This Systematic Country Diagnostic (SCD) updates the analytical work of the 2017 SCD in the light of new evidence. In 2017, the World Bank Group published the first SCD for the Lao PDR, which comprehensively assessed the binding constraints to economic growth, inclusion, and sustainability. This SCD uses recent evidence to describe developments since 2017, revisit the previous pathways and priorities for achieving the twin goals of ending extreme poverty and boosting shared prosperity, and update knowledge and data gaps. It identifies the most pressing development challenges supported by new data and analytical work and emerging opportunities.
The full SCD is published in English, with the Executive Summary available in a combined Lao-English document.
Recent evidence suggests that poverty has been reduced but income inequality is increasing.
While significant development progress has been achieved, several challenges have become more prominent since 2017 and amplified by the COVID-19 pandemic. Key risks identified in the 2017 SCD to macroeconomic stability, the inclusiveness of growth, and environmental degradation have materialized.
High public debt levels are fueling macroeconomic instability and threatening development prospects. Laos is facing both liquidity and solvency challenges owing to a high debt burden, poor revenue collection, limited financing options, and low foreign currency reserves, which have edged the country toward sovereign debt distress.
The current growth model is showing its limitations, particularly through its inability to support job creation.
COVID-19 brought unprecedented and cascading shocks with a profound impact on households and firms. While COVID-19 was declared a health crisis, its impact has been experienced in multiple dimensions. Laos has been largely successful in containing the spread of the virus, yet the pandemic and response measures have affected households and firms, especially vulnerable groups.
The regional context plays a key role in shaping opportunities for trade, investment, and migration. Trade has grown considerably over the past decade. Thailand, China, and Vietnam are the largest destination markets, mainly receiving commodity exports.
This SCD presents three pathways that address the most pressing development challenges facing Laos in the context of fostering an inclusive, sustainable and resilient recovery from COVID-19. Recent evidence suggests there have been improvements in socioeconomic outcomes, such as rising average income levels and poverty reduction. However, there remain significant constraints to inclusive, resilient, and sustainable development.