Press Release No. 25/380

Washington, DC: An International Monetary Fund (IMF) team led by Ms. Angana Banerji conducted discussions on the Lao PDR’s economy for the 2025 Article IV Consultation during November 5-19, 2025. At the end of the mission, Ms. Banerji issued the following statement:

“Favorable external developments and strong policy actions have contributed to macroeconomic and exchange rate stability and rapid disinflation. Growth is projected to remain robust at 4.5 percent in 2025−2026, supported by strong exports, tourism, foreign direct investment (FDI), and an expansionary fiscal stance in 2026. Headline inflation is projected to rise gradually in 2026, driven by planned fiscal support and further electricity tariff increases. The current account surplus is expected to narrow from its 2025 peak, though external balances should remain stable, supported by stable FDI inflows. Nonetheless, underlying vulnerabilities—including low international reserves and high public and private external debt—warrant continued efforts to build economic resilience.

“Risks remain tilted to the downside in the near term, stemming from global and domestic factors such as escalating geopolitical tensions, commodity and global financial market volatility, premature policy easing, and natural disasters. Weak profitability and capital buffers in key segments of the banking system leave it vulnerable to adverse shocks. However, ongoing regional integration, if well implemented, poses upside risks for growth and external balances in the medium term.

“Policy discussions focused on measures to support the government’s growth ambition, given elevated global uncertainties, domestic policy and capacity constraints, limited buffers, high import dependence, and significant exposure to external shocks.

“Monetary policy should remain on hold with a tightening bias, as monetary conditions are still accommodative and inflation risks persist. With inflation projected to rise, maintaining the policy rate while advancing liquidity management reforms would help raise real interest rates and ensure that monetary conditions remain tight.

“Allowing the exchange rate to act as a shock absorber, while building reserves when feasible, would strengthen resilience given high external debt, import dependence, and vulnerability to external shocks. Faster progress is needed to diversify export products and markets and boost tourism through better connectivity and by easing entry requirements. Improving external and debt statistics, including state-owned enterprise (SOE) debt, is vital for effective FX and debt management.

“The draft 2026 state budget signals a marked easing of the fiscal stance due to higher wages and capital outlays. A more modest fiscal relaxation—supported by concrete plans to strengthen revenue collection—would be preferable to create space for additional priority social and infrastructure spending. While revenues remain robust, additional revenue measures are needed, including a strengthened large taxpayers office, reductions in corporate tax gaps, rules-based tax incentives, and taxation of emerging sectors. Continued progress in debt management, transparency in asset sales, and public financial management, including an upgraded public-private partnership framework, remains essential.

“It is also important to safeguard financial stability by closely monitoring liquidity and solvency conditions based on sound financial sector data and stress-testing frameworks. Continued efforts to strengthen supervision, bank capital and liquidity positions, and prudential frameworks will further support financial sector resilience. Progress in improving SOE balance sheets would also help reduce credit risks over time.

“Lao PDR can enhance its medium-term growth potential by addressing structural challenges in governance, human development, and the business environment. Enhancing transparency, inter-agency coordination, data quality, and public access to information would strengthen accountability and policy making. Continued efforts to upgrade and streamline regulations and reinforce anti-corruption frameworks are important to boost productivity. Deepening SOE reforms through improved operational efficiency, stronger oversight, disclosure, and modernized regulatory frameworks remain essential to reducing fiscal risks.

“The IMF team met with officials from the Bank of the Lao PDR, government ministries, other public agencies, as well as representatives of the private sector and development partners. The team would like to thank the authorities and other interlocutors for the productive discussions and their exceptional hospitality,”