Mission Concluding Statement 

Vientiane, Lao PDR: Supported by favorable external conditions, strong policy actions taken by the Bank of Lao PDR (BOL) and Ministry of Finance (MOF) since 2024H2 have stabilized the economy and exchange rate (ER). Growth is expected to remain robust in 2025−26 driven by stronger electricity exports, tourism, FDI, and a large fiscal relaxation in 2026 after multiple years of rising fiscal surpluses. This easing is expected to rekindle inflationary pressures in the near term. The medium-term outlook is for moderate growth due to labor emigration and low productivity, while deteriorating external balances could boost inflation. Near-term risks are tilted on the downside. Underlying vulnerabilities, stemming from low gross international reserves (GIR) and high public and private external debt, persist.

Policies should continue to focus on strengthening economic and financial resilience and restoring debt sustainability, while navigating global shocks and supporting the government’s ambitious growth targets. To this end, it would be appropriate to tighten monetary policy to anchor inflation expectations and allow greater ER flexibility to absorb shocks while continuing to build GIR to boost external resilience. Maintaining a strong primary budget surplus based on higher revenues and a credible medium-term debt and financing strategy would create space for priority spending and improve debt dynamics. Ambitious yet feasible structural reforms to strengthen the business environment, human capital, and governance can help raise potential output closer to the government’s’ target. Improved oversight of bank and state-owned enterprise (SOE) balance sheets is vital for economic and financial resilience.

CONTEXT: A WELCOME COURSE CORRECTION

Favorable external developments and decisive domestic policy actions have stabilized economic conditions and the ER. GDP growth has been robust in 2024−2025Q3, driven by strong electricity exports, tourism, and continued FDI inflows. Favorable terms of trade (TOT), underpinned by higher metal prices and lower fuel costs, together with ad hoc Chinese debt service deferrals and stronger-than-expected growth in key trading, tourism, and investment partners (China, Thailand, and Vietnam), strengthened the balance of payments, boosting GIR from US$1.7 billion at end-2024 to US$2.3 billion (2.4 months of imports) at end-September 2025. Domestically, monetary conditions have been tightened due to the creation of a Treasury Single Account (TSA) at BOL, improved monetary operations, and a large fiscal surplus in 2025Q1-Q3. Inflation has fallen sharply—from 26 percent in mid-2024 to 4 percent in October 2025. Strong growth, a real effective exchange rate (REER) appreciation, and debt repayments reduced public debt (82 percent of GDP at end-2025).

Nevertheless, significant economic vulnerabilities remain, reflected in a negative net international investment position (NIIP) and GIR, though improved, but still below desirable benchmarks. Public debt, though declining as a percent of GDP, remains high, with constrained access to international markets, and continued reliance on domestic bond issuance at below-market rates to contain borrowing costs. Contingent liabilities from SOEs and the banking sector remain sizeable. Although moderating, dollarization remains pervasive, and despite some improvement, the still-concentrated commodity-oriented export base leaves the economy exposed to external shocks. Low profitability and capital buffers in important segments of the banking system leave it vulnerable to adverse shocks. Governance challenges persist.

 

OUTLOOK AND RISKS: WEATHERING GLOBAL SHOCKS

The near-term outlook is robust.[1] Growth in 2025−26 is projected at 4.5 percent. Increased electricity production due to new projects coming onstream is likely to support exports despite the drag from slower growth in Lao PDR’s main partner countries due to the full-year impact of U.S. tariffs. Moreover, the significant increase in minimum wages and relaxation of the fiscal stance in 2026 is expected to boost domestic demand by increasing disposable incomes. Although the current account surplus (CAS) is projected to shrink in 2026 from record highs in 2025,[2] overall external balances are likely to remain stable, supported by stable FDI inflows for ongoing power and construction projects. While continued monetary reforms and stable external balances should support further disinflation, inflation is expected to rise gradually over the course of 2026 due to the planned large fiscal impulse and further electricity tariff increases in the pipeline. Nevertheless, average inflation in 2026 is expected to decline.   

Under unchanged policies, the medium-term outlook is subdued. Growth is expected to moderate due to continued labor shortages and low productivity growth. Despite broadly stable exports, external balances are expected to weaken due to rising net income outflows, reflecting the negative NIIP and strong imports related to robust FDI and a gradual fiscal relaxation, thereby raising inflation. Moreover, assuming an unchanged monetary policy rate, a decline in real interest rates would induce capital outflows in time, adding to external pressures and contributing to a decline in GIR to around 2.1 months of imports in 2030. The expected continuation of primary budget surpluses of around 2½–3 percent of GDP would help reduce public debt to GDP over the medium-term to around 58 percent of GDP. Most debt burden indicators are, however, expected to remain well above indicative thresholds and, therefore, public debt continues to be assessed as unsustainable.

