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Economic Overview

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Laos is a rather poor country compared to its neighbours but has experienced very strong growth in recent years (averaging just below 8% in the last decade, driven by the exploitation of its mining and hydroelectric resources), placing the country among the fastest-growing economies in the world. Nevertheless, Laos’ economy was severely affected by the global crisis caused by the COVID-19 pandemic, with GDP growth turning negative in 2020 (-0.4%). The economy recovered in 2021, although a new wave of infections in the second half of the year prompted the reintroduction of lockdowns. The IMF estimated growth at 2.1% in 2021, with a brighter outlook for 2022 (4.2%) and 2023 (4.5%). Electricity (representing around one-tenth of GDP and one-fourth of exports) will continue to be a key driver of growth in 2022, with a positive contribution coming from the agricultural sector; whereas the mining and tourism industries should be subdued.

The country’s public finances are somehow fragile. The debt-to-GDP ratio went up to 70.9% in 2021, from 61.6% before the pandemic (IMF): although not particularly high, 80% of it is denominated in foreign currency and externally held (almost half of the public debt is held by China alone). The impact of the COVID-19 pandemic also affected government revenues, which amounted to LAK 24.099 trillion in the first 11 months of 2021, equivalent to 87% of the target figure. Overall, Coface estimated the budget deficit at 5.6% of GDP in 2021, with a better outlook for 2022 (5.3%), as revenue will continue to improve and spending should grow at a slower pace. In 2022, the government plans to collect LAK 31.59 trillion in revenue, representing 16.44% of GDP, with expenditure set at LAK 34.96 trillion (18.05% of GDP). In the same year, the current account deficit is set to narrow slightly as a recovery in external demand should contribute to an improvement in the trade balance. Inflation was relatively high in 2021 (4.9%), but it is expected to gradually ease over the forecast horizon (3.7% this year and 3.1 in 2023, according to the IMF). Mega infrastructure projects are expected to contribute to economic growth in the upcoming years, with projects such as the Luang Prabang dam, the Vientiane-Boten high-speed train line, and the USD 2 billion investments of the Laos Transmission Company Ltd to improve power transmission lines to neighbouring countries. The construction of various highways and rail lines linking up with the Chinese border is also expected to highlight the "land-linked" status of the country. The Lao People's Revolutionary Party is the only allowed party in the country and has been governing since 1975. It has a Marxist–Leninist ideology and controls most of the political and economic aspects of the society, with no real organized opposition.

According to the World Bank, Laos is part of the lower tier of the 'middle-income countries' despite the fact that around 18.33% of the population continues to lives below the poverty line. The level of education is low and the living conditions in rural areas (home to almost 65% of the active population) are precarious. Inequalities with the urban zones are widening, also. Unemployment in the country was estimated at around 1% of the total labour force in 2020 (World Bank, latest data available): although no reliable official figures are available, the ILO estimates that the share of informal employment in the country is among the highest in the world. Figures from the Lao Federation of Trade Unions (LFTU) show that the nation’s unemployment rate was estimated at 9.24% in 2020, with an expected increase to 21.8% in 2021 due to the effects of the pandemic on the economy.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 18.7718.8219.3820.6321.82
GDP (Constant Prices, Annual % Change) 4.7-0.42.14.24.5
GDP per Capita (USD) 2,6182,5872,6262,7582,878
General Government Gross Debt (in % of GDP) 61.1e68.270.971.672.5
Inflation Rate (%) 3.35.1e4.93.73.1
Current Account (billions USD) -1.71-0.84-1.21-1.43-1.61
Current Account (in % of GDP) -9.1-4.4-6.2-6.9-7.4

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 61.4 12.9 25.6
Value Added (in % of GDP) 16.2 32.1 40.6
Value Added (Annual % Change) 3.2 3.6 -3.3

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Lao Kip (LAK) - Average Annual Exchange Rate For 1 USD 8,129.068,351.538,489.248,989.209,045.79

Source: World Bank - Latest available data.

 

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Foreign Trade

Laos is not too open to foreign trade, which represents 36.4% of its GDP (WTO, 2018-2022 average). Although Laos is implementing a process to open its economy, the state maintains restrictions on the import of certain goods such as chemical products, weapons and some types of medication. Timber and weapons cannot be exported. Special permits are required to export rice, rough diamond, gold and polished silver. Laos became a member of the WTO in February 2013. This membership was subject to the adoption of the commitments of the WTO, mainly setting a limit to customs duties, the partial or total opening of all sectors, respecting the regulations of the WTO regarding inspections before shipping and adopting anti-dumping measures. Laos’ main exports by value are electrical energy, gold, natural rubber, refined copper and alloys, and copper ores or concentrates; which collectively represent 52.4% of the country’s overall shipments (with electricity accounting for one-fifth of total exports). Imports are led by construction equipment, fuel and gas, items used in industry, electronic products, vehicle parts, and food (Lao Ministry of Industry and Commerce).

The country's most important trading partners are Thailand (41.4%), China (28.8%), Vietnam (18.2%) and Japan (1.6%), with imports following a similar path: Thailand (50.3%), China (29%), Vietnam (7.8%), and Japan (2% - WTO, 2019 – latest data available).

Laos has suffered a trade deficit for many years, but this trend had gradually reduced in recent years due to the steady growth of exports and the completion of infrastructure projects. According to figures from WTO, in 2020 the country exported USD 6.1 billion worth of goods (+5.3% y-o-y) and USD 346 million of commercial services (-72.1%), importing USD 5.3 billion (-14.4%) and USD 444 million (-64.2%), respectively, thus resulting in a positive trade balance for merchandise (reversing the usual trend) and in a negative one for services. Preliminary figures from Lao Trade Portal show that the country recorded a trade deficit of USD 336 million in the first 11 months of 2021, with exports at USD 4.9 billion and imports at USD 5.24 billion.

 
Foreign Trade Values 20162017201820192020
Imports of Goods (million USD) 4,7205,6676,3156,2725,370
Exports of Goods (million USD) 3,0204,8735,4085,8066,115
Imports of Services (million USD) n/a1,1401,2421,241444
Exports of Services (million USD) n/a8789851,178346

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20152016201720182019
Foreign Trade (in % of GDP) 85.875.1n/an/an/a
Trade Balance (million USD) -2,022-1,128-794-907-466
Trade Balance (Including Service) (million USD) -2,256-1,315-1,130-1,171-533
Imports of Goods and Services (Annual % Change) 4.04.6n/an/an/a
Exports of Goods and Services (Annual % Change) 6.710.5n/an/an/a
Imports of Goods and Services (in % of GDP) 51.841.9n/an/an/a
Exports of Goods and Services (in % of GDP) 34.033.2n/an/an/a

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20212022 (e)2023 (e)2024 (e)2025 (e)
Volume of exports of goods and services (Annual % change) -12.16.74.82.96.7
Volume of imports of goods and services (Annual % change) 9.87.02.46.86.4

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Member of ASEAN (Association of South-East Asian Nations), AFTA and the ASEAN - China Free Trade Area.

 

Member of International finance corporation

Member of EAS (East Asia Summit)

 
 

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