With diminishing cash reserves and rising inflation, Laos is experiencing some of the same pressures that drove Sri Lanka into default and imperil Pakistan’s balance of payments.
Fuel shortages in the Southeast Asian country of 7.5 million people are the latest indicator of trouble, caused by high oil costs and a falling currency. Worryingly, the country’s debt load outweighs its cash reserves, posing a threat to the government that has held control since 1975.
‘It’s on the verge of default,’ said Anushka Shah, vice president and senior credit officer at Moody’s Investors Service, which downgraded Laos’ credit rating to Caa3 on Tuesday, citing inadequate governance, a large debt burden, and a lack of foreign exchange reserves to cover maturing external debt.
According to the World Bank, the country has $1.3 billion in reserves as of December, while annual foreign debt repayments will be around the same amount until 2025, equating to roughly half of total domestic earnings.
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