The outlook is subject to significant uncertainty due to the evolving external environment, domestic policy uncertainty, ongoing debt negotiations, and data gaps. Notably, concrete tax policy and revenue administration reforms are unclear, and detailed information on ongoing major FDI projects remains limited. The forthcoming GDP and CPI rebasing will also affect assessments by clarifying major structural shifts in the economy since 2015.   

Near-term risks to the outlook are on the downside. Global risks stem from geopolitical tensions; escalating trade measures and prolonged policy uncertainty; commodity price volatility; and tighter global financial conditions. Domestic risks include unexpected private sector outflows, potential policy reversals, and natural disasters. Banking sector stress could arise in the event downside risks were to materialize.

Upside risks to the medium-term outlook stem from ongoing efforts to deepen regional integration. If well implemented, initiatives underway to upgrade connectivity, logistics and facilitate digital transactions, especially within the ASEAN, could substantially bolster growth and external balances.

 

POLICIES TO ACHIEVE UPPER MIDDLE-INCOME STATUS SUSTAINABLY

The draft 10^th National Socio-Economic Development Plan (NSEDP) focuses on the right policy priorities, notably macroeconomic stability, public finances, debt management, governance, and human capital development. Given elevated global uncertainties, domestic policy and capacity constraints, limited buffers, high import dependence, and large exposure to external shocks, a premature easing of fiscal and monetary policies would be counterproductive. Instead, a strenghthened monetary policy framework focused on maintaining price stability, an improved composition of fiscal policy, combined with accelerating fiscal, structural, financial sector and SOE reforms would not only boost macroeconomic stability, resilience and debt sustainability, but also help Lao PDR move toward upper-middle income status in a sustainable manner.

Monetary Policy Priority: Maintaining Low Inflation

Monetary policy should be tightened, as monetary conditions (reflected in positive output and credit gaps and ER premiums) remain somewhat accommodative and given upside risks to inflation persist due to large external and domestic risks and an expansionary fiscal stance and wage increases in 2026. Moreover, the inflationary impact and passthrough of recently implemented and planned electricity tariff hikes could be larger than expected, given the significant structural changes in the economy since 2015, which the current CPI does not fully capture. In light of these inflationary risks, the lower inflation target range (5 ± 2 percent) set in the 10^th NSEDP, and the need to continue to strengthen the BOL’s credibility in containing inflation, monetary policy should ensure that disinflation is firmly entrenched before further easing the policy rate. Increasing the monetary policy rate—while advancing ongoing structural liquidity management reforms—would help close positive output and credit gaps and keep inflation expectations anchored. The planned 2026 CPI rebasing and 2026Q1 survey of inflation expectations are sound steps to improve the BOL’s ability to assess inflation dynamics and inform its monetary policy decisions.

Continued progress on monetary policy reforms remains essential. Ongoing reforms should stay on course, notably to complete the TSA implementation, introduce liquidity-supply instruments, and develop an interest rate corridor.

External Sector Policy Priority: Building Resilience

Continuing to allow the ER to respond flexibly to market conditions, while avoiding excessive volatility and continuing to boost GIR opportunistically, would strengthen resilience to external shocks given the large external debt and import dependence. If the BOL were to use gold to boost GIR, it is important to ensure that it has legal title to the gold with requisite purity standards to protect GIR liquidity. Ongoing efforts to diversify away from commodities toward higher-value-added agriculture, manufacturing, and international tourism need to be accelerated, as export diversification across products and markets also improves resilience to external shocks. Improved transportation connectivity, streamlined entry requirements, and a better business environment would help boost the tourism sector.

Improving external and debt statistics and reducing unrecorded trade and capital outflows through improved customs administration and greater SOE debt transparency are urgent priorities. Comprehensive and accurate information on large private sector external liabilities and offtake contracts is vital for effective FX management. The BOL-led cross-agency effort to strengthen external and debt statistics should be strengthened.

Fiscal Policy Priority: Achieving Debt Sustainability While Boosting Growth Potential

After a string of growing primary budget surpluses in 2021−25, the draft 2026 budget envisages a significant relaxation of the fiscal stance. The primary budget surplus is expected to shrink significantly to 3 percent GDP, with an overall deficit of -0.1 percent of GDP. While revenue performance is expected to remain robust, concrete tax or revenue administration plans remain to be articulated. Spending is set to rise markedly, driven by a significant wage bill increase related to a 30 percent rise in civil service base salaries and one-time payments related to the ongoing civil service restructuring, as well as higher capital outlays. All maturing obligations in 2026 will be met through revenues, asset sales, domestic market borrowing, debt service deferrals, and new international issuances. 

