ASIATODAY.ID, WASHINGTON — The International Monetary Fund (IMF) has issued a stark warning to Laos, stating that despite improving macroeconomic stability in 2025, the country remains highly vulnerable to a potential economic crisis.
While growth has strengthened and inflation has eased, the IMF underscores that low reserves, high external debt, and financial-sector fragilities continue to pose major risks.
The warning follows the completion of the 2025 Article IV Mission to Lao PDR, conducted from November 5–19. According to mission chief Angana Banerji, stronger policies and favorable external conditions have supported exchange rate stability and rapid disinflation, but deeper structural issues remain.
Strong Growth, but Built on Fragile Foundations
The IMF projects Laos to record 4.5% growth in 2025–2026, driven by robust exports, foreign direct investment, tourism recovery, and an expansionary fiscal stance in 2026. However, these gains have not resolved long-standing economic vulnerabilities.
Inflation is expected to rise gradually next year due to fiscal support measures and higher electricity tariffs, while the current account surplus is forecast to narrow from its 2025 peak.
Mounting Risks from Debt and Thin Reserves
IMF staff warns that Laos continues to face significant risks, including: critically low international reserves, heavy reliance on imports, elevated public and private external debt, weak banking-sector capitalization, and exposure to global financial volatility and geopolitical tensions.
According to the IMF, these pressures could trigger a destabilizing shock if not addressed promptly.
Monetary Policy Should Stay Tight
To manage inflation risks, the IMF recommends: keeping the policy rate on hold with a tightening bias, advancing liquidity management reforms, and allowing the exchange rate to act as a shock absorber.
Fiscal Reforms Needed to Reduce Pressures
The draft 2026 budget indicates a significant loosening of fiscal policy. The IMF calls for a more cautious approach by: strengthening revenue collection, reducing corporate tax gaps, adopting rules-based tax incentives, and taxing emerging economic sectors.
Greater transparency in asset sales and improved debt management are also essential.
Strengthening the Financial Sector and SOEs
The IMF urges Laos to reinforce banking supervision, enhance prudential frameworks, and improve the solvency and liquidity positions of financial institutions. Continued efforts to repair state-owned enterprise (SOE) balance sheets are also considered vital.
Structural Reforms to Boost Medium-Term Growth
To lift potential growth, the IMF recommends reforms in governance, human capital, the business environment, and public-sector transparency. Enhancing data quality and inter-agency coordination is also critical.
The IMF team expressed appreciation for the productive discussions with Lao authorities throughout the mission. (AT Network)
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