GDP growth averaged 7.7% over the last decade, with income per capita reaching $2,460 in 2018. Economic growth in Lao PDR is expected to recover to 6.5% in 2019, from 6.3% in 2018. Notwithstanding the continued fiscal tightening and uncertainty in the global economy, growth is expected to be driven by the construction sector, supported by investments in large infrastructure projects, and a resilient services sector, led by wholesale and retail trade growth. Growth is projected to pick up in 2019-2020, supported by increased power generation, growing opportunities in the non-resource sectors from closer regional integration, and reforms to improve the business environment.
The government is seeking to maintain macroeconomic stability by reducing the fiscal deficit and strengthening public debt management. As a result, there has been fiscal consolidation, with the fiscal deficit expected to decline to 4.3% of GDP in 2019 from 4.4% in 2018 and 5.5% in 2017. The government is strengthening revenue administration and efficiency through the introduction of electronic tax payments and modernizing the tax collection system, while containing wages and investment spending in 2019. Fiscal consolidation is expected to slow down the accumulation of public debt in the medium term.
Until recently, growth has been largely dependent on natural resources, and this has placed increasing pressure on the environment. Environmental degradation is taking an economic toll on the country due the depletion of natural resources and adverse impacts on human health from pollution and waste. Recognizing the limitations of this growth model, Lao PDR has implemented reforms to support greener, more inclusive growth.
A cleaner and more resource-efficient growth model in Lao PDR can also have a major human impact: 70% of the Lao population still depends on forests and waterways for income and nutrition, and better air quality will improve people’s health. Many of the country’s poorest people live in rural areas and are the most vulnerable to pollution, climate risks, and deforestation. The green growth agenda aims at improving local livelihoods by diversifying income sources and involving the private sector to spur market developments – for instance by promoting sustainable forest management and nature-based tourism.
Lao PDR has made good progress over the past twenty years, including halving poverty, reducing hunger, and improving education and health outcomes. However, the country needs to accelerate investments in human capital. According to the Lao PDR Human Capital Index, a child born in the country today will only reach 45% of her potential compared to if she enjoyed full health and education. Malnutrition is a critical issue, with stunting affecting over 30% of children under five. The maternal mortality rate also remains high, at 220 per 100,000 births (2013), with only 38% of births in rural areas without roads occurring in a health facility. While a child in Lao PDR goes to school for 10.8 years, they learn only the equivalent of 6.4 years.
The government’s National Nutrition Strategy (2015-2025) and Plan of Action (2016-2020) lay out an ambitious multi-sectoral convergence approach aimed at reducing chronic malnutrition (stunting) for children under five from the current 33% to 25% by 2025. This approach draws from the successful experience of other countries in addressing chronic malnutrition. The Sustainable Development Goals provide an overarching framework to monitor and evaluate progress on the government of Lao PDR’s social and economic plans and commitments.
Last Updated: Sep 25, 2019