2021 Index of Economic Freedom

Laos

OVERALL SCORE53.9
WORLD RANK141
Rule of Law

Property Rights38.8

Judicial Effectiveness37.6

Government Integrity34.5

Government Size

Tax Burden87.1

Government Spending86.8

Fiscal Health51.1

Regulatory Efficiency

Business Freedom54.7

Labor Freedom59.1

Monetary Freedom74.5

Open Markets

Trade Freedom67.8

Investment Freedom35.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 7.2 million
  • GDP (PPP):
    • $57.1 billion
    • 4.7% growth
    • 6.4% 5-year compound annual growth
    • $8,151 per capita
  • Unemployment:
    • 0.6%
  • Inflation (CPI):
    • 3.3%
  • FDI Inflow:
    • $557.2 million

Laos’s economic freedom score is 53.9, making its economy the 141st freest in the 2021 Index. Its overall score has decreased by 1.6 points, primarily because of a decline in trade freedom. Laos is ranked 32nd among 40 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.

The Laotian economy remains mostly unfree this year. Greater economic freedom in Laos will be impossible until the government curbs corruption and significantly improves the protection of property rights, judicial effectiveness, and government integrity. Also needed are reforms to facilitate business freedom, investment freedom, and financial freedom.

IMPACT OF COVID-19: As of December 1, 2020, no deaths had been attributed to the pandemic in Laos, but economic growth was forecast to fall to 0.2 percent for the year.

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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 exports of such natural resources as copper, gold, and timber.

Rule of LawView Methodology

Property Rights 38.8 Create a Graph using this measurement

Judicial Effectiveness 37.6 Create a Graph using this measurement

Government Integrity 34.5 Create a Graph using this measurement

By law, the state owns all land. Protection of property rights is 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 are serious problems among government officials in Laos. The government has developed several anticorruption laws, but enforcement remains weak.

Government SizeView Methodology

The top personal and corporate income tax rates are 24 percent. Other taxes include an excise tax. The overall tax burden equals 11.5 percent of total domestic income. Government spending has amounted to 20.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 5.1 percent of GDP. Public debt is equivalent to 60.6 percent of GDP.

Regulatory EfficiencyView Methodology

The Village Chief Authority no longer requires proof of business location for registration of businesses, and applying for electricity has become less time-consuming. The power supply is also more reliable. Employment contracts are required by law but seldom used. The government influences many prices through subsidies and state-owned enterprises to advance its socialist “state-managed market-orientated economy.”

Open MarketsView Methodology

Laos has eight preferential trade agreements in force. The trade-weighted average tariff rate is 8.6 percent, and 12 nontariff measures are in effect. State-owned enterprises distort the economy, and layers of government restrictions hinder more dynamic foreign investment. The financial sector is subject to state involvement and undermined by politically connected vested interests. About 30 percent of adult Laotians have formal banking accounts.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.70.3
2New Zealand83.9-0.2
3Australia82.4-0.2
4Taiwan78.61.5
5Malaysia74.4-0.3
6Japan74.10.8
7South Korea740.0
8Kazakhstan71.11.5
9Thailand69.70.3
10Indonesia66.9-0.3
11Brunei Darussalam66.60.0
12Philippines64.1-0.4
13Kyrgyz Republic63.70.8
14Mongolia62.46.5
15Fiji62.2-1.2
16Samoa61.9-0.2
17Vietnam61.72.9
18Vanuatu60.5-0.2
19Papua New Guinea58.90.5
20China58.4-1.1
21Uzbekistan58.31.1
22Bhutan58.3-3.8
23Tonga57.5-1.3
24Cambodia57.30.0
25Bangladesh 56.50.1
26India56.50.0
27Solomon Islands56.53.6
28Sri Lanka55.7-1.7
29Tajikistan55.23.0
30Burma55.21.2
31Maldives55.2-1.3
32Laos53.9-1.6
33Afghanistan53-1.7
34Pakistan51.7-3.1
35Nepal50.7-3.5
36Micronesia50.4-1.6
37Turkmenistan47.40.9
38Timor-Leste44.7-1.2
39Kiribati44.4-0.8
40North Korea5.21.0
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