Continuing to maintain strong primary surpluses, while strengthening the quality of fiscal adjustment would support sustainable growth over 2026-30. After years of expenditure restraint, the recent shift toward strengthening revenue mobilization—by increasing VAT rates and significantly stepping up tax administration—is welcome but needs to be accelerated in 2026 to enhance debt-servicing capacity, while creating room to priority spending. Such a rebalancing, underpinned by a sound medium-term financing and debt management strategy would help support growth; reduce fiscal risks; ease financial repression; and help achieve debt sustainability.

• Additional revenue mobilization would entail further strengthening revenue administration and broadening the tax base. Since revenue administration measures yield gains over time, tax increases may be needed to improve the budget balance in 2026 and to achieve the NSEDP revenue target of 20 percent of GDP by 2030. Policy priorities include: strengthening a centralized Large Taxpayers Office to boost tax collection capacity; closing large corporate tax gaps due to concessional agreements, while establishing a rules-based and transparent tax incentive regime and publishing annual tax expenditure reports; taxing emerging sectors (e.g., digital services); introducing property taxes; and enhancing excise taxes on fuels, tobacco, alcohol. The forthcoming Tax Administration Diagnostic Assessment Tool provides an opportunity to identify priority tax administration reforms. Improved valuation, automation and risk-based inspections are needed, particularly in special economic zones, to strengthen customs administration.
• Civil service wage increases were long overdue to reverse the significant wage erosion since 2021 and to retain skilled workers. However, deeper civil service and regulatory reforms are also needed to improve the productivity of public administration, e.g., through skills-based hiring, promotion and retention decisions, streamlined regulatory procedures to expedite decisions, and strengthened data and interagency coordination to improve policy management. Absent accompanying reforms, a large wage increase alone may be inflationary, while reducing the scope to adequately boost spending on education, health, and social safety nets, and productive infrastructure, including maintenance,[3] which are necessary for strengthening long-term growth potential. MOF should be provided full visibility on the planned civil service restructuring to underpin sound fiscal policy management. Aligning the wage bill to domestic revenue is a procyclical rule that is worth revisiting.

Improving debt management and accelerating fiscal structural reforms remain priorities. The priorities for strengthening debt and fiscal risk management are: (i) greater transparency in debt reporting, including oversight of SOE balance sheets and non-guaranteed debt; (ii) full disclosure of asset sales, investment contracts, concessional agreements, and debt agreements; (iii) public financial management reforms—including establishing a sound public-private partnership framework—to strengthen project selection, expenditure control, and oversight, with a central role for the MOF in the decision-making process to limit fiscal risks. The TSA and the planned adoption of a new Chart of Accounts for the 2027 budget are key steps toward improving cash management.

Financial Sector Priority: Ensuring Financial Stability

The banking sector is vulnerable to liquidity, FX, and credit risks, based on internationally accepted metrics. Underlying weaknesses remain obscured by data limitations, continued regulatory forbearance (being gradually terminated), and regulatory limits on NPLs. Low profitability and inadequate capital buffers in some banks leave them vulnerable to external and economic shocks and the transition to IFRS in 2026. Liquidity pressures are intensifying amidst slowing deposit growth, high Kip loan-to-deposit ratios, and transfers of government deposits to the TSA.

Supervisors are encouraged to closely monitor liquidity and solvency conditions based on sound financial sector data and stress-testing frameworks to mitigate financial sector risks. It is critical to accelerate the implementation of new capital and liquidity requirements, existing regulations on bank capitalization, and develop strategies to address undercapitalized banks. Regulatory limits on NPLs need to be eliminated to reduce moral hazard, with adequate NPL provisioning and sound NPL resolution, while loan forbearance needs to be fully terminated as planned. Strengthening SOE balance sheets would help reduce bank credit risk. The forthcoming Financial Sector Stability Review (FSSR) provides an opportunity to develop a well-sequenced reform roadmap to strengthen financial stability.

