Lao PDR Now a Lower-Middle Income Economy

August 17, 2011

VIENTIANE, July 2011—Lao PDR is one of only two Southeast Asian countries to have been given a status upgrade by the World Bank this year. The World Bank has raised Lao PDR’s income categorization from a low income economy to a lower-middle income economy.

The World Bank annually revises its classification of the world’s economies based on gross national income (GNI) per capita estimates using the Atlas method. Lower-middle-income economies are those with average incomes of U$1,006 to US$3,975. Using the Atlas method, Lao PDR’s GNI per capita is US$1,010.

“Lao PDR’s GDP has grown faster in comparison with low-income countries in the same region and also with some of its neighbors. Since the country is surrounded by some of the fastest growing economies in the world, it has benefited significantly from external demand and increased foreign direct investment inflows in recent years. It is also supported by internal structural reforms. The Lao economy has weathered the global financial crisis relatively well, relying partly on stimulating domestic demand,” Lao PDR Senior Economist Geneviève Boyreau says.

She adds: “Growth is expected to remain robust over the medium-term, provided that macroeconomic stability is preserved, domestic credit growth is kept in check to avoid pressures on domestic prices and the exchange rate, and structural reforms continue,”

She also notes that the country is increasingly reliant on natural resources, in particular, mining and hydropower.

“It will be critical for the Government of Lao PDR to manage its natural wealth over time and space well to maximize economic benefits while limiting the potential negative social and environmental footprint. It’s equally essential to diversify growth sources to the non-resource-more-labor intensive sectors in order for the growth process to remain inclusive of all,” she says.

The World Bank uses GNI per capita estimates for its operational classification of economies which, in turn, determines their eligibility for concessional financing. Aside from Lao PDR, Thailand is the only other Southeast Asian economy to have been given a status upgrade.