Worldbox Country Risk Climate – February 2025
LAOS
NEW – Technology is an increasingly important driver of economic success, and we are now including a separate Technology sector in our quarterly country risk reports and integrating the core into our overall score.
Summary
| Overall Risk Score 20 (Stable)
Political risk: Stable 7/10 Economic risk: Stable 5/10 Commercial risk: Stable 4/10 Technology risk: Stable 4/10 The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. Each component is scored out of 10 with 1 being the highest risk and 10 the lowest. |
ESG Risk: 4/10 (Stable)*
*Environmental, social and governance (ESG) issues are becoming increasingly important to companies, investors and consumers in Southeast Asia. That is why we are now preparing a separate ESG score and section with our quarterly country risk reports. We explain how each country rates, looking at the E, S and G individually, and outline recent developments. |
Political Risk – Stable at 7
The Lao People’s Democratic Republic, as Laos is officially known, has been a one-party state since its foundation in 1975 at the end of the Indochina war. The only legal party is the Lao People’s Revolutionary Party (LPRP). There is no organized opposition and no truly independent civil society. A 61-member Central Committee of the LPRP, under the leadership of the 11-member Politburo, makes all major decisions. National Assembly elections are held every five years but are not free or fair, while protests are banned.
The LPRP is now facing perhaps the most challenging period since independence. It oversaw strong economic growth after liberalizing the economy in the late 1980s and early 1990s. During the decade up until 2019, the economy grew by an average of 7% per annum and Laotians enjoyed rising living standards and improved access to electricity and healthcare.
However, the Covid-19 pandemic exposed the country’s economic vulnerabilities. Economic growth fell sharply and inflation surged as the currency depreciated significantly. Many Laotians left the country, while millions more suffered extreme hardship. This background would prove a severe threat to many governments, but in Laos there is no credible alternative to the LPRP, which is why Worldbox Intelligence believes the country will remain stable.
Economic Risk – Stable at 5
Despite rapid economic growth over much of the past two decades, Laos remains one of the poorest countries in the world. About two-thirds of the population live in rural areas, with many working in agriculture. Yet agriculture contributes only 15% to GDP. Therefore, earnings and farm incomes remain low, and many Laotians lack access to enough safe and nutritious food to meet their dietary needs, according to the World Bank.
Laos was also badly affected by Covid-19. The pandemic severely impacted micro, small and medium enterprises (which make up the vast majority of firms) and businesses owned by women. The tourism and handicrafts sectors were among the worst-affected areas. Meanwhile, the Ukraine war resulted in a surge in inflation that hit the poorest sections of society hardest.
One of the main problems facing Laos is that high levels of public spending drove high growth before 2018, but at the cost of high public debt. The pandemic-induced downturn accentuated debt sustainability concerns. The exchange rate depreciated by 140% from January 2021 to September 2024, fuelling inflation and inflating the domestic-currency value of public debt, according to the IMF.
After reaching a record high of 131% of GDP in 2022, public and publicly guaranteed debt decreased to 116% in 2023, mainly reflecting rapid expansion of nominal GDP due to high domestic inflation. More than 80% of debt is external and denominated in foreign currency, leaving Laos highly exposed to movements in the dollar. Much of the debt is owed to China, which has granted debt-servicing deferrals since 2020; in 2023, these amounted to US$770 million (about 5% of GDP), says the IMF, in its latest Article IV consultation, released in November 2024.
The organization argues that the Laos economy remains in the doldrums and reliant on Chinese largesse. It says that Laos’ current financial plan “critically relies on the continued extension of debt relief from China and, to a smaller extent proceeds from an asset sale” to a Thai renewable-energy company, Energy Absolute Public Company Limited (EA).
However, the IMF points out that the Thai Securities Exchange has accused the CEO and deputy CEO of EA of fraud, and has suspended trading in the company. As a result, the IMF “does not assume” the share sale will go through, leading to a 2% shortfall in GDP.
The IMF report highlighted significant uncertainties affecting the economic outlook, including labour emigration, a decline in investment should exchange-rate pressures exacerbate, increased pressure on the banking sector from deteriorating asset quality, and a continuing currency mismatch.
Commercial Risk – Stable at 4
Corruption is a significant challenge. Laos ranks 136th out of 180 countries in Transparency International’s (TI) 2022 Corruption Perceptions Index, moving down ten positions from its 2021 score. Laos is considered to be the third most corrupt country in the ASEAN region, ahead of Myanmar and Cambodia.
