2017 Index of Economic Freedom

Laos

overall score54.0
world rank133
Rule of Law

Property Rights35.3

Government Integrity32.6

Judicial Effectiveness35.9

Government Size

Government Spending76.6

Tax Burden86.1

Fiscal Health61.2

Regulatory Efficiency

Business Freedom66.3

Labor Freedom54.4

Monetary Freedom70.2

Open Markets

Trade Freedom74.6

Investment Freedom35.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 7.0 million
  • GDP (PPP):
    • $37.3 billion
    • 7.0% growth
    • 7.7% 5-year compound annual growth
    • $5,309 per capita
  • Unemployment:
    • 1.6%
  • Inflation (CPI):
    • 5.3%
  • FDI Inflow:
    • $1.2 billion
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The Laotian economy has shown notable resilience, growing at an average annual rate of more than 7 percent over the past five years. Laos continues to integrate more fully into the system of global trade and investment. The trade regime has become more transparent, and there has been progress in improving the management of public finances.

Substantial challenges remain, particularly in implementing deeper institutional and systemic reforms that are critical to advancing economic freedom. Weak property rights, pervasive corruption, and burdensome bureaucracy, exacerbated by lingering government interference and regulatory controls, continue to reduce the dynamism of investment flows and overall economic efficiency.

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Background

The Communist government of Laos, in power since 1975, wrecked the economy in the early years of its rule. Minimal liberalization, begun in 1986, has yielded some progress. To advance its “state-managed market-orientated economy,” the government has taken on increasing levels of external public and publicly guaranteed debt since 2012 to subsidize construction of hydropower and mining megaprojects. Basic civil liberties are heavily restricted. Seventy-three percent of the workforce is employed in subsistence farming. In 2013, after 15 years of negotiations, Laos became a member of the World Trade Organization. It also served as the 2016 chair for the Association of Southeast Asian Nations. Since 2016, 79-year-old Bounnhang Vorachith has served as president of Laos and general secretary of the Lao People’s Revolutionary Party.

Rule of LawView Methodology

Property Rights 35.3 Create a Graph using this measurement

Government Integrity 32.6 Create a Graph using this measurement

Judicial Effectiveness 35.9 Create a Graph using this measurement

Protection of property rights is weak. The judicial system is inefficient, corrupt, and controlled by the ruling party. Corruption and graft by government officials are serious problems in Laos, fueling public discontent and causing gaps in revenue collection and degraded public services. Several anticorruption laws have been passed, but enforcement remains weak, and no high-profile cases have been brought to trial.

Government SizeView Methodology

The top personal income and corporate tax rates are 24 percent. Other taxes include a vehicle tax and excise taxes. The overall tax burden equals 15.5 percent of total domestic income. Government spending has amounted to 27.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 4.4 percent of GDP. Public debt is equivalent to 64.3 percent of GDP.

Regulatory EfficiencyView Methodology

The poor regulatory infrastructure continues to impede private-sector development. The labor market does not promote flexibility or economic diversification and has not provided dynamic employment opportunities for the growing labor supply. To advance its socialist “state-managed market-orientated economy,” the government influences many prices through subsidies and state-owned enterprises, especially in the hydropower and mining sectors.

Open MarketsView Methodology

Trade is important to the Laotian economy; the value of exports and imports taken together equals 79 percent of GDP. The average applied tariff rate is 5.2 percent. State-owned enterprises distort the economy, and foreign investors may not own land. The financial system is underdeveloped and subject to government involvement. High credit costs and scarce access to financing severely impede private-sector development.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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