Faced with high external debt, dwindling cash reserves, soaring inflation and a plunging currency, the tiny Southeast Asian nation is approaching a possible sovereign default, meaning the government cannot repay some or all of its debt obligations.
Fuel shortages in the Southeast Asian country of 7.5 million people are the latest sign of distress as oil prices rise and the local currency, the kip, depreciates.
The kip/dollar exchange rate fell to 14,665 on June 15 from 11,185 at the start of the year. In September 2021, the kip/USD exchange rate was around 9,400.
This comes before the country took on a huge debt to China to finance mostly China-backed projects, including a loan for its 30 percent share of the $5.9 billion China-Laos high-speed rail project, which became operational in December.
Laos debt hits $14.5 billion
The country’s total debt climbed to a whopping $14.5 billion, according to the World Bank, accounting for nearly three-quarters of the country’s gross domestic product of 7.7 million people. About 47% of the debt is owed to China.
“[Laos] on the brink of default,” said Anushka Shah, vice president and senior credit officer at Moody’s Investors Service, which downgraded Laos’ credit rating by one notch on June 14 to Caa3, meaning “poor debt quality and high credit risk. ”, with only a two-level default gap – citing weak governance, very high debt burdens and insufficient foreign exchange reserves to cover maturing foreign debt.
Meanwhile, Fitch Ratings has placed Laos’ sovereign credit rating at CCC, which also reflects the likelihood of a default, said Jeremy Zucker, head of sovereign ratings at Fitch Ratings in Hong Kong and chief Lao analyst for Laos.He told us that a key factor going forward is debt to China Bloomberg News.
foreign exchange reserves run out
The country had $1.3 billion in reserves on hand as of December, according to the World Bank, while total external debt repayments are roughly the same every year until 2025, equivalent to about half of gross domestic income.
The currency devaluation hit importers looking to buy enough fuel for the domestic market, creating painful supply gaps and long lines at gas stations. Laos needs 120 million liters of natural gas a month to meet public demand, but less than half of that, local media reported in May.
“Persistent fuel shortages have disrupted agriculture, transportation services and many other sectors of the economy, with an economic impact likely similar to that of the Covid-19 pandemic, when restrictions severely impacted liquidity and supply chains,” said U.S. National Economist Peder Pedro Martins, World Bank quotes Laos as saying Bloomberg News.
“The situation is particularly challenging due to poor government debt and tax revenues,” World Bank country manager for Laos, Alex Kremer, said last month. income.”
Laos Vientiane National Assembly Faced with high external debt, dwindling cash reserves, soaring inflation and a plunging currency, the tiny Southeast Asian nation is approaching a possible sovereign default, meaning the government cannot repay some or all of its debt obligations. Fuel shortages in the Southeast Asian country of 7.5 million people are the latest sign of distress as oil prices rise and the local currency, the kip, depreciates. The kip fell to the dollar against the…
Faced with high external debt, dwindling cash reserves, soaring inflation and a plunging currency, the tiny Southeast Asian nation is approaching a possible sovereign default, meaning the government cannot repay some or all of its debt obligations.
Fuel shortages in the Southeast Asian country of 7.5 million people are the latest sign of distress as oil prices rise and the local currency, the kip, depreciates.
The kip/dollar exchange rate fell to 14,665 on June 15 from 11,185 at the start of the year. In September 2021, the kip/USD exchange rate was around 9,400.
This comes before the country took on a huge debt to China to finance mostly China-backed projects, including a loan for its 30 percent share of the $5.9 billion China-Laos high-speed rail project, which became operational in December.
Laos debt hits $14.5 billion
The country’s total debt climbed to a whopping $14.5 billion, according to the World Bank, accounting for nearly three-quarters of the country’s gross domestic product of 7.7 million people. About 47% of the debt is owed to China.
“[Laos] on the brink of default,” said Anushka Shah, vice president and senior credit officer at Moody’s Investors Service, which downgraded Laos’ credit rating by one notch on June 14 to Caa3, meaning “poor debt quality and high credit risk. ”, with only a two-level default gap – citing weak governance, very high debt burdens and insufficient foreign exchange reserves to cover maturing foreign debt.
Meanwhile, Fitch Ratings has placed Laos’ sovereign credit rating at CCC, which also reflects the likelihood of a default, said Jeremy Zucker, head of sovereign ratings at Fitch Ratings in Hong Kong and chief Lao analyst for Laos.He told us that a key factor going forward is debt to China Bloomberg News.
foreign exchange reserves run out
The country had $1.3 billion in reserves on hand as of December, according to the World Bank, while total external debt repayments are roughly the same every year until 2025, equivalent to about half of gross domestic income.
The currency devaluation hit importers looking to buy enough fuel for the domestic market, leading to a severe supply gap and long queues at gas stations. Laos needs 120 million liters of natural gas a month to meet public demand, but less than half of that, local media reported in May.
“Persistent fuel shortages have disrupted agriculture, transportation services and many other sectors of the economy, with an economic impact likely similar to that of the Covid-19 pandemic, when restrictions severely impacted liquidity and supply chains,” said U.S. National Economist Peder Pedro Martins, World Bank quotes Laos as saying Bloomberg News.
“The situation is particularly challenging due to poor government debt and tax revenues,” World Bank country manager for Laos, Alex Kremer, said last month. income.”
