Download PDF
Quick Facts
- Population:
- GDP (PPP):
- $53.7 billion
- 6.5% growth
- 7.0% 5-year compound annual growth
- $7,925 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Laos’s economic freedom score is 55.5, making its economy the 129th freest in the 2020 Index. Its overall score has decreased by 1.9 points due primarily to a plunge in fiscal health. Laos is ranked 31st among 42 countries in the Asia–Pacific region, and its overall score is well below the regional and world averages.
The Laotian economy climbed higher in the mostly unfree category this year and has been there for the past four years. GDP growth has been robust during that period, underpinned by continued growth in the services sector, the completion of a number of hydropower projects, continuing work on large transport infrastructure projects, and repair work on infrastructure damaged by floods in 2018.
Hopes for greater economic freedom hinge on the government’s willingness to undertake more effective measures to fight corruption and protect property rights, along with additional steps to improve the business and investment climates.
Background
Laos is a one-party state. In the early years of its rule, the Communist government that took power in 1975 destroyed the economy. Minimal liberalization, begun in 1986, has yielded some progress, but civil liberties remain heavily restricted. In 2016, 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. According to the World Bank, Laos has one of the highest poverty rates in Southeast Asia. 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.
Protections for property rights are weak, titles are unclear, and some areas practice communal titling. The judicial system is inefficient, underdeveloped, corrupt, and controlled by the ruling party. Corruption and graft by government officials are serious problems in Laos. Despite passage of several anticorruption laws, enforcement remains weak, and very few high-profile cases ever come to trial.
The top personal income and corporate tax rates are 24 percent. Other taxes include vehicle and excise taxes. The overall tax burden equals 12.0 percent of total domestic income. Government spending has amounted to 21.1 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 4.9 percent of GDP. Public debt is equivalent to 63.0 percent of GDP.
The business environment is shackled by onerous registration requirements, differences between how laws are written and how they are implemented, and regulations that contradict other regulations. The labor market is rigid and undiversified and does not provide for significant mobility. The government influences many prices through subsidies and state-owned enterprises to advance its socialist “state-managed market-oriented economy.”
The total value of exports and imports of goods and services equals 75.8 percent of GDP. The average applied tariff rate is 1.5 percent, but layers of nontariff barriers constrain trade flows. The minimum capital requirements for certain foreign investors have been removed, but the investment regime lacks transparency. The financial sector is underdeveloped, and the lack of long-term credit hinders private-sector growth.