The International Monetary Fund (IMF) Executive Board has concluded its 2024 Article IV Consultation with the Lao People's Democratic Republic. Despite robust growth driven by tourism and resources sectors, the country faces economic challenges. Public debt remains high, and government financing needs are increasing, while exchange rate depreciation and inflation persist.
Efforts to improve public finances and ease foreign exchange pressures continue through fiscal consolidation, revenue mobilization, and expenditure constraints. The central bank has tightened monetary conditions by raising policy rates and reserve requirements, as well as tightening exchange controls.
Growth is projected to reach 4.1 percent in 2024 due to recovering tourism; however, inflation is expected to decline only moderately. Large financing needs from significant public debt levels pose medium-term economic challenges. Risks include potential labor emigration, declining investment if exchange rate pressures worsen, banking sector vulnerabilities from deteriorating asset quality, and possible natural disasters.
Executive Directors noted progress in sustaining a primary fiscal surplus and improving the current account balance but highlighted ongoing challenges such as high inflation and unsustainable public debt. They urged continued comprehensive policies for economic stabilization and growth potential enhancement.
Directors emphasized the need for a balanced medium-term fiscal plan focusing on revenue mobilization to restore debt sustainability. They also stressed that monetary policy should prioritize reducing inflation by further raising policy rates and stabilizing the exchange rate.
Proactive financial supervision was recommended due to banking sector vulnerabilities, along with structural reforms to improve business climate, governance, transparency, anti-corruption measures, and data gaps addressing.
The IMF's capacity development will be critical in supporting these efforts as Laos navigates its economic landscape amidst external uncertainties.