2013 Index of Economic Freedom

Laos

overall score50.1
world rank144
Rule of Law

Property Rights15.0

Freedom From Corruption22.0

Limited Government

Government Spending85.8

Fiscal Freedom79.7

Regulatory Efficiency

Business Freedom62.1

Labor Freedom54.7

Monetary Freedom73.0

Open Markets

Trade Freedom58.7

Investment Freedom30.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 6.6 million
  • GDP (PPP):
    • $17.4 billion
    • 8.3% growth
    • 7.9% 5-year compound annual growth
    • $2,659 per capita
  • Unemployment:
    • 2.5%
  • Inflation (CPI):
    • 8.7%
  • FDI Inflow:
    • $450.0 million
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Laos’s economic freedom score is 50.1, making its economy the 144th freest in the 2013 Index. Its overall score is essentially the same as last year, with improvements in investment freedom and freedom from corruption offset by declines in monetary and labor freedom. Laos is ranked 33rd out of 41 countries in the Asia–Pacific region, and its overall score is below the world and regional averages.

Experimenting with limited introduction of free-market forces into the economy, Laos has attempted to reform its trade and investment regimes, particularly in order to join the World Trade Organization. However, tariffs remain high, and non-tariff barriers substantially affect trade flows. In a notable move toward opening up the economy, the government sold stakes of about 30 percent in two state-owned companies through initial public share offerings and listed the shares on the Lao Securities Exchange, which came into operation in 2011.

Nonetheless, many aspects of the Laotian economy are in critical need of deeper institutional reforms to spur broad-based long-term economic development. As reflected in low scores for property rights and freedom from corruption, the economy’s overall legal framework is inefficient and lacks transparency. The rule of law is undermined by political interference, and systemic corruption corrodes the foundations of economic freedom.

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Background

The Communist government, in power since 1975, imposes a rigid socialist system that has devastated the economy. The government began to liberalize slowly in 1986 but with only limited success. Corruption is endemic, the rule of law is erratic, and the country remains highly dependent on international aid. Basic human rights are heavily restricted. Subsistence farming dominates the economy, employing some 75 percent of the workforce. Laos began formal negotiations with the World Trade Organization in 1998 with an eye to joining the WTO by 2013.

Rule of LawView Methodology

Property Rights 15.0 Create a Graph using this measurement

Freedom From Corruption 22.0 Create a Graph using this measurement

The rule of law remains weak and uneven across the country. The judicial system is inefficient, and protections for property rights are not enforced effectively. The judiciary lacks transparency and is burdened by political interference from the executive. Enforcement of contracts can be lax. Pervasive corruption continues to cause concern, severely undermining the foundations for growth.

Limited GovernmentView Methodology

The top income tax rate is 25 percent, and the top corporate tax rate is 35 percent. Other taxes include a vehicle tax and excise taxes. The overall tax burden for the most recent year equals 13.3 percent of GDP. Government spending has increased to 21.8 percent of total domestic output. The government budget is chronically in deficit, and public debt is about 57 percent of GDP.

Regulatory EfficiencyView Methodology

Regulatory efficiency has improved. Launching a business no longer requires minimum capital, and licensing requirements, which still take over 100 days on average, have become less costly. An underdeveloped labor market does not provide dynamic employment opportunities for the growing labor supply. Inflation has been rising. The government influences many prices through state-owned enterprises and utilities.

Open MarketsView Methodology

The trade-weighted average tariff rate is burdensome at 13.2 percent, and import licensing and customs delays further constrain trade freedom. Laos has tried to attract more foreign investment, but the overall investment regime lacks transparency. Reforms are ongoing in the underdeveloped financial sector, and the first stock market opened in early 2011. Government attempts to reform the banking sector have been sluggish.

Country's Score Over Time

Bar Graph of Laos Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Laos to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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