VIENTIANE: Economic growth in Laos is projected to slow to 4.0 per cent in 2026, down from 4.4 per cent in 2025, before rebounding to 4.5 per cent in 2027, according to the latest Asian Development Outlook annual report, published on Friday (April 10) by the Asian Development Bank.
In its forecast for Laos, the report notes that growth will continue to be supported by services, power generation, construction and expanding regional connectivity, despite heightened external uncertainties.
The Lao economy is showing signs of continued stabilisation following a period of macroeconomic tightening, with improvements seen in fiscal and external balances, alongside a recovery in tourism and electricity exports, the report noted.
However, vulnerabilities linked to external conditions, high public debt servicing obligations and structural constraints are expected to weigh on Laos’ medium-term growth outlook.
ADB Country Director for the Lao PDR, Shanny Campbell, said the country has made notable progress in restoring macroeconomic stability.
“Laos has made important progress in restoring macroeconomic stability with lower inflation, stronger exports, and improved foreign exchange reserves,” she said.
Sustaining these gains will require continued fiscal discipline, accelerated reform of state-owned enterprises—particularly in the power sector—and stronger investment in productive and climate-resilient sectors, she added.
Inflation, which fell sharply to 7.7 per cent in 2025 following fiscal and monetary tightening, is forecast to rise to 9.8 per cent in 2026.
The increase is attributed to higher global oil prices, rising transport costs, and the pass-through effects on food and other imported goods. Additional upward pressure is expected from electricity tariff adjustments and wage increases.
In 2026, key growth drivers are expected to include electricity production, infrastructure development and services. The industrial sector is projected to expand by 4.6 percent, supported by ongoing investment in hydropower, renewable energy and mining.
More than 11 energy projects are currently under development, offering medium-term benefits for construction activity and employment.
The services sector is also expected to benefit from tourism, transport and logistics, particularly as regional connectivity improves through cross-border links such as the Laos-China railway. Foreign visitor arrivals have nearly returned to pre-pandemic levels and are anticipated to stabilise.
Despite these positive trends, the report cautions that risks to the outlook remain tilted to the downside. Global uncertainty is beginning to affect trade, tourism and investment flows, while high public and publicly guaranteed debt—estimated at around 82 percent of GDP—continues to constrain fiscal space.
Limited foreign exchange reserves and pressures within the banking sector further restrict policy flexibility. Fiscal risks are also heightened by liabilities associated with state-owned enterprises, especially in the power sector, where below-cost tariffs and exposure to foreign currency debt limit resources available for social and capital expenditure.
The Asian Development Outlook highlights the importance of maintaining prudent macroeconomic policies and accelerating structural reforms to preserve stability and strengthen investor confidence. - Vientiane Times/ANN
