Last year’s economic outcomes in the Lao People's Democratic Republic - solid growth and moderate inflation - are likely to be repeated this year and next. Foreign direct investment has doubled in the past 2 years. However, rising domestic demand, stimulated by credit expansion, is putting pressure on foreign reserves. Concerns over the management of land and other natural resources are still to be addressed.

Economic performance

Lao PDR's growth in 2012 benefited from developments in agriculture, construction, hydropower, mining, and services. The gross domestic product (GDP) increased by 7.9%, slightly above the average rate over the past 10 years.

The industry sector grew by an estimated 14% to remain a major driver of GDP. Mining production was boosted by the start of the Ban Houayxai gold and silver mine and the expansion of existing minerals projects. Copper output from the two largest producers, which together generate more than 90% of total production, rose by 8% to 149,500 tons, with gold production climbing by 61% to 206,240 ounces, and silver production up by 15% to 616,680 ounces.

Hydropower output jumped by 29% to 13.8 billion kilowatt hours. The country’s biggest hydropower project, Nam Theun Two, raised production close to full capacity. Ample water in reservoirs enabled other plants to operate at higher capacity. New hydropower projects commissioned in 2012 increased national output by more than 650 megawatts. About 70% of all hydropower generated is exported, mainly to Thailand.

Major construction projects under way last year included the $3.7 billion Hongsa lignite thermal power project, seven new hydropower projects, and expanded facilities in the capital, Vientiane, to handle a major international meeting and the Association of Southeast Asian Nations (ASEAN) University Games toward the end of 2012.

Source: ADB estimates.

Economic prospects

The economic outlook for Lao PDR is for further solid growth during the forecast period, just below 8% growth target in the government’s Seventh National Socioeconomic Development Plan, 2011-2015.

Substantial investment flowing into hydropower and mining, coupled with the construction of hotels, offices, and housing, will drive GDP growth. In addition to the large Hongsa lignite power plant, which is about 40% completed, work has started on the $3.5 billion Xayaburi dam and hydropower project, scheduled for commissioning in 2018 with capacity to generate 1.3 gigawatts of electricity. Five smaller hydropower projects are under development. Some new commercial-residential projects in the capital involve investments of several hundred million dollars, largely funded by foreign investment.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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