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Laos Economy Shows Signs of Recovery Amid Fiscal Pressures

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Laos’ economy is showing signs of recovery amidst a debt repayment peak, persistent inflation, and structural challenges, the World Bank warns in its latest Lao Economic Monitor.

According to the report, titled Weathering Risks, the economy grew by 4.1 percent in 2024, driven by rising exports of services, electricity, mining, agriculture, and manufacturing. Tourism also rebounded, with foreign arrivals jumping 21 percent, thanks to improved regional connectivity.

However, growth is expected to slow to 3.5 percent in 2025 as the country enters a critical fiscal period. Public debt repayments are set to peak next year, placing heavy pressure on state finances and limiting room for essential spending on health, education, and infrastructure.

“The actions of the Bank of the Lao PDR and the government have helped decelerate inflation,” said Alex Kremer, World Bank Country Manager for Laos. “However, inflation remains high and further reforms would help promote economic stability.”

Inflation, though easing, is projected to remain in double digits through 2025. This prolonged price pressure continues to erode household purchasing power, depress consumption, and drive up business costs, posing risks to long-term economic stability.

The government has made some progress in stabilizing the economy. Monetary tightening, a more stable exchange rate, and better liquidity management, including the establishment of a Treasury Single Account, have contributed to slower inflation. Revenue collection has also improved, supported by the reinstatement of fuel excise rates and stronger tax administration.

Yet these gains are overshadowed by high levels of public debt. The World Bank warns that increased domestic borrowing to service this debt could “crowd out” credit for the private sector, especially for small and medium-sized enterprises (SMEs), the backbone of the Lao economy.

The Lao Economic Monitor also includes a special section on SMEs, revealing that many small businesses still struggle to access credit due to a lack of formal structure, collateral, and financial literacy, as well as a limited range of suitable financial products. 

The World Bank recommends expanding support for microfinance institutions and establishing an independent fund to provide targeted lending to small firms.

While the government has made some progress in restoring fiscal control, the convergence of structural challenges, high inflation, and unsustainable debt continues to threaten the country’s long-term development path.

“Debt repayments will peak in 2025, limiting the room for essential public spending,” the report notes.

Long-Term Debt Challenges Complicate Laos Economic Outlook

A deeper look into Laos’ financial struggles paints a slightly different picture. According to experts from the Lowy Institute, as reported by Nikkei Asia, Laos is in the grip of an acute debt crisis, one that has derailed its post-2000s growth trajectory and left the country with no clear exit strategy. 

Once considered a regional success story with GDP growth averaging over 7 percent annually before COVID-19, Laos is now burdened by public and publicly guaranteed debt exceeding 100 percent of GDP, the experts noted.

Years of inflation have gutted household savings, while underfunding of health and education has led to worsening child malnutrition and declining school enrollments. Meanwhile, thousands of working-age Laotians have migrated in search of better wages. 

The government’s limited stake in the USD 6 billion Laos-China Railway has attracted worldwide attention, but it’s unplanned domestic energy investments that account for the bulk of the fiscal strain, Nikkei reported 

Despite budget surpluses since 2023, these have come at a steep cost to social services. Without structured debt relief, analysts warn Laos could face a “lost decade” of stagnation, heightened dependency on China, and deepening socioeconomic vulnerability.


Sources: World Bank, Nikkei Asia

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