2022 is a challenging year for Laos. The country has fallen into the Chinese debt trap, following countries such as Sri Lanka and Pakistan.
At present, the rising public debt is a major worry for Laos.
According to the World Bank, the nation’s public debt last year totaled 14.5 billion dollars, and about half of it owed to China. This accounts for 88% of Laos’ gross domestic product.
The debt surged last December when Laos and China inaugurated a new 6 billion dollars railroad that connects the country’s capital Vientiane to Kunming, China.
Laos expects the train to be profitable by 2027. However, economists are concerned that the Chinese loans used to fund this and other projects are unsustainable.
According to AidData, a research lab at the College of William & Mary, to fund the train, they established a joint venture. In addition to the 1.06 billion dollars in debt obligations, Laos faces 3.54 billion dollars in “hidden debt.” 70% of the debt belongs to the Chinese government.
AidData issued a warning that if this project is not profitable, Laos may be required to repay the 3.54 billion dollars in total debt.
According to the Nikkei Asian Review, Laos owes 11% of its bilateral loan debt to China.
Data from the World Bank shows that Laos’s foreign debt, estimated at 1.3 billion dollars, will settle annually till 2025.
The trap is crippling the economy. Lao people have been becoming more frustrated at an economy with cash reserves declining, inflation rising, oil prices surging, and domestic currency devaluing.
According to Xinhuanet, Laos’ inflation in May surged to 12.8%, an 18-year high and one of the highest rates in Asia.
Its currency has depreciated by more than 40% over the past year. Around 9,400 kips were traded for one U.S. dollar at this time last year. But now about 15,000 kips could be traded for a dollar.
A shortage of gasoline has been going on for months in most areas of Laos. It is in contrast with stagnant earnings and no increases to the minimum wage since 2018.
The simmering public frustration might have disastrous repercussions for the government.