The US State Department’s mid-2024 Investment Climate Statement reports that Laos’ government is increasingly tying its fortunes to the economic integration of ASEAN and export-led development, and has prioritized the digital economy, logistics, green growth, and more sustainable development, in addition to continuing to develop agriculture and resource extraction.
The report adds that corruption, policy and regulatory ambiguity, and the uneven application of laws are disincentives to further foreign investment. The multiple ministries, laws and regulations affecting foreign investment in Laos create confusion and require potential investors to engage either local partners or law firms to navigate an opaque and cumbersome bureaucracy.
However, the report notes that the government’s efforts have borne fruit, citing the streamlining of application processes that means it now takes less than 17 days to obtain a business licence, compared with 174 days on average a few years ago.
NEW
Technology risk – Stable at 4
The Global Innovation Index (GII), from the World Intellectual Property Organization, is an important index used by countries and multinational companies to assess innovation ecosystems and aid in policymaking and investment decisions.
Laos ranked 111th out of 133 countries in the 2024 GII – moving up from 113th place in 2020.
Government policies
The government is keen to drive the digitization of the economy and society. However, despite investments in digital infrastructure, Laos lags in digital adoption compared with the rest of East and Southeast Asia. Around 62% of the population had access to the internet in 2023, up from 43% in 2020, while 85% of the population are now mobile-phone users.
The Ministry of Education and Sports (MoES), in partnership with UNICEF and the European Union, has an ambitious digital transformation strategy that includes digital access, digital skills, digital learning, digital information and online safety. The strategy focuses on providing high-quality, accessible educational content in both digital and offline formats. This approach is particularly significant in remote areas, where internet connectivity remains a challenge.
Digitization is also being used to increase financial inclusion. Around 70% of the population of just over 7 million do not have a bank account, and the government is focusing on fintech solutions such as mobile payments and cross-border systems to boost financial inclusion and economic growth. In 2023, it introduced a digital kip, which allows people to pay or transfer money through a QR code regardless of whether they have a bank account.
Infrastructure
Much of Vientiane can access 5G and load Telecom has plans to extend that network nationwide. 4G and 3G coverage extends to all major population centres as well as many towns and villages along highways, but coverage in rural and mountainous areas remains patchy.
Average mobile internet speeds in Laos have improved substantially in recent years, thanks to the adoption of newer network technologies such as 4G. According to data from Ookla’s Speedtest Global Index, Laos ranks 86th globally for average mobile internet speeds.
Education and skilled staff
According to UNICEF, Laos still has some of the poorest education indicators in Southeast Asia. Approximately 70% of 5-year-old children are not enrolled in Early Childhood Education programmes, with those in hard-to-reach areas and from poor families being the most excluded. Many of them do not speak the Lao language, which is the official language of instruction. Moreover, only 81.9% of enrolled children complete primary education, and, according to UNICEF, learning outcomes are low, leaving children without essential knowledge and skills. Meanwhile, thousands of students drop out of higher education, vocational education and teacher training, according to the MoES. In many cases, this is due to financial hardship.
Unsurprisingly, against this background, Lao employers report that they cannot find the skilled workers they need to grow their businesses. Information and communication technology is among the worst-affected sectors. The shortages are being exacerbated by the country’s economic problems, which are motivating the most skilled staff to move abroad.
February Bulletin
Political Risk – Stable at 7
New leaders could emerge at the ruling Communist Party’s next National Congress, to be held in January 2026, according to a commentary on Radio Free Asia. The report added that Thongloun Sisoulith, who has served as both prime minister and party chief, is likely to step down. His probable successor as party chief is Saysomphone Phomvihane, the current National Assembly chair and a member of the influential Phomvihane family.
The report added that Sommath Pholsena, one of the five deputy chairs of the National Assembly, is expected to succeed Saysomphone in parliament. Sommath, of Chinese descent, is the son of Quinim Pholsena, who served as foreign minister in the 1960s.
Economic Risk – Stable at 5
The Lao Economic Monitor, published by the World Bank in October 2024. forecast growth of 4.1% in 2024 and 3.7% in 2025. The Monitor added that continued growth in services, electricity and mining, agriculture, and the manufacture of selected electrical and electronic equipment supported economic activity in 2024. By contrast, a further depreciation of the kip and high inflation are eroding purchasing power, weighing on private consumption and pushing up costs for businesses.
The Monitor also said that labour-intensive businesses had reported staff shortages as Lao workers shift towards self-employment and migrate abroad in search of better-paid jobs in response to economic difficulties at home.
