The Lao economy is projected to grow by 4.2 percent in 2022, driven by commercial production for exports and opportunities and benefits arising from the China-Laos Railway.

The rail link, which became operational recently, will enable Lao products, notably agricultural goods, to have better access to the Chinese market, according to the latest report from the Lao National Economic Research Institute.

The railway put Laos in the global spotlight, providing much-needed rail connectivity and using the country's landlocked location to develop strong overland transport links, local daily Vientiane Times reported on Thursday.

The Lao government aims to make the country a regional hub and offer transit services. The country will also seek to capitalize on all the potential provided by the railway, officials said.

In 2021, the Lao economy is projected to grow at a rate of 3 percent, lower than the figure of 4 percent approved by the National Assembly.

The slower growth is being linked to the prolonged lockdown imposed to contain the spread of COVID-19. The pandemic interrupted economic activities and forced companies, retail and wholesale shops and factories to shut down, impacting employment rates.

The report said that the Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade deal which will become effective from Jan. 1, 2022, will create favorable conditions for more trade, foreign investment and tourism in Laos.

The acceleration of vaccination rates and people's adaptation to the "new normal" will enable Laos to reopen its borders, revitalize the services sector, and fuel the growth of production for exports.

The Lao government is currently promoting Small and Medium-sized Enterprises (SMEs) to ensure these business units have better access to funding, so as to generate jobs and boost economic growth.

The report said that the Lao economy will slightly recover in the medium term, but growth will be lower than the pre-pandemic level.

As many countries are moving from fossil fuels to renewable energy, including hydroelectricity, Laos has great potential to attract more investment due to its growing number of hydropower projects.

One of the main challenges for Laos is when the COVID-19 outbreak will subside because it is an important factor for revitalizing the services sector.

Rising inflation, depreciation of the Lao kip and public debt have posed enormous challenges for economic recovery and the livelihoods of the people in Laos. One of the most important objectives for the government at present is speeding up vaccination, in order to immunize 80 percent to 90 percent of the population and reopen the country.

Laos also needs to do more to attract more investments to produce more for exports via the China-Laos Railway line. Tourism is expected to boom in Laos as many people in the region are keen to travel within ASEAN and China via the railway, according to the report.