Moody's assigned Laos a first-time local- and foreign-currency long-term issuer rating of B3 based on the strength of its economy, institutions, governance and credit conditions, among other things.
The rating agency expects Laos' GDP growth to hover around 6.5% to 7% in the coming years on the back of ongoing hydropower projects that are likely to contribute to exports and mining production. However, the relatively low household income and the size of Laos' economy tapers its capacity to absorb shocks, Moody's wrote.
Moody's added that the government's transparency and administrative capacity are low, which impact the efficacy of policymaking in Laos. Additionally, limited separation of power and accountability, alongside corruption, show weak governance in the country.
Meanwhile, the government's fiscal flexibility is constrained due to the high levels of public debt for an economy of its size and its narrow revenue base of around 15%-16% of its GDP. The rating agency projects Laos' fiscal deficit to average around 3.5% of GDP over 2020-2021, lower than 4.6% of GDP in 2018.
The outlook on the rating is positive, reflecting the agency's view that effective implementation of ongoing investment and fiscal reforms would benefit Laos' economy.