With the exception of a recent economic slowdown due to the impacts of COVID-19, the Lao economy has grown at nearly 8 percent for most of the last decade and is entering a new phase of regional and global integration. The Lao government’s 2013 WTO accession and the creation of the ASEAN Economic Community (AEC) in 2015 led to major reforms of economic policies and regulations aimed at improving the business and investment environment. Additionally, rapid economic growth in neighboring countries such as China, Vietnam, and Thailand helped expand trade and investment in Laos. The Lao government is increasingly tying its economic fortune to ASEAN’s economic integration, export-led development, and growing connectivity as Laos seeks to transform itself from a “land-locked” to “land-linked” country.
Laos is one of the world’s five remaining communist countries. The Lao economic model bears some resemblance to its Chinese and Vietnamese counterparts, in that it has implemented market-based economic practices while maintaining a high degree of state control and welcoming foreign direct investment (FDI). Laos is politically stable.
Under the terms of the United States-Laos Bilateral Trade Agreement (BTA), which entered into force on February 4, 2005, the United States granted Normal Trade Relations treatment to products of Laos, and Laos committed to provide U.S. exports to Laos with preferential tariff rates on a range of products and to apply most favored nation (MFN) treatment to the remainder of those goods. Since 2005, trade increased from $14 million to $251.9 million per year in 2021. China, Thailand, and Vietnam are still the dominant trade and investment actors in Laos, with Malaysia, the Republic of Korea, France, Hong Kong, and the Netherlands also increasingly active. In 2021, the most recent year in which trade data is available, Laos’ bilateral trade was approximately $5.18 billion with Thailand ($2.18 billion in exports, $3 billion in imports), $3.47 billion with China ($2.22 billion in exports, $1.25 billion in imports), and $1.71 billion with Vietnam ($1.22 billion in exports, $499 million in imports). These figures have likely grown, particularly Lao exports to China following the opening of the Lao-China Railway in December 2021.
Laos recorded a trade surplus of $1 billion in 2021, with merchandise imports of $6 billion, which increased by 15.6 percent compared to 2020, and exports of $7 billion, which increase by 11.88 percent compared to 2020. Laos imported $33.5 million worth of goods from the United States and exported $218.4 million to the United States in 2021. Top U.S. exports to Laos include civilian aircraft (engines, equipment, and parts), pulpwood, passenger cars, rice, plastic materials, gems and diamonds, industrial machinery and equipment, and measuring, testing and controlling instruments. Top U.S. imports from Laos include telecommunications equipment, cellphones and other household goods, television and video equipment, footwear, apparel, nonwool textiles or cotton, gems and diamonds, and green coffee.
Laos’ GDP reached $19.14 billion in 2020, growing just 0.5 percent due to COVID-19, however the economy achieved a growth rate of 3.3 percent in 2021 ($19.90 billion) mainly due to the strength of the mining and agriculture sectors.
Laos’ population remained steady at 7.4 million in 2022. More than two thirds of the workforce is employed in agriculture, mostly in small scale farming. The population is young, with half under 25 years of age and 60 percent under 35. The country has a small but growing middle class concentrated mostly in the capital and cities such as Savannakhet, Pakse, and Luang Prabang.
The Lao government weathered a fiscal and monetary crisis in 2013 and into 2014, brought about by poor budgetary processes, uncontrolled provincial spending, and a large raise for civil servants. The government continues to take steps to address some deficiencies and is making credible efforts to increase tax revenue, limit spending, and stop acquiring new debt. Overall, however, fiscal and budgetary policy formulation and implementation remain weak. The government’s attempt to control fiscal conditions resulted in a slight improvement in 2018 compared to 2017. The 2018 implementation assessment report of the Ministry of Finance mentions that the preliminary estimation of total revenue collection was 95.45 percent of the approved collection plan (LAK 25,452 billion or $2.9 billion); whereas domestic revenue collection was estimated to reach 100.34 percent of the approved plan (LAK 22,700 billion or $2.6 billion). This represented the first time that domestic revenue collection exceeded the approved plan. According to the World Bank, in 2021 Laos’ fiscal deficit was 1.4 percent of GDP, a significant reduction from 5.4 percent in 2020, due to higher domestic revenue collection and spending curbs. Domestic revenue collection improved in 2021 versus 2022 but remained below pre-pandemic levels and the chronic fiscal deficit caused public debt accumulation to creep beyond 88 percent of GDP. In 2022, the government has said it will continue to solve debt distress by focusing on investment prioritization and revenue collection, while continuing an austerity policy to reduce extravagant spending.
Major international companies have begun to invest in Laos’ Special Economic Zones (SEZs), particularly near Savannakhet and Vientiane. Investors include Toyota, Nikon, Essilor, and Celestica. Coca-Cola opened a bottling plant in 2015, Starbucks plans to open its first shop in Vientiane by the end of 2022 and DoubleTree by Hilton also expected to operate early next year.
The Lao Trade Portal, established in 2012, has information for exporters and importers. The Lao Electronic Gazette is a repository for Lao legislation and offers the public the opportunity to comment on proposed legislation, however it is not completely comprehensive. Although most information is in Lao, many laws have been translated into English as well.
Political & Economic Environment: State Department’s website for background on the country’s political environment.