Economy stabilises as reforms take hold in Laos: World Bank

The report projects economic growth of 4.2% this year, driven by tourism, transport, and steady expansion in energy, mining, and manufacturing. Strong external demand has lifted exports and helped offset the impact of tighter government spending.

One of the most striking changes concerns the inflation rate. Consumer prices rose an average of 8.5% in the first 10 months of 2025, down sharply from 24.5% a year earlier.

This slowdown has eased pressure on household spending and helped restore confidence among investors and businesses.

In November, the inflation rate stood at 4.8%, according to the Bank of the Lao PDR.

Since the financial difficulty triggered by the Covid-19 pandemic, the government has rolled out a series of measures to stabilise the economy, including budget austerity, strict monetary policies, limits on luxury imports, and the launch of the Lao Foreign Exchange platform to stabilise the kip.

The World Bank noted that improved trade, tourism and transport services have produced a sizeable current account surplus. This, together with foreign investment, has allowed Laos to rebuild foreign exchange reserves, which climbed to US$2.8 billion in September.

But reserve levels remain low compared to external financing needs, leaving the kip vulnerable to global shocks, the report said.

Stronger domestic revenue collection also contributed to a fiscal surplus in 2025, giving the government room for moderate spending growth.

Laos has regained access to international bond markets, returning in November for the first time in years. This reduced pressure on domestic borrowing and improved the medium-term debt repayment profile.

But debt remains high, the report warns. Interest payments continue to crowd out spending on vital sectors such as health and education, and the fiscal outlook remains sensitive to policy choices and external risks.

Looking ahead, growth is expected to remain stable in 2026, supported by the services and resource-based sectors. Inflation may edge up slightly as domestic demand increases, while both fiscal and current account surpluses are expected to narrow due to debt obligations and rising public wages.

Over the next five years, the government is aiming for economic growth of at least 5 percent annually, according to the economic development plan proposed at the most recent meeting of the National Assembly.

However, the World Bank stresses that sustained reforms are vital. Key priorities include raising revenue by reducing tax exemptions, reinstating fuel excise, strengthening bank supervision, speeding up debt negotiations, and improving the business climate through simpler rules and digital systems.

The report also highlights road maintenance as a growing economic risk. Poor road conditions raise transport costs, weaken trade and tourism, and increase the fiscal burden through the need for frequent repairs.

Climate impacts and overloaded trucks are accelerating road damage.

The World Bank recommends stable funding for road maintenance, higher penalties for overweight trucks, targeted charges for foreign transit vehicles, and stronger transparency in road spending.

Without action, the report warns, weak infrastructure could undermine Laos’ hard-won economic stability.

The Vientiane Times

Asia News Network