The ADO report reflects the country’s continued stabilisation following macroeconomic tightening, improved fiscal and external balances, and a recovery in tourism and electricity exports. However, external vulnerabilities, high public debt servicing, and structural constraints continue to weigh on the medium-term growth trajectory.

“The Lao PDR has made important progress in restoring macroeconomic stability, with lower inflation, stronger exports, and improved foreign exchange reserves,” said ADB Country Director for the Lao PDR, Shanny Campbell. “With elevated global risks, turning this progress into lasting benefits for the people of the Lao PDR will require sustained fiscal discipline, accelerated reform of state-owned enterprises—particularly in the power sector—and stronger investment in productive and climate-resilient sectors.”

Inflation, which declined sharply to 7.7% in 2025 following fiscal and monetary tightening, is projected to edge up to 9.8% in 2026, reflecting higher global oil prices, transport costs, and pass-through effects on food and other imports. Upward pressure is also driven by electricity tariff adjustments and wage increases.

In 2026, electricity production, infrastructure-related activities, and services are expected to be the main drivers of growth. The industrial sector is projected to expand, supported by continued investment in hydropower, renewable energy, and mining, with industrial growth forecast at 4.6% in 2026. More than 11 energy projects are currently under development, providing medium-term spillovers to construction and employment.

Services will be supported by tourism, transport, and logistics, benefiting from improved regional connectivity, particularly through the railway link between the Lao PDR and the People’s Republic of China. However, international visitor numbers are now almost back to pre-COVID-19 levels and are expected to plateau.

Despite ongoing macroeconomic stabilisation efforts, risks to the outlook remain tilted to the downside. Global uncertainty is beginning to weigh on trade, tourism, and investment, while high public and publicly guaranteed debt—estimated at around 82% of GDP—limited foreign exchange buffers, and banking sector pressures continue to constrain policy space. Fiscal risks are further heightened by liabilities from state-owned enterprises, particularly in the power sector, where below-cost tariffs and foreign currency exposure limit resources for social and capital spending.

The report emphasises that prudent macroeconomic policies and accelerated reforms—especially in the power sector—are critical to safeguarding stability and strengthening investor confidence.

The ADB is a leading multilateral development bank supporting sustainable, inclusive, and resilient growth across Asia and the Pacific. Working with its members and partners to address complex challenges, the ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and protect the environment. Founded in 1966, the ADB is owned by 69 members, including 50 from the region.

KPL