Lao PDR Economic Monitor, May 2025 | Weathering Risks

In 2024, the Lao economy grew by 4.1 percent, driven primarily by strong performance in the services sector, followed by electricity generation, mining, agriculture, and some manufacturing. Services expanded by an estimated 5 percent. Foreign tourist arrivals rose by 21 percent alongside increased domestic travel. Improved connectivity, particularly through land transport and railways, further boosted growth in transport and logistics services, supporting exports and tourism. Industry posted moderate growth, driven by higher electricity generation and increased production of electrical equipment. Agriculture remained resilient, supported by strong export demand for non-rice crops and livestock. On the demand side, growth was mainly driven by external demand, which has benefited export-oriented sectors. While domestic private demand remained constrained by weakened purchasing power due to inflation and currency depreciation, these pressures began to ease in the second half of the year amid a more stable exchange rate and slowing inflation. Looking ahead, Laos’ economic growth is projected to soften to 3.5 percent in 2025. Tourism and transport services are expected to grow, albeit more moderately, as the country gradually closes the COVID-19 gap and external demand slows. Oil and food price rises are expected to moderate, but external imbalances resulting from large external financing needs and uncertainty on sustainable foreign currency inflows could reintroduce pressure on the exchange rate and hence on inflation. Amid continued monetary and fiscal tightening, and softened demand-side pressures, inflation should continue to ease but will likely stay in double digits in 2025. Fiscal spending will remain tight despite improved revenue performance, with debt repayments peaking in 2025, elevating financing needs and limiting the room for essential public spending. Revenue collection is projected to strengthen, supported by policies such as the reinstatement of fuel excise rates and improvement in tax administration. However, with rising interest payments, expenditure growth should remain restrained, particularly for public services.