Structural Reform Priority: Boosting Potential to Achieve Upper-Middle Income Status

Substantial output gains—exceeding 4 percent of GDP over the medium term—are achievable if reforms could close even 5-10 percent of structural gaps in governance, external sector openness, business regulations, and human development. There is significant scope for Lao PDR to align its structural policies with upper-middle income countries (UMIC), its aspirational peers. Structural gaps relative to UMICs are particularly large in governance, business regulation, and human development. The bulk of potential growth dividends would stem from improving human development followed by measures to strengthen governance. The latter would not only bolster productivity and growth but also lay the foundation for sustained improvements in policies. While steps have been taken to streamline bureaucracy and enhance accountability through institutional restructuring and new legal frameworks, there is ample scope for further reforms to improve transparency and accountability through strengthened enforcement, inter-agency coordination, and public access to information. Priorities include: strengthening the independence and capacity of anti-corruption agencies, publishing audit and procurement results, digitalizing government processes, upgrading and further streamlining regulations, improving data quality, coverage and transparency, and the effectiveness of the AML/CFT framework.

Deepening SOE reforms would enhance operational efficiency, particularly in the electricity sector. Stronger SOE oversight is needed through enhanced monitoring and transparency, including the regular publication of audited financial statements, complemented by modernizing regulatory and institutional frameworks. Reforms at the indebted Électricité du Laos should continue to improve operational efficiency, strengthen electricity transmission and distribution, and restore financial viability through gradual tariff adjustment to cover costs.

An IMF staff team visited Vientiane to conduct Article IV consultation discussions with the Lao PDR authorities during November 5−19, 2025. The IMF staff team would like to thank the Laotian authorities for frank and constructive discussions and their warm hospitality.

 

 

