The Asian Development Bank (ADB) has projected that Laos will experience a growth rate of 4.0 percent in 2024, supported by investments in services and clean energy. However, the report highlights ongoing macroeconomic challenges, particularly concerning public debt, which continue to hinder investment prospects and domestic consumption.
In its latest Asian Development Outlook (ADO), the ADB revised its growth forecast for 2025 down to 3.7 percent, compared to the earlier projection of 4.0 percent made in April this year. The report also warns that inflation is expected to rise to an average of 21.5 percent in 2025, largely driven by price adjustments linked to the depreciation of the Lao kip.
“International tourist arrivals are now approaching pre-pandemic levels, boosted by Laos’s ASEAN Chairmanship and Visit Laos Year 2024,” said ADB Country Director for Laos, Sonomi Tanaka. “However, risks to this outlook stem from debt distress, necessitating coordinated, transparent, and sustainable public financial management.”
Despite the Bank of Laos increasing its 1-week interest rate from 8.5 percent in February to 10.5 percent in August and tightening foreign exchange controls, the kip continues to weaken. From January to August, it depreciated by 6.1 percent against the Thai baht and 7.5 percent against the US dollar, placing additional strain on the economy.
As of August, inflation stood at 24.3 percent year-on-year, with the average for the first eight months of 2024 at 25.3 percent. A shortage of skilled labor due to out-migration has further pressured domestic prices and wages, prompting businesses to pass increased costs onto consumers and exacerbating inflationary expectations.
Public debt levels remain critical. While total public and publicly guaranteed debt decreased slightly from USD 13.9 billion in 2022 to USD 13.8 billion in 2023—reducing the ratio from 112 percent to 108 percent of gross domestic product—the ratio of external debt service to total government revenue surged from 27 percent to 43 percent.
Limited refinancing options in 2025, coupled with significant external debt maturities, are expected to constrain public sector access to foreign currency, negatively impacting private sector recovery and household spending.
A Regional Overview
The ADB has upgraded its economic growth forecast for developing Asia and the Pacific to 5.0 percent for 2024, an increase from a previous estimate of 4.9 percent. This positive outlook is attributed to strong domestic demand, robust exports—particularly in semiconductors driven by AI demand—and falling food prices. However, risks such as potential trade tensions between the United States. and China, ongoing issues in China’s property market, and geopolitical tensions persist.
China’s growth forecast remains at 4.8 percent, while India’s is projected at 7.0 percent. Growth in the Caucasus and Central Asia has been revised up to 4.7 percent, and the Pacific’s forecast has been slightly increased to 3.4 percent. Southeast Asia’s growth forecast was lowered to 4.5 percent due to reduced public investments and a slower recovery in exports.
Established in 1966, the ADB is owned by 68 members, with 49 from the region.
