Most household incomes are failing to keep pace with inflation in the Lao PDR, causing families to cut spending on food, health, and education, according to a new World Bank survey showing that high food prices due to economic instability are threatening livelihoods and food security.
In Round 7 of the World Bank’s Rapid Monitoring Phone Surveys, conducted from June to July 2023, 87% of households say they are somewhat or significantly affected by inflation. To cope, most report growing or gathering more food, switching to cheaper food, or reducing the amount they eat. Poor families say they are also taking on more work, selling assets, or borrowing. Just over half the households affected by inflation report reducing their spending on education, and more than 14% of school-aged children from the low-income households interviewed are not enrolled in school.
“The effects of the economic situation on the most vulnerable, and on human capital, are worrying”, says Alex Kremer, Country Manager for the World Bank in Laos. “If families are forced to cut back on nutrition, education, and health spending, the effects of a few economically hard years could affect national development for a much longer period.”
While inflation has eased since early 2023, Laos still has one of the highest inflation rates in the world. The national currency continues to lose value against foreign currencies, driving up the cost of many imported products that Lao consumers depend on. Average household incomes rose by 11.5% between May 2022 and May 2023, but year-on-year inflation stood at around 36% over the same period, while 54% of families reported unchanged or declining incomes.
In response, many wage earners and businesses are switching to or increasing farming activities, looking to increase local production and take advantage of a favorable export market. Workers are also increasingly migrating, both within and outside the country, in search of higher wages and better jobs. In the latest survey, 11% and 5.3% of interviewed households reported having at least one member migrate to another province or country over the past year.
Food security concerns have become particularly prevalent in urban areas, while families and businesses led by women report the greatest impact from inflation.
To stabilize the economy, the World Bank has recommended moving away from tax cuts and exemptions, returning VAT to 10%, improving the quality of public investment and concessions, strengthening bank supervision, bringing debt negotiations to a successful conclusion, and making the rules for private investment simpler.
