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Quick Facts
- Population:
- GDP (PPP):
- $40.9 billion
- 7.0% growth
- 7.6% 5-year compound annual growth
- $5,710 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Laos’s economic freedom score is 53.6, making its economy the 138th freest in the 2018 Index. Its overall score has decreased by 0.4 point, with a steep decline in trade freedom not fully offset by improvements in monetary freedom and judicial effectiveness. Laos is ranked 34th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
The business environment in Laos remains opaque, and politically connected vested interests block entry into some sectors. Although the government promotes special economic zones with tax and customs incentives to entice investors, its actions to increase state control (for example, by reducing land concession tenures) do not inspire confidence. Deeper institutional and systemic reforms are needed to overcome such obstacles to economic freedom as weak property rights, pervasive corruption, burdensome bureaucracy, and government interference and regulatory controls.
Background
Laos is one of the world’s few remaining one-party states. The Communist government took power in 1975 and wrecked the economy in the early years of its rule. Minimal liberalization to advance its “state-managed, market-orientated economy,” begun in 1986, has yielded some progress, but civil liberties remain heavily restricted. The National Assembly elected 79-year-old Bounnhang Vorachith to a five-year term as President of Laos and General Secretary of the Lao People’s Revolutionary Party in 2016. Approximately 80 percent of the rural population works in subsistence farming. The economy relies heavily on such capital-intensive natural resource exports as copper, gold, and timber. It also has benefited from high-profile foreign direct investment in hydropower dams along the environmentally sensitive Mekong River.
The government is considering changes in its land tenure policies that could further weaken protections for property rights and increase the possibility of expropriations. The inefficient judicial system is corrupt and controlled by the ruling party. Corruption and graft among government officials are serious problems. Investigators have discovered that billions have been siphoned off from fraudulent public works projects.
The top personal and corporate income tax rates are 24 percent. Other taxes include vehicle and excise taxes. The overall tax burden equals 13.4 percent of total domestic income. Over the past three years, government spending has amounted to 26.3 percent of total output (GDP), and budget deficits have averaged 4.4 percent of GDP. Public debt is equivalent to 67.3 percent of GDP.
Laos made it easier to start a business and decreased electricity outages in 2016. There is a gap between legislation and implementation; the World Bank could not find any foreclosures, liquidations, or reorganizations that were resolved legally in 2016. The labor market is very tight at all levels. The government influences many prices through subsidies and state-owned enterprises, especially in the hydropower and mining sectors.
Trade is significant for Laos’s economy; the combined value of exports and imports equals 68 percent of GDP. The average applied tariff rate is 14.2 percent. Nontariff barriers impede trade. Government openness to foreign investment is below average. Reforms are ongoing in the underdeveloped financial sector, and the stock market has been in operation since 2011. Government attempts to reform banking have been sluggish.