Construction firms tighten belts as Lao government cuts spending

Construction firms in Laos are preparing for a downturn in state investment projects as the Lao government tightens spending to avoid destabilizing debt, state- run daily Vientiane Times reported on Thursday.

Khanthavong Dalavong, secretary general of the Lao National Chamber of Industry and Commerce told Vientiane Times that a recent chamber meeting found construction firms were one of the groups that would feel a negative impact from the government's tightened spending.

"The construction firms said that they did not expect to get construction contracts from the government over the next few years, " Dalavong said.

In recent years the Lao economy has been expanding rapidly. The development has been driven in part by a massive expansion of public infrastructure such as roads and buildings as well as preparation for hosting major international events.

Construction business saw rapid growth thanks to a government policy allowing private firms to invest in infrastructure projects to be repaid by the government at a later date. Subsequently firms were able to borrow capital from banks for investment using the government contract as a guarantee.

The Lao government announced in earlier November that they would halt the investment scheme due to abnormally high contracts and the fact that most contracts were won without a bidding process.

Small and medium sized enterprises will not face large negative impacts from the government's new financial direction as major firms were most likely to receive state investment contracts, Dalavong said.

Observers say that the downturn in large construction projects in the country may not have a significant impact on unemployment as many of the construction projects import foreign laborers.

Economists said that the Lao government should strive to create further favorable economic conditions to boost investment in the country. The government aims to achieve at least 8 percent annual growth from 2011 to 2015.

According to World Bank'sEast Asia and Pacific Update released in October, Lao GDP growth in 2013 is predicted to sit at about 8 percent. Growth in Laos sat at 8 percent in 2011 and 8.2 percent in 2012. According to predictions published in the report the percentage growth will fall to 7.7 percent in 2014 but recover strongly to 8.1 percent in 2015.