The World Bank In Lao PDR

Economic conditions remain difficult in the Lao PDR, as high public debt and persistent inflation affect household incomes and development. Some improvement was apparent in the second half of 2024, with improved state revenue collection and tighter monetary policy helping to stabilize exchange rates. The Lao economy is projected to grow by 3.5% in 2025, but economic volatility will continue to limit poverty reduction, with spending on health, education, social protection remaining inadequate.

Public and publicly guaranteed debt is unsustainably high, at 116% of GDP. Laos is currently dependent on loan repayment deferrals, which were worth about 16% of GDP by the end of 2023. Deferrals reduce the pressure on foreign exchange demand in the short term, but do not provide long-term solvency. Without further deferrals, external debt repayments are projected to average $1.3 billion annually from 2025 to 2027, resulting in high financing needs and foreign exchange risks.

Economic growth in 2024 was driven by the tourism, transport, electricity generation, mining, agriculture, and manufacturing sectors. From July 2024 to February 2025, the parallel market rate for kip/US dollar exchange rate depreciated by only 1% year-on-year, a significant improvement on the previous year. This followed tighter monetary policy, fiscal consolidation measures, and debt service deferrals. Inflation stood at 11.2% in March 2025, down from 26.2% in mid-2024.

While nominal wages and household income are growing, prices are still rising faster. Macroeconomic instability therefore affects the labor market, household living standards, and development of human capital —the knowledge, skills, and health that people accumulate throughout their lives, enabling them to reach their potential. High inflation, currency depreciation, and declining real wages are driving workers from wage and unpaid family work to self-employment, while also increasing outmigration, particularly to Thailand. A January 2025 World Bank survey shows that around a third of households have reduced spending on food, health and education, a trend that poses serious challenges for poverty reduction efforts. Labor shortages are a critical constraint for private business, with the 2025 Enterprise Survey finding a lack of workers to be the biggest constraint on private business in the country.

In the longer term, without reforms in revenue, governance, financial stability and the business environment, risks to growth and stability will remain. More inclusive growth is required. 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 almost a third of children under five, while the maternal mortality rate is high, at 126 per 100,000 births in 2020.

Last Updated: May 06, 2025

The World Bank Group works with the Lao government to reduce extreme poverty and boost shared prosperity, supporting the Ninth National Socio-Economic Development Plan 2021-25 and the 2021 National Agenda to Address Economic and Financial Difficulties. 

A Country Partnership Framework 2023-26 was launched in early 2023 following consultations with government, the private sector, civil society and other development partners. The immediate priority is to protect the most vulnerable from the effects of economic shocks, while advising the government on reforms that could stabilize the situation in the longer term. The World Bank has 20 ongoing projects financed by the International Development Association, the World Bank’s fund for countries most in need, with a value of over $966 million. The largest sectors by funding amount are infrastructure (34%), environment (17%), and health, nutrition and social protection (14%).

The Country Partnership Framework includes an intensive program of technical advice on macroeconomic and debt-related policies, World Bank funding in areas such as nutrition, enterprise development, flood prevention and community forestry, and support from the International Finance Corporation (IFC), the private-sector arm of the World Bank Group, for private sector employment. The framework followed an updated Systematic Country Diagnostic and a Country Economic Memorandum, which outlined developments in Laos over the previous few years. The documents identify the most pressing development challenges and explore how the country can take advantage of its strategic location and natural resources to seize emerging opportunities and rebalance the economy for more inclusive and sustained growth.

IFC provides funding and advisory solutions to enhance access to finance for Lao businesses and drive economic growth and productivity. Since 1998, IFC has invested about $150 million in Laos. To scale up its support for the private sector. IFC is exploring opportunities in renewable energy and agribusiness. To boost trade and regional connectivity, IFC is focusing on improving logistics infrastructure. In support of low-carbon growth, it is working with the government to establish green finance standards and strengthen the banking sector's climate lending capabilities.

To support implementation of the National Agenda on Addressing Economic-Financial Difficulties, the World Bank is advocating urgent reforms in five crucial policy areas:

1) Raising public revenues to protect spending on education, health, and social protection

Current challenge: Tax exemptions deprive the government budget of much revenue, leaving less money for schools, health care, and debt repayment. Tax exemptions for foreign investments also reduce foreign exchange inflows.

Key reforms: Curb tax incentives and exemptions; collect 1% of GDP through taxes on alcohol and tobacco; strengthen tax administration; reprioritize spending toward education, health care, and social protection.

2) Improving expenditure efficiency

Current challenge: Inefficient public investment is costly, and state-owned enterprises and public-private partnerships often create government liabilities.

Key reforms: Make investors and contractors compete for concessions and contracts; improve state enterprise management; control public investment more tightly.

3) Restructuring public debt

Current challenge: High public debt undermines macroeconomic stability by constraining fiscal space, and exerting pressure on the exchange rate, which drives inflation.

Key reforms: Bring ongoing bilateral debt negotiations to a successful conclusion; strengthen controls over public sector borrowing; limit non-concessional borrowing.

