(KPL)The Lao People’s Democratic Republic’s (Lao PDR) economy is expected to expand moderately this year and next, thanks to external demand linked with tourism and trade, according to a new Asian Development Bank (ADB) report.

ADB's flagship publication Asian Development Outlook (ADO) April 2024 forecasts gross domestic product (GDP) to grow 4% in both 2024 and 2025. External demand will support growth in services, with international tourist arrivals projected to increase to 4.2 million in 2024 thanks to improved infrastructure connectivity.

 Foreign investment in renewable energy will help drive moderate industrial growth, such as the development of the Monsoon Wind Power Project which is expected to be completed in 2025. However, macroeconomic pressures will continue to weigh on growth prospects.

“The economy continued its moderate recovery in 2023, backed by services, particularly tourism and trade,” said ADB Country Director for the Lao PDR Sonomi Tanaka. “However, pressure from unsustainable debt and high inflation has persisted, dampening the country’s overall pace of economic recovery.”

Inflationary pressures in the country are expected to remain as businesses increase prices to cover higher costs due to the falling value of the currency and wage increases. Consumer prices are projected to rise an average 20% in 2024 before moderating to 7% in 2025. This comes after consumer prices rose 23% in 2022 and 31.2% in 2023. Prices for food, hotels, and restaurants have risen faster than wages, leading to a decline in household purchasing power.

The decline in purchasing power among households has serious implications for the future of the Lao PDR economy, with more students dropping out of school and greater labor migration as more people move in search of work.

The Lao PDR’s economic and financial challenges—notably high public debt, steep currency depreciation, and elevated inflation—are contributing to persistent food and nutrition challenges. High food inflation is of particular concern, averaging 39.5% in 2023. One in seven people in the country experienced food insecurity in 2023, with rural dwellers twice as likely as urban dwellers to face shortages. Food insecurity and poor nutrition come at a high cost, including stunting from malnutrition that can lower a child’s productivity over their lifetime.

The government has acted to ease household stress by working with development partners to expand social assistance, improve health services, and invest in clean water and sanitation. Looking ahead, it will be crucial to develop long-term, sustainable financing mechanisms to tackle the multidimensional nature of food security amid macroeconomic instability. This involves reforms to overcome economic and financial challenges and further improvements to social assistance that are nutrition-sensitive and climate-resilient.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

KPL