(KPL) The Lao economy is growing, driven by exports of services, electricity, mining, agriculture, and manufacturing, but inflation and labor shortages continue to threaten stability, according to a new report by the World Bank.

The economy grew by 4.1% in 2024, as arrivals of foreign tourists rose by 21% and improved connectivity helped exports, according to the May 2025 Lao Economic Monitor: Weathering Risks. Industry grew moderately, despite persistent labor shortages, and agriculture remained resilient, bolstered by export demand for cash crops like rubber and cassava, plus livestock. However, double-digit inflation continues to erode household purchasing power, dampen consumption, and increase business costs, while the shortage of workers poses a risk to sustained growth.

“The actions of the Bank of the Lao PDR and the government have helped decelerate inflation”, said Alex Kremer, World Bank Country Manager for the Lao PDR. “However, inflation remains high and further reforms would help promote economic stability.”

The slowing of inflation follows a more stable exchange rate, continued monetary tightening, and improved state revenue collection. Liquidity management has improved, following the creation of a Treasury Single Account. Despite these advances, public debt remains at unsustainable levels, and the government has increased its domestic borrowing, which could crowd out the credit available to private companies, especially small firms.

Economic growth is projected to slow to 3.5% in 2025, with tourism and transport services expected to grow more modestly. Inflation is expected to continue easing but will likely stay in double digits in 2025. Debt repayments will peak in 2025, limiting the room for essential public spending. Revenue collection should strengthen, supported by the reinstatement of fuel excise rates and improved tax administration.

The report contains a special section on finance for micro, small and medium enterprises, which finds the Lao financial sector to be highly vulnerable to macroeconomic volatility. Small companies—the backbone of the economy—continue to struggle to access credit because of their lack of formal structure, collateral, and financial literacy, but also due to a lack of suitable financial products on the market. Recommendations include supporting microfinance institutions so they can expand their services, and setting up an independent fund for lending to small businesses.

Small companies make up the majority of enterprises in Laos, dominating employment.

KPL