Global economic headwinds, including tighter financial conditions, China’s economic slowdown and regional geopolitical tensions are amplifying Laos’ development challenges as its 2024 ASEAN chairmanship and ‘Visit Laos Year’ comes to an end. While assessments of Laos’ progress on the Sustainable Development Goals (SDGs) show mixed results, mounting public debt and persistent structural vulnerabilities are threatening to undermine hard-won development gains.
The country’s macroeconomic stability faces significant challenges. Public debt escalated to over 125 per cent of GDP in 2023, while foreign exchange reserves remain precariously low. Severe inflation — which peaked at 41 per cent in February 2023 before moderating to around 25 per cent by early 2024 — has likely eroded household purchasing power and living standards. The establishment of a public debt management committee signals growing recognition of these challenges, though the implementation of reforms remains key.
Measuring poverty reduction progress requires careful interpretation of different data sources. The Lao Statistics Bureau’s household consumption surveys show poverty rates declining from 33.5 per cent in 2002 to 2003 to 18.6 per cent in 2018 to 2019. The Ministry of Agriculture and Forestry’s proxy means estimates for 2023 indicate that 16.9 per cent of families remain poor, though these figures are not directly comparable due to their differing methodologies. But the impact of economic growth on poverty reduction has dampened, with a 1 per cent rise in GDP per capita yielding only a 0.84 per cent decrease in poverty.
Cross-country studies suggest that a 1 per cent increase in income reduces poverty by 2.5 per cent on average, but by only 0.6 per cent in the most unequal countries and by as much as 4.3 per cent in the most equal ones. While high inflation may have temporarily weakened this relationship, structural factors like limited economic diversification and high inequality suggests this challenge predates current macroeconomic pressures.
Extreme poverty in Laos has dropped significantly from 25.4 per cent in 2002 to 7.1 per cent in 2018. But this performance lags behind regional peers, with other ASEAN members achieving rates below 5 per cent before the pandemic, largely due to lower inequality.
Income inequality has widened, with the Gini coefficient deteriorating from 36 in 2013 to 38.8 in 2018. The UNDP’s 2023/24 Human Development Report also highlights persistent gender gaps, with Laos ranking 116th out of 166 countries on the Gender Inequality Index despite some improvement in women’s workforce participation.
Health indicators remain concerning, with stunting rates at 33 per cent and under-five mortality at 46 per 1,000 live births — among the highest in ASEAN. Digital connectivity has improved, with internet penetration doubling from 28 per cent in 2015 to 60 per cent in 2022, but significant urban–rural divides persist.
The agricultural sector, employing nearly 70 per cent of the workforce, remains vital yet vulnerable. Self-employed farmers and seasonally unemployed agricultural workers comprise over half the population but account for about three-quarters of those living in poverty. Immediate constraints to economic diversification include an accelerating outflow of skilled workers to Thailand and intense competition from regional imports.
Looking ahead to 2025, several challenges demand attention. Social protection remains severely limited, with investments increasing only modestly from 0.68 per cent of GDP in 2015 to 0.79 per cent in 2022, providing limited coverage for the informally employed majority. New financing approaches are needed, including strengthening tax administration to raise the tax-to-GDP ratio above its current 15 per cent level, developing domestic capital markets and exploring sustainable finance instruments.
While Laos has embedded SDGs into national planning through successive five-year National Socio-Economic Development Plans, preparations for the 10th Plan (2026–2030) highlight the urgency of accelerating progress toward SDG targets, which Laos faces significant challenges in meeting.
Climate change poses an additional threat to development prospects. The country’s high vulnerability to natural disasters, combined with limited adaptive capacity and heavy reliance on climate-sensitive sectors, necessitates urgent action on climate resilience. While hydropower resources offer potential for clean energy development, careful attention must be paid to environmental and social safeguards.
Environmental sustainability is another crucial challenge. While the country must intensify conservation efforts, it needs to balance ecological protection with sustainable livelihood opportunities. Investment in renewable energy, particularly decentralised solutions, along with improvements to energy efficiency could help Laos transition towards cleaner development pathways while maximising socio-economic benefits. The country’s rich natural resources, if managed sustainably, could provide a foundation for green growth initiatives.
Laos’ development trajectory will require careful orchestration of multiple priorities — debt sustainability, climate resilience, economic diversification, quality job creation for its young population and social inclusion. As Laos navigates its development path, disaggregated data will be crucial in monitoring gender equality, disability and social inclusion. Progress towards graduating from Least Developed Country status will require a careful balancing of immediate economic needs with long-term sustainability goals.
Jose Ramon Albert is Senior Research Fellow at the Philippine Institute for Development Studies and Team Leader of an Asian Development Bank-administered statistical capacity building project in Laos on Gender Equality, Disability and Social Inclusion.
Kabmanivanh Phouxay is Professor at the National University of Laos and Deputy Team Leader of an Asian Development Bank-administered statistical capacity building project in Laos on Gender Equality, Disability and Social Inclusion.
