The International Monetary Fund cautioned Laos Thursday over providing a salary increase to civil servants in the country, saying the move could dampen higher priority spending.
In a report after annual consultations with the Lao government, the Washington-based IMF said that the country's current account deficit has widened and gross international reserves declined, covering only about two months of projected imports, the lowest level in almost a decade.
It said that while Lao macroeconomic policies have remained generally sound, "low reserve coverage and rapid credit growth amid high lending rates have emerged as sources of vulnerability."
"Although the [financial year] 2013 budget targets a broadly unchanged fiscal stance, the prospect for rapid increases in civil service wages could crowd out higher priority spending going forward," the IMF warned.
The Lao government is introducing a considerable increase to the monthly salary of all state employees beginning this month.
Rising cost of living
The total number of state employees has increased to more than 142,600, accounting for about 2.3 percent of the country's population of about six million, according to a report in the state-run Vientiane Times last month.
It said the government decided to increase the salaries of officials despite the financial challenges due to rising costs of living and inflation in Laos, and the "consequent pressures it puts on state officials."
The government will also grant an allowance to civil servants to cover the cost of electricity, water, and clothing.
The Ministry of Finance has confirmed that it has the capacity to fund the salary increase even though the outlay will be considerable, the Vientiane Times said.
But the IMF on Thursday called for restraint.
It said its executive board of directors "encouraged the authorities to exercise restraint in civil service wage increases which could crowd out higher priority spending."
In June, the National Assembly, the parliament of Laos, approved a budget expenditure increase to cope with the salary increase.
Reported by Parameswaran Ponnudurai.