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The Lao PDR made rapid development progress in the first decade of the 2000s, halving poverty, reducing malnutrition, and improving access to education and health. However, economic growth has steadily slowed since 2013. Given the economic effects of the COVID-19 pandemic, and rising global prices, there is a danger that previous gains could be reversed.

The growth of the past two decades was predominantly driven by large-scale investments in capital intensive sectors, particularly in mining and hydropower. However, these investments have failed to support job creation, and some have entailed considerable environmental costs. Moreover, public investment in the power sector has been mostly financed by external debt, often on commercial terms, gradually jeopardizing macroeconomic stability.

The economic slowdown has been exacerbated by the effects of the COVID-19 pandemic, which has highlighted how vulnerable Laos is to external shocks. Measures to contain the virus resulted in job and livelihood losses and loss of foreign exchange earnings. Economic activity virtually stagnated in 2020, with GDP growing by only 0.5%. The second wave of the pandemic in 2021 dented hopes of a strong rebound, with a growth rate of just 2.5% estimated for 2021. The cumulative effects of these setbacks mean the country faces macroeconomic instability and heightened financial risks. Three negative trends are evident in state expenditure: as public debt service obligations rise and revenues decrease, spending on crucial social services such as education, health care, and social protection is down.

The Lao government moved quickly to avert the most pressing dangers of COVID-19 when the virus first appeared, and has also adapted to the changing economic situation. In 2021 the new prime minister announced seven priorities, vowing to tackle public debt and revenue leakages, boost exports, counter corruption, and create more job opportunities. The government has also pledged to foster quality growth and reduce reliance on the natural resource sector, to increase access to basic public services, especially health and education, and to place more emphasis on human resource development.

Structural reforms are needed to support a more inclusive growth pattern. A child born in Laos today will only be half as productive as she could be if she enjoyed full health and education. Malnutrition continues to be a critical issue affecting people’s physical and cognitive development, with stunting affecting over 30% of children under five. The maternal mortality rate is also high, at 185 per 100,000 births (2017). While a Lao child goes to school for 10.8 years on average, she only receives the equivalent of 6.4 years of learning. The effects of COVID-19 have made the situation worse. At the national nutrition forum in February, the deputy prime minister said malnutrition had increased during the pandemic. Moreover, at least 70% of Lao children have been unable to access online classes during the pandemic.

Last Updated: Apr 06, 2022


Lao PDR: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments
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