From January to September 2024, the official kip rate weakened by 19% against the US dollar and by 24% against the Thai baht, while parallel market rates weakened by 28% and 23% respectively. Given Laos’ dependence on imports for many consumer goods, a weaker kip means higher consumer price inflation, which averaged 25% during the same period, according to the Monitor.
Inflation tends to track the kip/dollar parallel exchange rate, as markets base prices for goods and services on the parallel rate, with a mark-up to cover exchange-rate risk. The impact of currency depreciation on private consumption is therefore significant. When the kip depreciates by 1% in the parallel exchange-rate market, private consumption is estimated to decline by 0.6%, eroding both household welfare and domestic demand, adds the Monitor.
Headline inflation averaged 31% in 2023 and remains high, with food, transport, hotel and restaurant price increases the main contributors. In June, the central bank raised interest rates for the fifth time in two years, in a bid to contain inflation and the continued weakening of the kip. The interest rate for short-term loans increased from 8.5% to 10%.
The level of public debt remains unsustainable, while domestic financing sources are under pressure, according to the Monitor. Laos is facing both solvency and liquidity challenges, owing to significant financing needs, limited financing options, low foreign-exchange reserves, and depreciation pressures. Total public and publicly guaranteed debt remained high, at 108% of GDP at the end of 2023, or 116% of GDP if domestic expenditure arrears and a swap arrangement are included.
The Monitor forecast that debt-service obligations should average US$1.3 billion per year in the medium term. Given the lack of access to international capital markets, this will translate to more pressure on domestic financing sources, crowding out credit to the private sector and inducing further currency depreciation.
Commercial Risk – Stable at 4
The US State Department’s latest Investment Climate Statement reports that international companies continue to face significant hurdles when navigating Laos’ business environment.
However, there have been improvements in some areas. Customs clearance speed, for example, has improved markedly in recent years, according to the latest US Country Commercial Guide, through the streamlining of processes such as using electronic systems to enhance customs administration and inspections for imports and exports.
The Guide says that the customs clearance processing time dropped from an average of 11 hours in 2012 to nine hours in 2020.
Technology Risk – Stable at 4
In December, China’s UnionPay International announced a partnership with the Lao national payment network LAPNet to allow customers using UnionPay-supported wallets to make seamless mobile payments in Laos. UnionPay has played a key role in developing payment networks in Thailand and Myanmar, where its chip-card standards have become industry benchmarks and a unified cross-border standard under the Asian Payment Network.
Environmental, Social and Governance (ESG) – Stable at 4
The United Nations’ Sustainable Development Goals (SDGs) are recognized as a beneficial framework for responsible investment. The Sustainable Development Report from Cambridge University Press assesses the progress of UN Member States on the SDGs. It provides a useful means of ranking Southeast Asian countries on their ESG progress.
Laos is ranked 119 out of 166 in the 2024 report, with a score of 62.95.
Environment – Laos faces a number of environmental challenges. Public waste management and recycling is nearly non-existent, and with the increase in the use of disposable plastic in recent decades, Laos today faces a huge waste problem. Meanwhile, forest loss and degradation is a serious challenge, costing the country nearly 3% of GDP per year, according to World Bank estimates. Air pollution is another serious problem. Around 93% of households rely on solid fuels for cooking, leading to increased respiratory problems, heart disease and other illnesses that end up causing an estimated 7000 deaths annually, says the World Bank.
Social – Laos scores very lowly in this area. According to the US State Department, key concerns include credible reports of: arbitrary detention; political prisoners; serious problems with the independence of the judiciary; serious restrictions on free expression and media, including censorship and the use of criminal defamation laws; serious restrictions on internet freedom; substantial interference with the freedom of peaceful assembly and freedom of association; and the inability of citizens to change their government peacefully through free and fair elections.
Governance – Laos also rates very poorly in terms of governance with high levels of corruption and very weak rule of law as outlined in the commercial risk section.
February Bulletin
Environmental, Social and Governance (ESG) – Stable at 4
In November, Thailand, Myanmar and Laos launched an initiative to try and tackle the air pollution that afflicts the region every year during the dry season, when farmers burn agricultural land, much of it converted from forest to maize for animal feed. The measures include a clear-sky plan that involves setting up a hotline and developing fire risk maps. Around 9000 Laotians are estimated to die prematurely as a result of toxic air every year.
Latest economic data
f – forecasts
Source: World Bank / IMF.
Source: Worldbank
Useful Links
https://www.transparency.org/en/cpi/2021
https://www.imf.org/en/Countries/LAO
https://www.adb.org/countries/lao-pdr/main
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