Economists have suggested that market mechanisms should take precedence amid public fears of rising prices in light of the government's plan to further increase state employees next fiscal year.
The fear stems from the fact that members of the public experienced a considerable increase of goods prices in local markets in recent months following the increase of salaries for state employees this financial year.
Members of the National Assembly told the government at the parliament's 5th ordinary session that closed recently that they should consider exploring measures to manage goods prices to prevent them from rising further. However economists recommended letting markets drive the course of prices, suggesting the government ‘should not step in' if the rate of increase remains acceptable.
“As long as the increased rate of product prices is lower than the increased rate of the salary, it is acceptable,” said Director General of the National Economic Research Institute, Dr Leeber Leebouapao.
He added that an increase in salaries means an increase of purchasing power resulting in increasing demand, which in turn drives price rises. “It is an economic principle,” he told the Vientiane Times.
The director stated that the chain-mechanism of increasing purchasing power driving price rises due to higher demand. He said it will create greater production that will eventually drive economic growth.
However, he recommended that the increased goods prices should not exceed or be equal to the salary increase, or in effect it will mean nothing.
“The government should wait and see. If the increase of product prices is poised to reach an alarming level, then we will analyse what the causes are so that we can explore precautionary measures,” he said.
Regarding public complaints about the considerable increase of goods' prices in recent months, Dr Leeber argued that the inflation rate of the Lao kip remains at the low rate of only 5 percent.
Such a rate remains far below the increased rate of salary coupled with supporting allowances of state employees this financial year, which the Finance Ministry said has reached 140 percent.
“Although some food items like beef increased considerably, the average rate of food items was not that high,” he said.
An independent economics and business advisor, Dr Mana Southichack believed the increase of salaries should not drive inflation if the additional payment of the salary increase is paid out through revenue the government collects.
However, if the government issues more banknotes to pay out the increase, then the salary increase will definitely drive inflation and cause a surge in commodity prices.
He noted that the skyrocketing increase of beef in recent months was not caused by salary increase, but rising demand in local markets, after increased exports to Vietnam, where higher market prices are on offer.
In this regard, he recommended the government shouldn't step in to control exports. “If the government wants to control things in this case by banning exports, then for whom is this being done?” he said recently.
He stated that the answer to the issue is clear and that allowing exports to external markets where prices on offer are higher will increase income for the farmers who raise cattle. However, banning exports to balance domestic prices will only save the pockets of middle and high income earners.
In addition, he also observed that the increase in the prices of many products is linked to the fact that those products have been imported from neighbouring Thailand. The Thai government recently decided to increase the minimum wage, which increases production costs and eventually the price of finished goods.
The two economists supported the government's plan of increasing the salaries of state employees, considering the good position of the Lao economy and low salary rate paid to public servants. They also suggested that the increase should not cause problems for the inflation rate.
Source: Vientiane Times