Southeast Asia Information Port (www.dnyxxg.com) – The World Bank's latest "Laos Economic Monitor" report shows that, thanks to a series of reform measures that effectively alleviated inflation, stabilized the exchange rate, and supported growth, the Lao economy showed clear signs of stabilization in 2025. The report predicts that, driven by the steady recovery of the tourism and transportation sectors, as well as the continued expansion of the energy, mining, and manufacturing industries, Laos' economic growth rate will reach 4.2% this year; strong external demand boosted export performance, effectively offsetting the impact of tightened government spending.
The decline in inflation is one of the most significant signs of this economic stabilization. Data shows that in the first 10 months of 2025, the average increase in Lao consumer prices was 8.5%, a significant drop from the high of 24.5% in the same period last year; data from the Bank of the Lao People's Democratic Republic further shows that the inflation rate had fallen to 4.8% in November. The easing of inflationary pressures not only reduced the burden of household spending but also helped restore market confidence among investors and businesses.
Since the economic hardship triggered by the COVID-19 pandemic, the Lao government has implemented a number of measures to stabilize the economy, including budget austerity, tightening monetary policy, restricting luxury goods imports, and establishing a foreign exchange trading platform to stabilize the Lao kip exchange rate. The World Bank points out that these measures have boosted trade, tourism, and transportation services, resulting in a substantial current account surplus. Coupled with foreign investment, Laos' foreign exchange reserves have been rebuilt, climbing to $2.8 billion in September. However, the report also cautions that current foreign exchange reserves remain low compared to external financing needs, making the kip exchange rate vulnerable to global shocks.
On the fiscal front, domestic tax revenue growth is driving Laos to achieve a fiscal surplus by 2025, creating room for the government to moderately expand spending. More notably, Laos regained access to the international bond market in November after many years, which not only alleviated domestic borrowing pressure but also improved its medium-term debt repayment situation. However, the report also warns that Laos' debt level remains high, and interest payments continue to squeeze fiscal spending in key livelihood sectors such as healthcare and education. The fiscal outlook remains highly sensitive to policy choices and external risks.
Looking ahead to 2026, the World Bank projects that Laos' economy will maintain stable growth, supported by the service and resource-based sectors. Inflation may rise slightly as domestic demand recovers, while the fiscal surplus and current account surplus are expected to narrow due to increased debt burdens and rising public sector wages. According to the economic development plan recently proposed by the Lao National Assembly, the government aims to achieve an average annual economic growth of at least 5% over the next five years.
The World Bank emphasizes that continued and in-depth reforms are key to achieving this goal. Core priorities include: increasing fiscal revenue by reducing tax breaks and restoring fuel taxes; strengthening banking supervision; accelerating debt negotiations; and optimizing the business environment by simplifying regulatory rules and promoting system digitization.
The report specifically points out that road maintenance is gradually becoming a risk factor hindering economic development. Poor road conditions not only drive up transportation costs and weaken the competitiveness of trade and tourism, but frequent repairs also further increase the fiscal burden. Climate change and truck overloading exacerbate road damage. In response, the World Bank recommends that Laos establish a stable funding mechanism for road maintenance, increase fines for overloaded trucks, levy special fees on foreign transit vehicles, and improve the transparency of road expenditures. The report warns that if timely countermeasures are not taken, weak infrastructure could erode Laos's hard-won economic stability.
