IMF Ends 2025 Article IV Talks with Laos

Washington, DC: On February 13, 2026, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV Consultation with Lao People's Democratic Republic (Lao PDR). ^[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.

Supportive external conditions and domestic policy tightening have supported macroeconomic and exchange rate stability and a rapid decline in inflation, though policies have eased recently. Strong growth in key partner countries boosted GDP growth in 2024–2025:Q3, while debt service deferrals by the Chinese mainland, resilient foreign direct investment, and favorable terms of trade strengthened external balances and international reserves. Alongside tighter monetary policy and sizable fiscal surpluses, these factors eased exchange rate pressures. Inflation has declined, leading to recent policy rate cuts. However, Lao PDR remains vulnerable to external shocks given its large negative net international investment position, high external debt, low international reserves, limited diversification, and challenges in the state-owned enterprise and financial sectors.

Looking ahead, growth is expected to remain strong in 2025–26, supported by rising electricity production from new projects and an expansionary 2026 budget, offsetting the impact of slower activity in key partner countries in 2026. Inflation is projected to increase toward end-2026 due to the fiscal expansion, wage increases, and electricity tariff adjustments, while still declining on average annually. External balances are projected to remain stable, aided by long-term electricity export contracts, favorable terms of trade, continued FDI, and debt service deferrals. Over the medium term, growth is expected to moderate amidst labor outmigration and weaker productivity growth. On current policies, external balances are projected to weaken, with inflation pressures re-emerging. Public debt remains unsustainable despite a falling debt-to-GDP ratio. Near-term risks to the outlook are tilted to the downside, though ongoing regional integration, if well implemented, offers upside risks in the

medium term.

Executive Board Assessment ^[2]

Executive Directors commended the authorities for the economic stabilization since the second half of 2024, with significant disinflation and reduction in public debt‑to‑GDP ratios. Directors noted that policies have been eased recently amid still elevated external and debt vulnerabilities and with risks to the outlook tilted to the downside. Against this backdrop, they called on the authorities to sustain sound macroeconomic policies and implement ambitious structural reforms to continue strengthening macroeconomic stability, further improve debt dynamics, and boost sustainable growth. Directors also noted that continued capacity development support by the Fund and other partners will remain essential.

Directors emphasized that sustaining strong primary surpluses is essential for maintaining macroeconomic stability and helping restore debt sustainability. They welcomed recent gains in revenue mobilization and called for further strengthening revenue administration, especially the Large Taxpayers Office, and for broadening the tax base to create space for critical spending needs. Directors emphasized the need for a sound medium‑term financing and debt management strategy, including enhanced debt transparency and coverage. To improve fiscal risk management, Directors encouraged further efforts to enhance public investment management and state‑owned enterprise oversight, particularly in the electricity sector.

Directors emphasized that an appropriately tight monetary policy stance is needed to ensure that inflation remains within the central bank's inflation target range. They welcomed recent reforms to the monetary policy framework and called for sustained progress in this area. Directors underscored the importance of strengthening external buffers and accelerating export diversification to enhance resilience to external shocks. In this context, they encouraged continued opportunistic reserve accumulation while allowing the exchange rate to absorb shocks. Directors agreed that improving external sector and debt statistics is critical for sound foreign exchange and debt management.

Directors stressed the importance of strengthening financial stability. In particular, they recommended enhancing supervision, improving data and stress‑testing frameworks, ensuring the implementation of capital and liquidity requirements, developing strategies to strengthen undercapitalized banks, and enhancing the resolution of non‑performing loans. Directors welcomed the upcoming Financial Sector Stability Review, which will help identify further reform priorities.

Directors underscored the importance of structural reforms to improve governance, the business environment, and human capital, which would support sustainable growth and help the country achieve upper‑middle income status by 2035. In particular, they recommended strengthening anti‑corruption agencies and the effectiveness of the AML/CFT framework, digitalizing government processes, upgrading regulations, and improving data quality, coverage, and transparency.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .