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%). In 2021 and 2022, the recovery was constrained by skyrocketing prices (consumer price inflation’s annual growth reached 30% in August 2022, marking a 20-year high) and supply bottlenecks, with GDP growth hovering around 2.2%. As a robust demand for electricity and copper should drive exports, the IMF expects Laos’ economy to accelerate to 3.1% in 2023 and 3.7% the following year.

The country’s public finances are somehow fragile, and the debt-to-GDP ratio went up to 107.1% in 2022, from 93.5% one year earlier and 61.6% before the pandemic (IMF). Almost half the debt is held by China, which has taken part in the country’s major investment projects, and is mostly denominated in USD, increasing the value of debt service due to the depreciation of the local currency. According to Coface, foreign currency public debt service (interest and principal) over the 2022-2026 period should average USD 1.3 billion annually, which was the amount of the country’s total foreign reserves in end-June 2022. Therefore, national authorities have been negotiating the postponement of debt payments with some creditors, enabling Laos to relax its borrowing plans. According to government figures from December 2022, the 2022 budget deficit was expected to shrink to 979 billion kips (0.51% of GDP). Meanwhile, revenues amounted to more than 1,981 billion kips, exceeding the target figure for 2022 by 6.27%. The average inflation rate spiked to 15% in 2022 amid high energy and food prices and is expected to decrease only marginally in 2023 (to 9%) before it returns around its pre-pandemic level in 2024 (4% - 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 live 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 3.6% of the total labour force in 2021 (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. The country’s GDP per capita (PPP) was estimated at USD 9,166 in 2022 by the IMF.

Foreign Trade

Laos is not too open to foreign trade, which represents 36.4% of its GDP (WTO, 2018-2022 average). Although the country is implementing a process to open its economy, the state maintains restrictions on the import of certain goods such as chemical products and some types of medication. Timber and weapons cannot be exported, and 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. According to figures from ITC, Laos’ main exports by value are mineral fuels and oils (27.4%), pearls (10.9%), ores, slag and ash (10.5%), paper (8.8%), and vegetables (5.2%); whereas imports are led by mineral fuels (12%), electrical machinery (9.1%), vehicles (8.7%), pearls (8.7%), and live animals (7.3% - data 2021). Nevertheless, these statistics do not take into consideration the country’s main export, electrical energy: according to official governmental figures, Laos earned more than USD 1.76 billion from electricity export in 2022, up 7.5% from the previous year.

The country's most important trading partners are Thailand (35.6%), China (31.1%), Vietnam (11.6%), Australia (5.8%), and Cambodia (2.1%), with imports following a similar path: Thailand (41.4%), China (24.3%), Vietnam (14.5%), the U.S. (3.8%), and Switzerland (3.7% - ITC, 2021 – latest data available).

Laos has suffered a trade deficit for many years, but this trend had gradually reduced recently due to the steady growth of exports and the completion of infrastructure projects. According to figures from WTO, in 2021 the country exported USD 7.7 billion worth of goods (+25.8% y-o-y) and USD 125 million of commercial services (-63.8%), importing USD 6.2 billion (+16.8%) and USD 252 million (-43.2%), respectively, thus resulting in a positive trade balance for merchandise (reversing the usual trend) and in a negative one for services. Preliminary figures from the Lao Trade Portal show that the country’s export value was estimated at USD 8.19 billion in 2022, as imports were logged at USD 6.80 billion, resulting in a positive trade balance of USD 1.39 billion.