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The Future of Asia 2018

Laos 'not concerned' about debt from China's Belt and Road

Prime minister downplays fiscal risk from $5.8bn high-speed rail project

Laos Prime Minister Thongloun Sisoulith speaks about his country's efforts to go from "landlocked" to "land-linked" at the Future of Asia in Tokyo on June 12. (Photo by Maho Obata) 

TOKYO -- Laos is unconcerned about the potential debt burden from a Chinese-led high-speed rail project, its prime minister said on Tuesday, describing the terms of the construction agreement as "favorable" to one of Southeast Asia's poorest countries.

The high-speed rail link, begun in 2016 as part of China's Belt and Road initiative, will connect Kunming in southern China and the Laotian capital of Vientiane, stretching through other Southeast Asian countries all the way to Singapore.

Concerns have been raised that Laos, which lacks any railroads, is being led into a debt trap. The reported $5.8 billion project cost is equal to nearly half the country's gross domestic product.

Laotian and Chinese companies "will share the burdens," Prime Minister Thongloun Sisoulith told the Future of Asia conference in Tokyo. "And on the part of the Lao government, we will have one-fifth of the budget for the construction."

"I am not concerned much about the burden of debt or the construction of the high-speed railway," he said, adding "I can see that provisions in the construction agreement are favorable."

The prime minister's comments downplayed the risk raised by Christine Lagarde, the managing director of the International Monetary Fund, in Beijing back in April. Belt and Road projects, Lagarde warned, can "lead to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payments challenges" for affected countries.

Thongloun added that given Laos' goal of graduating from least developed country status, it needs to "transform our landlocked country to a land-linked country," and that the high-speed rail project "has been of great importance" to its development.

"We hope that the construction of the railway will encourage and promote investment and cooperation and bring benefits to the country," he said.

But even with the project, exiting the LDC group by 2020 -- a goal set by the government back in 2001 -- looks unachievable, something that the prime minister acknowledged in the National Assembly before travelling to Japan.

LDCs, a United Nations category, are assessed using three criteria: gross national income per capita, a human assets index that measures performance on health and education targets, and economic vulnerability.

Thongloun said that Laos can meet the thresholds for the first two criteria, but was having difficulty in meeting the third.

"We have no direct access to the sea and ... income generation is mainly based on natural resources," the prime minister said. "We will need to work towards modernization and industrialization and to make sure that people have more income."

Laos now seeks to graduate LDC status by 2024 and is "making every effort to provide enabling environments for promoting domestic and foreign investment, so that doing business is more convenient," Thongloun said.

Nikkei staff writer Akihide Anzai contributed to this article

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