Print

[admin]

Money supply jumps as credit increases

Money supply in Laos saw a major increase last year, increasing upward pressure on inflation.

Money supply (or M2) is the total amount of money available in the economy at a particular point of time.

The Bank of the Lao PDR's 2009 economic performance report stated that, as at the end of 2009, money supply amounted to 15,175.9 billion kip, up by 31 percent and equal to 32.43 percent of GDP compared to 2008.
The government plans to keep the growth in money supply below 10 percent this fiscal year.

A major factor driving the rise in M2 was a 91.1 percent increase in credit supply, consisting of a 22.9 percent rise in credit supplied to state-owned enterprises and a 77.1 percent increase to the private sector. Most of the credit was provided to the agriculture, services, handicraft and construction sectors.

The bank said that all commercial banks in Laos provided total loans of 8,740 billion kip over the year, up 40.65 percent or equal to 18.68 percent of GDP from the previous year. Credit provided to the agricultural sector was up by 54.17 percent, accounting for 13.50 percent of total loans.

Credit provided to the transportation sector was up 50.35 percent, accounting for 2.80 percent of total loans. Loans to the construction sector rose by 48.65 percent, accounting for 4 percent of the total, followed by a 33 percent increase in credit to the commerce sector, accounting for 23 percent of total loans.

Loans to the industry and handicraft sectors rose by 42 percent, accounting for 18.50 percent of the total, and credit provided to other sectors was up by 44.49 percent, accounting for 21.72 percent of total loans.

The government has vowed to keep the growth in money supply below 10 percent this fiscal year as a measure to curb rising inflation in the country.

According to a report on the implementation of the national socio-economic development plan for 2009-10 in the first half of the fiscal year, money supply rose by 14.8 percent in March 2010 compared to September last year.

“If money supply is higher than the supply of goods and services people will have more money to purchase goods and services, one of the main causes leading to price increases,” said an economist who asked not to be named.

The inflation rate for June was recorded at 4.94 percent, mainly driven by rises in prices for food, personal care and jewellery. Laos' inflation rate has risen steadily since the end of last year as the global economy began to emerge slowly from recession.

According to a study from the Lao National Economic Research Institution, the consumer price index (CPI) for imported goods has grown by 0.5 percent annually in recent years despite the Lao kip increasing in value by 4.8 percent against the US dollar and by 5.5 percent against the Thai baht annually.

The CPI for domestic goods has grown at a rate of 6 percent annually, lower than the growth rate of the Lao economy.

Increasing fuel prices have also driven inflation higher in the country as fuel is widely used as a raw material to produce goods.

 

 

By PTimes Reporters
(Latest Update August 12, 2010)