Increased exports, foreign investment and tourism have helped the Lao PDR begin to emerge from a prolonged economic slowdown, according to a World Bank economic update, released today. Further reforms in the business, finance and infrastructure sectors would help the country sustain its progress.
The report, Consolidating Recent Reform Momentum for Stability and Growth, shows that strong foreign investment and a current account surplus are helping Laos to gradually rebuild its reserves of foreign currency, which in turn have stabilized the exchange rate and brought down inflation. The World Bank estimates GDP growth at 4.2% over 2025, with steady expansion in energy, mining, and manufacturing, and a growing regional economy boosting exports. This economic activity is helping Laos offset the impacts of low public expenditure and high debt repayments.
"The Lao economy has emerged from four difficult years thanks to shrewd reforms and stronger fiscal management", said Khwima Nthara, World Bank Country Manager for the Lao PDR. "There is an opportunity now to consolidate that momentum by continuing the reform agenda so that the country can increase public spending on essential services such as education, health, and roads".
Growth is expected to remain stable in 2026, with services and resource-based sectors continuing to drive economic activity. However, the outlook in the medium term remains constrained by low productivity, skill shortages, and infrastructure gaps. The report recommends sustained reforms and deeper regional integration to help ensure a positive outlook, notably, by curbing tax exemptions, establishing a strong legal framework for public-private partnerships, strengthening public debt management, enhancing supervision of commercial banks, and improving the business environment.
The update contains a special section on Preserving Lao Road Assets, which notes that a well-functioning road sector is important for growth, competitiveness, and fiscal sustainability. Reliable roads reduce transport costs, improve access to markets, and strengthen links between production hubs and borders. Weak road networks raise logistics costs, dampen private sector activity, and increase the fiscal burden through frequent repairs and emergency maintenance.
Lao roads currently face accelerated wear-particularly from climate impacts and heavy trucks-which alongside fragmented maintenance efforts, insufficient weight controls, and a lack of targeted investment, have resulted in deteriorating road conditions, rising lifecycle costs, and increased vulnerability to climate-related hazards.
The report details a unified asset management system and preservation strategies that can arrest further decline. It gives clear recommendations for stabilizing revenues to fund road repairs and improvements, for protecting priority road assets through spending plans and better overloading controls, and improving governance and efficiency with higher quality assurance and transparency.