Table 1. Lao P.D.R.: Selected Economic and Financial Indicators, 2021–30

	2021	2022	2023	2024	2025		2026	2027	2028	2029	2030
				Est.	H1 Est.	Proj.	Proj.	Proj.	Proj.	Proj.	Proj.
Output and prices	(Percentage change, unless otherwise indicated)
Nominal GDP (in billions of kip)	180751	217350	280844	342976	185063	385594	430367	471292	513939	559769	619137
Real GDP, with contributions from 1/	2.1	2.3	3.7	4.3	4.7	4.5	4.5	4.0	3.5	3.0	3.0
Domestic public demand	-4.1	-2.6	1.4	-3.3		1.3	3.0	-0.9	0.7	0.7	0.8
Domestic private demand	-5.0	-0.2	-8.7	4.9		0.5	3.0	2.9	2.5	2.1	2.0
Net exports	11.1	5.1	11.0	2.7		2.6	-1.5	2.0	0.3	0.2	0.2
Consumer prices (annual average) 2/	3.8	23.0	31.2	23.1	10.9	7.7	6.9	5.2	5.4	5.7	7.4
Consumer prices (end-period) 2/	5.3	39.3	24.4	16.9	7.2	4.8	9.0	4.8	5.4	6.0	8.6
GDP deflator	4.8	25.1	24.7	17.1	11.8	7.6	6.8	5.3	5.4	5.7	7.4
Public finances	(In percent of GDP, unless otherwise indicated)
Revenue and Grants	15.0	14.8	16.4	18.0	9.4	19.6	19.1	18.9	19.0	19.0	18.9
Tax revenue	10.3	11.4	12.3	14.2	8.2	15.9	15.8	15.7	15.8	15.8	15.8
Non-tax revenue	2.7	2.5	2.3	2.9	1.2	2.3	2.1	2.1	2.1	2.1	2.1
Expenditure	15.7	14.7	16.4	15.7	6.3	17.9	19.2	17.6	17.8	17.8	17.8
Current Expenditure	11.0	10.4	11.1	11.4	5.1	13.0	13.8	12.2	12.3	12.3	12.3
of which: interest payment	1.2	1.8	0.9	3.7	0.7	3.6	3.1	1.9	1.9	1.8	1.7
Net acquisition of nonfinancial assets	4.7	4.3	5.3	4.3	1.7	4.9	5.4	5.4	5.5	5.5	5.5
Overall balance	-0.7	0.1	-0.0	2.3	3.1	1.7	-0.1	1.3	1.3	1.2	1.1
Primary balance	0.5	1.8	0.9	6.0	3.8	5.3	3.0	3.2	3.2	3.0	2.8
Money and credit	(Percentage change, unless otherwise indicated)
Reserve money	23.2	27.2	13.7	-2.2	-1.4	4.7	5.3	5.4	5.7	6.2	6.2
Broad money	24.0	36.9	33.3	17.8	12.4	11.7	10.8	9.7	9.2	10.3	11.0
Credit to the economy	11.5	45.6	27.8	19.0	11.8	7.7	7.6	7.0	6.9	7.9	8.6
Balance of payments	(In percent of GDP, unless otherwise indicated)
Current account balance	2.3	-3.0	2.7	3.3	6.4	5.7	1.7	0.6	0.0	-0.7	-1.1
of which: trade balance	7.7	6.3	4.8	4.5	6.3	7.4	4.7	4.5	4.3	4.0	4.0
Exports, f.o.b.	41.5	54.2	55.8	59.0	36.4	65.7	61.4	60.1	58.9	58.0	57.4
Imports, c.i.f.	33.9	47.9	51.0	54.5	30.1	58.3	56.7	55.6	54.6	54.0	53.4
Capital and Financial account balance	-0.9	4.7	2.6	0.8	-1.5	-0.9	-0.5	0.5	0.2	0.3	0.2
Gross official reserves (in millions of U.S. dollars) 3/	1245.0	990.5	1182.5	1606.9	2142.9	2435.8	2650.3	2865.2	2890.0	2804.6	2611.1
In months of prospective imports of goods and services	1.9	1.4	1.4	1.7	2.2	2.5	2.6	2.7	2.6	2.4	2.1
Memorandum items:
Total debt	175.9	216.2	211.5	197.0		183.5	176.5	169.6	163.5	158.5	153.5
Public and public guaranteed debt 4/	92.2	115.7	108.8	94.0		82.5	77.2	70.9	65.7	61.3	57.6
Domestic	12.6	11.8	12.4	9.0		7.1	5.4	4.2	3.4	2.7	2.0
External	79.6	103.9	96.4	85.0		75.4	71.8	66.7	62.3	58.6	55.6
Private debt	83.7	100.4	102.8	103.0		100.9	99.4	98.7	97.8	97.2	95.9
Domestic 5/	44.2	54.0	53.6	54.0		52.1	50.5	49.5	48.5	48.1	47.3
External	39.5	46.5	49.2	49.0		48.8	48.8	49.2	49.3	49.1	48.6
Official exchange rate (kip per U.S. dollar; end-of-period)	11166	17238	20480	21757	21535	…	…	…	…	…	…
percentage change, y/y	20.3	54.4	18.8	6.2	-2.4	…	…	…	…	…	…
Real GDP growth (published by authorities) 6/	3.5	4.4	4.2	4.6	4.7	…	…	…	…	…	…
Sources: Data provided by the Lao P.D.R. authorities; and IMF staff estimates and projections.
1/ Due to concerns about data quality, the 2019–23 GDP numbers are staff estimates using leading indicators such as electricity and mining productions, harvest volumes in major crops, export of goods and services, and tourism revenues. GDP by expenditure components are staff estimates due to lack of official statistics. Base year for real GDP is 2012. Under unchanged policies, medium-term growth is projected to decline due to slower labor force and productivity growth due to outward skilled labor migration, and slower capital accumulation due to weaker FDI and investment reflecting persistent economic uncertainty due to tariffs and moderating credit growth. Relative to April 2025 WEO vintage, medium-term growth is revised up as a result of lower inflation, stronger external position, and better public debt dynamics.
2/ Base year of CPI basket is 2015.
3/ Includes drawings on the swap agreement with the People’s Bank of China (PBoC) of US$400 million in 2020, and the Special Drawing Right (SDR) allocations of SDR 41.3 million in 2009 and SDR 101.4 million in 2021.
4/ Includes publicly-guaranteed debt in the stock of external debt for which data was missing prior to 2020, and drawings on the swap agreement with the People’s Bank of China (PBoC) of US$400 million in 2020.
5/ Estimated based on commercial banks' credit to the private sector.
6/ Lao Statistics Bureau (LSB) data.

 

[1] The projections are based on current policies and the IMF’s October 2025 World Economic Outlook (WEO) global assumptions. Given the strong ownership of monetary operations framework reforms, the projections assume no new central bank fiscal or quasi-fiscal financing; continued transition of government deposits from commercial banks to the BOL; and unchanged reserve requirements and policy rate. Fiscal forecasts incorporate the draft 2026 budget and continued financial repression. External forecasts assume persistent effects of U.S. tariffs. On Chinese debt, assumptions include: debt deferrals during 2024−25, repayment of US$250 million in 2026; the repayment of past deferred debt over 2026−40; and the financing of Chinese debt repayments through “unidentified financing” from 2026 onward. Debt statistics and external sector forecasts do not fully include offtake contracts.

[2] The external position at end-2025 is assessed as moderately weaker than the level implied by fundamentals and desirable policies.

[3] The cost of fully implementing the 10th NSEDP is estimated at 100-106 percent of 2025 GDP over 2026–2030, based on sectoral costing of infrastructure, human capital, climate resilience, agriculture, and governance priorities.