ADB Forecasts 4% Growth for Lao PDR in 2024

VIENTIANE, LAO PEOPLE’S DEMOCRATIC REPUBLIC (25 September 2024) — Services and clean energy investments are supporting growth in the Lao People’s Democratic Republic (Lao PDR), but macroeconomic challenges from public debt continue to constrain investment prospects and domestic consumption, according to the latest Asian Development Bank (ADB) report.

The Asian Development Outlook (ADO) September 2024 forecast growth for the Lao PDR to be 4.0% in 2024 while the forecast for 2025 was revised down to 3.7%, from the 4.0% projected in ADB’s ADO April 2024 report. Inflation is forecast to rise to an average of 25% in 2024 and 21.5% in 2025, due to price adjustments linked with kip depreciation. 

“International tourist arrivals are now close to the pre-pandemic levels, with the ASEAN Chairmanship and Visit Laos Year 2024 having boosted tourism,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “Risks to the outlook center on debt distress, which requires coordinated, transparent, and sustainable public financial management.”

Despite the Bank of Lao PDR increasing its 1-week interest rate from 8.5% in February to 10.5% in August and tightening foreign exchange management, the kip has continued to depreciate. With debt service payments due in Thai baht, the kip depreciated by 6.1% against the baht from January to August, and by 7.5% against the US dollar.

Inflation was 24.3% year-on-year in August, with the 8-month average in 2024 at 25.3%. Shortages of skilled labor due to out-migration added pressure to domestic prices and wages. Businesses passed on these increased prices and wages to consumers, further fueling inflationary expectations.

Public debt remains at critical levels. While public and publicly guaranteed debt declined from $13.9 billion in 2022 to $13.8 billion in 2023, or from 112% to 108% of gross domestic product, the ratio of external debt service to total government revenue jumped from 27% to 43%. Limited refinancing options in 2025 amid considerable external debt maturities are expected to see public sector reliance for sourcing foreign currency on domestic markets, which will limit private sector recovery and depress household spending.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.