Highlights:

• The kip continues to depreciate, falling in value by 29% against the Thai baht and 21% against the US dollar in the year to October 2023. With banks rationing access to foreign currency at official rates, the difference between official and parallel market exchange rates has risen to about 15% for the dollar and 8% for the baht. The main factor in the kip’s falling value has been the lack of foreign currency available in country, a result of the need to repay large external debts, despite some deferrals, and limited capital inflows. Monetary policies and exchange rate measures have had only a temporary impact on official and parallel market exchange rates, suggesting that they are not fixing the root causes of kip depreciation.
• On average, a 1% fall in the value of the kip increases consumer prices by 0.5%. Therefore, inflation will remain high until exchange rates stabilize. While the global prices of some imported goods have eased, inflation remains high in Laos, reaching 26% in the year to October 2023. Food price inflation stood at 29%, severely affecting poor urban households. 

• Real household incomes have suffered from rising living costs. In a World Bank survey conducted in June 2023, 54% of interviewed households said their income had remained stable or declined. While inflation reached 39% percent in the year to May 2023, the average nominal wage grew by only 5.7%, meaning inflation-adjusted wages dropped by an average of 33%.
• Strong kip depreciation and consumer price inflation have led to significant changes in the labor market. The latest World Bank phone survey shows that employment increased to 91.3 percent in the first half of 2023, from 89.6 percent in December 2022.6 However, more workers have left non-farm wage jobs to become self-employed, including in farming., as wage income fails to keep up with inflation.While the inflation rate was 39 percent in the year to May 2023, the average nominal wage grew only 5.7 percent, a fall of 33 percent in the inflation-adjusted wage. In contrast, the average profit from farm businesses rose by 42 percent during the same period. This labor movement has resulted in declining shares of wage employment from 44 percent to 38 percent, and non-farm employment from 57 percent to 51 percent.
• Mounting food inflation has undermined food security. Food inflation remained high at 26 percent in the year to October 2023. Food insecurity worsened between May 2022 and May 2023, especially among urban families, who are more exposed to high food inflation. The proportion of urban households that experienced moderate to severe food insecurity increased from 34 percent to 42 percent.8 In rural area, he food insecurity situation was relatively stable, despite remaining deeper and more widespread than in urban areas.
• Households are coping by producing or foraging more food, reducing how much they eat, and migrating to Thailand in search of better-paid jobs. Half of the respondents now spend less on health and education. As public expenditure in these sectors is also falling, Laos’ overall investment in human capital is declining, which will affect medium-term economic growth prospects.