Laos economy stabilises, but high debt remains a key risk

Tourists take photos in front of the Patuxay monument in Vientiane, Laos. (Kaikeo Saiyasane/Xinhua)

On March 6, Laos has made progress in stabilising its economy after a period of severe inflation and currency pressure, according to the International Monetary Fund (IMF). Tighter monetary and fiscal policies introduced in late 2024 helped restore stability, bringing inflation down from over 30% in 2023 to around 7.7% in 2025. Pressure on its currency, Lao kip has also eased.

Economic growth is expected to remain steady at about 4.5% through 2026, supported by electricity exports, a recovery in tourism and continued foreign direct investment. However, the IMF warned that Laos remains vulnerable to external shocks due to high public debt, limited foreign reserves and weaknesses in the financial sector.

Public debt remains the country’s biggest economic challenge. Although it declined from 112% of GDP in 2022 to 80.6% in 2025 following debt restructuring and tighter fiscal policies, it still exceeds sustainable levels. If reforms continue, the IMF projects that public debt could fall to about 57.4% of GDP by 2030. The organisation also called for stronger tax collection, clear debt management strategies and greater oversight of state-owned enterprises, particularly in the electricity sector.

As for its implications for businesses, while improving macroeconomic stability may strengthen investor confidence, firms should remain cautious as high debt levels and limited foreign reserves could expose the economy to renewed currency volatility and fiscal tightening. Companies operating in Laos may face potential policy adjustments, higher taxes or stricter financial oversight as the government works to manage public debt. At the same time, sectors such as energy exports, tourism and infrastructure could see growth opportunities as the economy stabilises. Firms should prioritise prudent financial planning, monitor regulatory developments and diversify markets to mitigate risks in a still fragile economic environment.