VIENTIANE, LAOS – Laos has announced a suspension of new mining project approvals under a 2021 pilot scheme, which was intended to stabilize the economy but posed significant challenges to sustainable development.

“The roads are badly damaged [by the trucks], making it difficult for us to travel for business and healthcare purposes,” he said, adding that heavily laden trucks create a huge amount of dust that can harm people’s health.

Mining has boomed in Kasy and the neighboring Vang Vieng, a small town famous for its beautiful limestone mountains and caves. Due to the abundance of mineral resources in these areas, both towns have attracted miners exploring for ores like iron, gold and rare earths.

The influx of mining projects is a result of a 2021 policy by the Lao government, known as the pilot mining scheme, which aimed to promote nationwide investment in natural resources, primarily focusing on the excavation of iron ore for export.

“The purpose of the pilot mining scheme was to cut some of the investment approval processes so the government could generate revenue more quickly and better maintain economic stability,” said Latdavanh Songvilay, the Director General of the Macroeconomic Research Institute.

Laos does not have a diverse economic base, she added. Natural resources are among the few resources the government can use in the short term to boost the economy. 

Authorities have approved about 89 mining operations under the scheme, according to a government report presented at the National Assembly last year, in which lawmakers demanded the government reassess the impact of mining operations to prevent any social and environmental impacts.

In response to these concerns, Vice-President of the National Assembly Sommad Pholsena said at a press conference on June 19 that the government would halt the pilot mining scheme.

It will also demand all mining projects in Laos follow proper legal procedures, and those that fail to comply will be ordered to stop operations.

Short-term solutions

Despite Laos having a green growth strategy with the goal of increasing investments in renewable energy like wind and solar, inflation and its past debts have forced it to adopt short-term solutions, such as mining investment, to generate income.

Laos’ economy experienced a downturn since the fall in value of the kip in 2021, which was partly due to the higher demand for foreign currency to pay for imported goods and a high trade deficit due to low productivity.

High public debt from borrowing to build public infrastructure has added more fuel to the fire. It has posed significant challenges for the government to maintain economic stability.

According to a report  from the Ministry of Finance, Laos’ public debt stood at US$14 billion in early 2023, accounting for 97% of GDP. Laos must pay about $1.3 billion a year from 2023 to 2027 to repay its debts.

China is the country’s biggest lender, having lent about 50% of the total. Other loan providers include the Asian Development Bank, the World Bank and Thailand.

Kanya Souksakoun, a co-researcher of a study titled Chinese Infrastructure Loans and Lao Sovereign Debt, said most of the money borrowed came from China to fund state-owned infrastructure projects, mainly hydropower plants and power grids.

“The loan provided by China to build the Laos-China Railway is not the main reason for the high level of public debt; rather it is debt related to state-owned electricity generation facilities,” said Kanya, a lecturer at the Faculty of Environment Science, National University of Laos.

He said that since China provided 70% of the investment costs to build the railway, the railway has not had a significant impact on Laos’ public debt.

Clear vision needed

Residents have shown mixed responses to the surge in mining in Kasy district.

Mac, a resident from Daen Din village, said he had benefited from the mining boom by getting a job as a steelworker. He earns about three million kip (about $135) monthly, enabling him to feed his family during the off-harvest season.

Khamfai Tamong, the chief of Houyhok village in Kasy, said residents had been concerned about inadequate regulations related to environmental protection. They feared a shortage of drinking water because a large amount of water is used in mining operations.

They also worried about chemical run-offs into the river, which could harm their crops. Residents recently filed a complaint with authorities, asking them to investigate a link between chemical spills and damaged crops recently experienced by local farmers.

“The authorities sent officials to investigate, but so far we have received no satisfactory answers,” he said.

Concerns were also raised by residents depending on tourism in Vang Vien town.

Tour operator Inthy Deuansavanh said excessive mining would damage the natural beauty of Vang Vieng, which relies on its scenic attractions as a tourist drawcard. About 75% of the local population relies on tourism.

To protect tourism, he urged authorities to create tourism zones that are off-limits to mining companies.

Latdavanh from the Macroeconomic Research Institute said the government had made a strong commitment to pursue green and sustainable growth. However, the desire to exploit natural resources was posing a significant challenge to realizing this goal.

To ensure the sustainable use of natural resources and sustainable development in the long term, she urged the government to use the revenue earned from mining to improve education and healthcare – which are key to the revitalization of the economy in the long term.

“The government must have a clear vision about how to diversify the economy and end its heavy reliance on natural resources,” she said. “But the government can only achieve this vision if it has a strong political will and puts it into practice.”

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This story was supported by Internews’ Earth Journalism Network through Strengthening Transparency in Infrastructure Development Through Environmental Reporting in Southeast Asia.