Macroeconomic conditions have improved in 2025, with a more stable exchange rate and easing inflation. Growth is projected at 4.2% over the year, driven by tourism, transport, and steady expansion in energy, mining, and manufacturing. Growing external demand has boosted exports, offsetting impacts from fiscal tightening. Headline consumer price inflation averaged 8.5% over the first ten months of 2025, down from 24.5% a year earlier. This has reduced pressure on private consumption and stabilized investor sentiment.
Part A: Recent Economic Developments and Outlook
- A sizable current account surplus has been made possible by merchandise exports, tourism, and transport services, which are helping offset debt repayments. Strong foreign investment and the current account surplus are enabling gradual rebuilding of foreign exchange reserves, which rose to $2.8 billion by September. However, reserve buffers remain low relative to external financing needs, and the kip is still vulnerable to shifts in external conditions.
- Stronger domestic revenues have led to a fiscal account surplus in 2025, allowing moderate growth in expenditure. However, Laos continues to rely on debt-service deferrals and diverse financing sources. The return of access to international bond markets in November has reduced pressure on domestic financing and helped improve the medium-term repayment profile for government debt. Debt remains elevated though, with high interest payments crowding out social sector spending and leaving the fiscal outlook vulnerable.
- Growth is expected to remain stable in 2026, with services and resource-based sectors continuing to drive activity. The medium-term outlook remains constrained by low productivity, skill shortages, and infrastructure gaps. Inflation is projected to edge up slightly in 2026 due to higher domestic demand. The current account and fiscal surpluses will narrow in 2026 due to remaining debts and rising public wages.
- Overall, the outlook remains subject to domestic policy implementation and external risks, especially slower growth among trading partners. Sustained reforms and deeper regional integration would help ensure a positive outlook, notably in the following critical reform areas:
(i) Raising revenues by curbing tax exemptions, reinstating fuel excise, and reforming health taxes, while boosting spending on social services and infrastructure maintenance
(ii) Establishing a strong institutional and legal framework for public–private partnerships
(iii) Expediting ongoing debt renegotiations and strengthening public debt and contingent liability management
(iv) Enhancing bank supervision
(v) Improving the business environment to promote investment and export diversification through digital processes and by streamlining non-tariff measures.
Part B: Preserving Road Assets
A well-functioning road sector is important for growth, competitiveness, and fiscal sustainability. Reliable roads reduce transport costs, improve access to markets, and strengthen links between production hubs and borders. Laos depends heavily on trade, tourism, and movement of goods across its landlocked territory. Weak road networks raise logistics costs, dampen private sector activity, and increase the fiscal burden through frequent repairs and emergency maintenance.
Funding unpredictability and inadequate resource allocation undermine essential maintenance and asset preservation, exposing roads to accelerated wear—particularly from climate impacts and heavy trucks. Fragmented maintenance efforts, insufficient enforcement of weight controls, and a lack of targeted investment in critical corridors have resulted in deteriorating road conditions, rising lifecycle costs, and increased vulnerability to climate-related hazards.
The report recommends a unified asset management system and preservation strategies that can arrest further decline, which would jeopardize connectivity and economic growth:
Stabilize Revenues
- Ensure predictable and adequate funding for the Road Fund through a rules-based formula that is updated quarterly. Publish both adjustments and revenue results.
- Introduce targeted road-use charges for foreign transit trucks and domestic heavy trucks. Encourage modal shift and reduce road strain, by exempting rail-interchange traffic to promote rail as a heavy-freight alternative.
- Adopting a graduated overweight penalty schedule with substantial fines, with all proceeds going to the Road Fund. Implement through border weigh scales and in line with international agreements.
Protect Priority Assets
- Implement a five-year Preservation Program that allocates at least 50% of overall spending to national roads and 75% of maintenance budgets to paved links, integrating climate-proofing at known hazard hotspots.
- Identify a critical road network and prioritize adequate resources for its upkeep. Make road reseals and overlays on paved corridors mandatory, with an annual reseal calendar.
- Introduce consolidation centers on local roads to route heavy trucks onto suitable corridors. Strengthen overloading control by installing weigh stations and weigh-in-motion equipment along key national corridors.
- Use a unified asset management system to set evidence-based targets and optimize budget allocation.
Improve Governance & Efficiency
- Governance and efficiency gains will come from disciplined contracting, robust quality assurance, and transparency.
- Ensure due process when engaging private operators for road improvement, maintenance, and toll collection: Use transparent, competitive procurement. Mandate independent quality assurance and adopt pricing benchmarks to flag outliers.
- Digitize contract management to track physical progress, quality results, and payments, and publish performance dashboards. Establish a Road Fund oversight committee with civil society and industry observers, plus publication of fund statements and project performance.
- Utilize the Road Management System for planning and prioritization. Collect data routinely, and monitor network performance.