Lao economic growth is facing continued challenges, with growth estimated to have remained below 2019 levels in 2023 and expected to stay below that mark in 2024. The World Bank highlighted various factors contributing to this trend in a report released on 29 April.
According to the report titled “Accelerating Reforms for Growth,” the Lao GDP is estimated to have grown by 3.7 percent in 2023, a decrease from the 5.5 percent growth recorded in 2019.
Positive contributions to growth came from sectors such as tourism, transport, logistics, and mining. However, economic instability, low worker skills, out-migration of labor, and a challenging business environment have been major obstacles to stronger growth.
Foreign investment, particularly in electricity and mining, increased substantially in 2023, while improved revenue collection helped offset increased public spending. However, high inflation, driven by the depreciation of the Lao currency kip, has constrained consumption.
The annual average official exchange rate of the Lao kip/US dollar weakened by 31 percent in 2023, leading to significant changes in domestic prices, especially in the food, transport, hotel, and restaurant sectors.
Alex Kremer, the World Bank Country Manager for Laos, noted that although average household incomes improved in 2023, about a third of Lao households, especially low-income families, experienced a decline in purchasing power.
“Our monitoring surveys show over 30 percent of families have reduced their spending on health and education, while in urban areas where fewer people grow their own food, food security is becoming an increasing problem,” said Kremer, as stated in the World Bank website.
Looking ahead to 2024, GDP is projected to grow by 4 percent, supported by further growth in services and investment in the power sector and special economic zones. However, challenges such as kip depreciation, high inflation, and the need to repay high external debts are expected to persist.
The report also sheds light on the country’s debt situation, noting that between 2020 and 2023, approximately USD 2 billion, which accounts for approximately 5 percent of GDP at the 2023 rate, of principal and interest payments on debts owed to China were deferred. Debt repayment also requirements continue to pose significant challenges, with access to international capital markets deteriorating.
To address these challenges, the report recommends prioritizing reforms in critical areas such as debt management, revenue mobilization, public investment management, financial sector stability, and business environment. While recent revenue reforms show promise, the report emphasizes the need for accelerated reform efforts to restore macroeconomic stability.
Additionally, the report highlights concerning trends in the education sector, particularly the drop in funding for public education, with the 2023 budget being 38 percent lower than in 2013 when adjusted for inflation. Meanwhile, primary education is no longer accessible to all children, as more kids are quitting school, and those who remain aren’t receiving the education they need. Urgent re-prioritization and increased budget allocation are deemed necessary to improve learning outcomes and ensure sustainable growth in the long term.
