The central bank of Laos has imposed a limit on selling foreign currencies as part of a group of measures designed to stabilize the kip, which has plunged to its lowest value in decades.
“Currency exchange units will only be allowed to change money for individuals and tourists, up to a maximum of 15 million kips ($1,004) per person per day,” said Sonexay Sitphaxay, governor of the Bank of the Lao PDR.
Sitphaxay said that legal entities would only be allowed to make foreign exchange transactions at commercial banks, with priority given to organizations importing fuel and other essential goods from abroad.
Laos Faces Default Risk
The World Bank said in May that Laos’s currency exchange rates depreciated by 30 percent against the U.S. dollar in the year leading up to April, indicating “considerable external liquidity constraints.”The communist-ruled country is experiencing liquidity and solvency challenges caused by “its high debt service burden, poor revenue collection, limited financing options, and low foreign currency reserves,” it stated.
Moody’s Investor Service also downgraded Laos’s credit rating to “Caa3”—which is subject to very high credit risk—with the country’s debt service costs amounting to $1.1 billion in 2022 and $1.4 billion in 2023.
The rating agency said Laos’s default risk would “remain high given very weak governance, a very high debt burden and insufficient coverage of external debt maturities” by foreign exchange reserves.
China’s Role in Laos
Laos has spent heavily on hydroelectric schemes, many financed by China, with the aim of becoming “the battery of Southeast Asia.” But those projects, along with a new Chinese high-speed railway, are at the center of a debt crunch.The country inaugurated a $6 billion Chinese-built railway in December 2021, which is part of Beijing’s Belt and Road Initiative, which critics have denounced as a “debt trap” for smaller nations.