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Overview

The Lao PDR’s macroeconomic situation has become challenging over the last three years. Long-standing structural vulnerabilities have been exacerbated by the impacts of the COVID-19 pandemic, soaring public debt, and testing global macroeconomic conditions. Consistent growth over the previous two decades was predominantly driven by large-scale investments in capital intensive sectors, particularly in mining and hydropower. However, these investments 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 gradual economic slowdown seen since 2012 became more pronounced during the COVID-19 pandemic, which highlighted how vulnerable Laos is to external shocks. The government moved decisively to contain the virus, but lengthy lockdowns resulted in job and livelihood losses and reduced 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% forecast for 2022. The cumulative effects of these setbacks mean the country faces macroeconomic instability, heightened financial risks, and negative trends 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.

Over the 12 months to September 2022, the national currency, the kip, fell by 62% against the U.S. dollar, while inflation reached 30% year-on-year. The Lao government is looking to adapt to the changing economic situation, but has limited fiscal space for manoeuvre. In 2021 a new prime minister and several new ministers were appointed. The 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.

A combination of the economic slowdown, social spending cuts, school closures and unemployment during the COVID-19 lockdowns, mean that Laos is in danger of losing the gains it has made in poverty eradication, education, nutritional status, and other key human development indicators. Structural reforms are needed to stabilize the economic situation and 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). According to the government, malnutrition is likely to have increased during the pandemic. Moreover, at least 70% of Lao children were unable to access online classes during the pandemic.

Last Updated: Sep 30, 2022

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Percentage decrease in the Maternal Mortality Rate from 2009-2014.

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

*Amounts include IBRD and IDA commitments
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Country Office Contacts

Vientiane
Xieng Ngeun Village, Chao Fa Ngum Road, Vientiane
Tel: (+856-21) 266 200
Washington
1818 H Street NW, Washington DC, 20433 Tel: +1 202-473-4709