kip has continued to decline over the past two years, and is weaker against the US dollar. The currency reached a record low in September, at nearly 20,000 kip per dollar.
Allen of the Asian Development Bank said that because the value of the kip has been so devalued, the prices of products in Laos, an economy that relies heavily on imports, are therefore more expensive. Food price inflation during January and August averaged 46%.
China has acted as if it wants to postpone debt payments owed by Laos. Under not very clear circumstances in the hope of protecting Laos from defaulting on its debt. Because the Beijing government does not want the economies of the countries participating in the Belt and Road Initiative project to face problems like those suffered by Sri Lanka.
Koray said she did not see a solution for Laos in terms of deferring debt payments. It is believed that the Beijing government is unlikely to be willing to allow Laos to defer debt payments.
Looking to the future, Sims said the Vientiane government is sending a reliable signal about how to address these issues. Just emphasize that there has to be a major change in the way the economy is run.
“We want to see big changes in Lao economic policy. To create more job opportunities, relying solely on natural resources and the continued high unemployment rate in Laos will not provide a long-term solution to Laos’ problems,” Sims warned.