MOIT VIETNAM | Record Low Kip Currency Poses Economic Challenge for Laos
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Record Low Kip Currency Poses Economic Challenge for Laos
The latest wave of depreciation for the Lao kip began in August 2020, coinciding with the onset of the COVID-19 pandemic. This depreciation has posed substantial economic challenges both globally and specifically for Laos. The decline in the kip's value has been pronounced, with no signs of stabilization, creating considerable hurdles for Laos’s economic stability.
In early August 2020, the exchange rate for the kip was approximately 8,868 kip to 1 USD and 300 kip to 1 Thai baht. By May 2024, these rates had nearly tripled against the dollar and more than doubled against the baht.
According to Laotian Times, on May 7, 2024, the Bank of Laos set the official exchange rates at 21,391 kip per USD and 596.90 kip per Thai baht. Meanwhile, commercial banks were selling at 21,393 kip per USD and 657.90 kip per baht. On the black market, these rates soared even higher, exceeding 24,000 kip per USD and 666 kip per baht.
Several factors contribute to the kip's depreciation, with the trade deficit being a significant one. Laos’s heavy reliance on importing fuel and consumer goods has resulted in consecutive trade deficits over the first few months of the year.
Recent reports from the Lao Statistics Bureau indicate that inflation reached 24.92% in April 2024. Although this represents a slight decrease from 24.98% in March 2024, it remains exceedingly high. The Asian Development Bank (ADB) has also projected that inflationary pressures in Laos will persist due to ongoing macroeconomic imbalances.
This urgent issue has strained Lao citizens financially, particularly affecting low-wage workers who struggle to meet daily needs due to both low wages and currency depreciation. This economic strain has led to a labor shortage within the country, as many Lao workers seek employment opportunities abroad, particularly in Thailand, South Korea, Malaysia, and Japan.
To address these challenges, the Lao government has committed to boosting exports and reducing imports, especially for consumer goods and products that can be manufactured domestically. Additionally, the Bank of Laos has recently introduced a new regulation requiring foreign investors to open a Direct Foreign Investment (FDI) account in kip or convertible foreign currency within 15 days of obtaining a business license.
Despite these efforts, Laotian Times reports that the trend of the kip's depreciation may continue, necessitating further coordinated efforts to address this pressing issue.
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