Laos restricts foreign exchange sales as default risk approaches


The Central Bank of Laos has imposed restrictions on foreign currency sales as part of a series of measures designed to stabilize Kip, which has plummeted to its lowest in decades.

The new rules prohibit foreign currency exchange offices from selling foreign currency to corporations and international organizations, and instead allow only authorized commercial banks to sell. Vientiane Times report.

Sonexay Sitphaxay, Governor of the Bank of Laos, said:

Sitphaxay said legitimate entities are only allowed to trade forex at commercial banks, with priority given to organizations that import fuel and other necessities from abroad.

According to the report, Kip has plummeted against the US dollar since the Asian financial crisis of 1997, and banks have blamed increasing demand for foreign currencies to import commodities. Local report..

country’s Inflation rate Rising commodity and fuel prices in May led to a 15-year high of 12.8%.

Laos faces default risk

World Bank Said in may The exchange rate in Laos plunged 30% against the US dollar in the year to April 2022, indicating “significant external liquidity constraints”.

Communist Party-controlled countries face liquidity and solvency challenges due to “high debt repayment burdens, inadequate revenue recovery, limited funding options, and low foreign exchange reserves.” Stated.

Moody’s Investor Service has also downgraded Laos’ credit rating to “Caa3”. It is exposed to very high credit risk, with national debt repayments of $ 1.1 billion in 2022 and $ 1.4 billion in 2023.

Rating agencies said Laos’ default risk remains high given “very weak governance, very high debt burdens, and inadequate compensation for foreign debt maturities” from foreign exchange reserves.

“Despite the limited funding options, Laos’s reliance on external and domestic commercial lending will increase its exposure to market sentiment, even to meet its limited funding needs. Let’s do it. “

China’s role in Laos

Laos has spent a lot of money on hydropower projects, many funded by China, with the goal of becoming a “battery for Southeast Asia.” But these projects, along with the new Chinese high-speed rail, are at the heart of the debt crisis.

The country opened a $ 6 billion Chinese railway in December 2021. This is part of Beijing’s Belt and Road Initiative, which critics have accused of being a “debt trap” for a small country.

Economists have warned that rail projects could make it difficult to repay Laos’ external debt and force the country to hand over assets to China.This was the case in Laos Give up control of the majority Transferred the power grid to a Chinese company in September 2020.

Laos also signed the agreement (pdf) Sell electricity with Singapore on June 23rd. The project will run for two years and Singapore can import up to 100 MW of hydropower from Laos.

Reuters contributed to this report.

Aldograph Redley


Aldgra Fredly is a Malaysia-based freelance writer featuring the Epoch Times Asia Pacific News.