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Economist: Kip Strong, Not Overvalued

Laos-20000-Kip

Even though the Lao kip is strong the currency is not overvalued, according to a leading local economist.

Senior Economist of the National Economic Research Institute, Dr Leeber Leebouapao made the remarks to Vientiane Times on Monday in response to a recent IMF report that the currency was too strong given the country’s large current account deficit.

“I accept that our currency is strong but it’s not too strong. The value of our currency is at a level which is acceptable and manageable,” Dr Leeber said.

“The appreciation of Lao kip has emerged from the market principles of supply and demand, notably the inflow of foreign currencies such as Thai baht and US dollars. Some foreign businesspeople have moved deposits to Lao banks due to the relatively high interest rates.”

The International Monetary Fund said in its last country report, in 2015 that the balance of payments trend in Laos suggested the currency was 10-20 percent over-valued.

The Ministry of Industry and Commerce’s Foreign Trade Policy Department Director General Dr Laohoua Cheuching was quoted in Reuters as saying there were pros and cons to both weak and strong currencies.

“The Lao currency should stay stable. If you just … make the kip weaker – what is the benefit of it?” Dr Laohoua said.

He said the high deficit was “understandable” for a country trying to modernise by importing machinery and software to do so.

According to BCEL Bank on Monday the exchange rates were: US$1 buys 8,076 kip, sells for 8,114 kip. One baht buys 233.63 kip, sells for 235.38 kip.

Dr Leeber said the strong currency would absolutely affect exports particularly the garment and agriculture sectors.

Exporters have also complained about the high cost of transport which delays the development of their sectors.

Additionally, Dr Leeber said, the strong currency also impacted upon the tourism sector as foreign tourists would have to spend more while travelling in Laos.

He said strong currency could be good for importers as they didn’t have to worry about finding foreign currency to further import their products to Laos.

One reason why a weaker currency might be detrimental is that it could affect the country’s high external debt.

However, Dr Leeber said, the government had no policy to appreciate or devalue the currency but instead aimed to stabilise it to create confidence for investors and facilitate the growth of the country’ economy.

Over the past five years, despite global economic recession, the Lao economy grew at the rate of 7.9 percent. Gross Domestic Product (GDP) of the country has reached 102,320 billion kip (US$12.8 billion) with GDP per capita climbing to 15.8 million kip (US$1,970).

The government forecasted the country’s economy would continue to grow at a rate of not less than 7.5 percent over the next five years which would be driven by mega investment projects.

Source: Vientiane Times