4) Strengthening financial sector stability

Current challenge: Vulnerabilities in the banking sector remain high, despite the restructuring of two state-owned banks. The sector faces liquidity constraints in foreign exchange, rapid currency depreciation and record inflation levels. Recent increases in the sector’s financing of government deficits increase risk and threaten to crowd out private sector financing. The eight largest banks have significantly lower capital levels than do smaller banks.

Key reforms: Enhance bank monitoring; operationalize existing legal and regulatory tools to manage vulnerability, and develop plans to remove special banking measures brought in during COVID-19.

5) Improving the business environment and promoting exports

Current challenge: Burdensome processes and regulations raise business costs and undermine productivity.

Key reforms: Continue to simplify business registration processes and regulations; make licensing transparent.

Last updated: April 2025

Building on the success of the first Reducing Rural Poverty and Malnutrition Project, a second phase of the project began in early 2024, bringing additional resources to improve nutrition and reduce poverty in 25 of the country’s poorest districts. This forms part of the National Nutrition Convergence program, which coordinates five World Bank-financed projects accelerating the reduction of stunting in Laos. Phase I of the project brought nutrition-improvement efforts to over 48,000 people, including through the Helping Hand conditional cash transfer program. These initiatives are now being scaled up, as is the social registry of poor and vulnerable people, which has registered over 1.2 million households and is being used by the government and UN agencies to better target aid assistance. Initial results show the first phase mitigated COVID-19's impact on child nutrition, improved diet diversity, and boosted growth monitoring services. Without the program, stunting and wasting among children under two would have been 7.7 and 3.4 percentage points higher in project villages. In target areas, consumption of diverse foods needed for adequate nutrition has increased by 12.7% among children aged 6–12 months. Household nutrition has also improved, with the availability of nutritious food up by 7.8% and the food diversity score increasing by 6.6%.

As Laos looks to better manage its public debt, the Enhancing Public Finance Management through Information and Communication Technology and Skills Project has helped the Ministry of Finance automate the recording of external and domestic public debts with a new Debt Management and Financial Analysis System. By February 2025, 99% of external loans, external bonds, and domestic loans, 20-30% of domestic bonds, and 30% of on-lending details were all recorded in the new system. Accurate and up-to-date information, combined with the system’s analysis tools, will help inform policy.

The Lao PDR-World Bank Competitiveness and Trade Project ran from 2018 to the end of 2024, helping simplify business regulations, facilitate trade, and improve the competitiveness of private firms. The project worked with the government to remove business entry barriers by simplifying company startup procedures, setting up a licensing portal, and automating processes, leading to significant reductions in the time and cost needed to start a business. New border management procedures, including a joint risk management framework, the streamlining of non-tariff measures, and implementing WTO Trade Facilitation commitments have reduced the average time of imports, exports and transit by 65%, down from 9.4 to 3.3 hours. Under its Business Assistance Facility II, 557 matching grants were awarded to 363 companies, almost two-thirds of them to businesses owned or led by women. The facility also delivered 2,325 advisory sessions for 635 companies. Public-private dialogue has been encouraged through the Lao Business Forum, making important contributions to resolving the issues constraining private sector investment. As the project closed, the Minister for Industry and Commerce said it had improved the competitiveness of the Lao private sector in both regional and international markets while creating much-needed quality jobs.

The Bank provides support to the Lao transport sector to improve trade, road connectivity, and sector management. Improvements to National Roads 13 North and South have upgraded the safety and climate resilience of 98 km of these major national arteries. Under the Southeast Asia Regional Economic Corridor and Connectivity Project, the Bank is financing the improvement of 136 km of National Road 2, which facilitates connectivity and trade with Viet Nam and Thailand, plus 300 km of local roads in the northern provinces to improve domestic access to the regional corridor. This project is also developing border facilities and consolidation yards to promote agricultural exports. So far, the improvement and maintenance of roads has helped an estimated 2.63 million people through better access to farms, markets, health services, schools, and jobs, while also boosting trade.

The Enhancing Systematic Land Registration Project has so far provided almost 70,000 land titles to around 135,000 beneficiaries in 32 districts. Over 70% of the titles issued are in the name of a woman or jointly name a woman. The project has also contributed to recent legal clarifications that will allow land titles to be issued for longstanding residential and agricultural land use inside state forestlands. This will improve security of tenure for almost a quarter of the country’s population.

By the time Tropical Storm Yagi hit Laos in September 2024, the Southeast Asia Disaster Risk Management Project for Lao PDR had completed approximately 11.4 km of a planned 13 km of riverbank protection works in Oudomxay, Luang Prabang, and Borikhamxay, protecting an estimated 27,000 people and over 6.6 square kilometers from floods. In Luang Prabang, even though works had not been fully completed, the protection systems provided important riverbank defenses against erosion and flooding. The project has also installed over 60 hydrometeorological stations in strategic locations across the country to strengthen the monitoring and observation network and improve rainfall and flood forecasting.

Last updated: April 2025