ASIATODAY.ID, VIENTIANE — The International Monetary Fund (IMF) has warned that Laos is edging toward a debt crisis, despite recent signs of economic stabilization.
In its 2025 Article IV Consultation released on December 19, 2025, the IMF stressed that high public debt, weak foreign exchange reserves, and rising inflation risks continue to pose serious threats to the country’s economic stability.
According to the IMF, decisive policy actions taken by the Bank of the Lao PDR (BOL) and the Ministry of Finance since the second half of 2024 have helped stabilize the exchange rate and sharply curb inflation. Inflation, which peaked at 26 percent in mid-2024, fell to 4 percent by October 2025.
Economic growth has remained solid, with GDP projected to expand by 4.5 percent in 2025–2026, supported by electricity exports, tourism, and foreign direct investment (FDI).
However, the IMF cautioned that this stability remains fragile and temporary.
High Debt and Weak Reserves Remain Major Vulnerabilities
Although foreign exchange reserves have increased to US$2.3 billion, equivalent to 2.4 months of imports, the IMF said the level remains below internationally adequate benchmarks. Laos’ net international investment position remains negative, underscoring the country’s heavy reliance on external financing.
Public debt has declined to around 82 percent of GDP by end-2025, but the IMF assessed that debt remains unsustainable, given limited access to international capital markets and a heavy dependence on external borrowing.
“Underlying vulnerabilities persist, particularly due to low reserve buffers and high external debt,” the IMF said.
Inflation Risks Could Re-emerge in 2026
The IMF warned that a significant fiscal relaxation planned for 2026, including a 30 percent increase in civil service base salaries, could reignite inflationary pressures. Planned electricity tariff hikes and weakening external balances could further amplify price risks if not offset by tighter monetary policy.
The IMF recommended:
– Tightening monetary policy to anchor inflation expectations
– Allowing greater exchange rate flexibility to absorb external shocks
– Continuing to build foreign exchange reserves opportunistically
Structural Reforms Seen as Critical
Over the medium term, economic growth is expected to moderate, constrained by skilled labor emigration and weak productivity.
To avert a prolonged debt and stability crisis, the IMF urged Laos to accelerate: Fiscal reforms and greater debt transparency, Stronger governance and oversight of state-owned enterprises, particularly in the power sector, Banking sector reforms to mitigate liquidity and credit risks, Investments in human capital to lift productivity.
The IMF noted that comprehensive reforms could lift output by more than 4 percent of GDP over the medium term, helping Laos move sustainably toward upper-middle-income status.
Global Risks Could Deepen Pressures
The IMF also flagged external risks, including geopolitical tensions, escalating trade restrictions, commodity price volatility, and tighter global financial conditions, which could further strain Laos’ already fragile economy.
“Near-term risks are tilted to the downside,” the IMF concluded. (AT Network)
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