Lao PDR: Economy

Despite headwinds that have slowed growth, the gross domestic product of the Lao People’s Democratic Republic is seen increasing by 7.0% this year and slightly faster in 2016, fuelled by expansion in hydropower and services. Inflation is expected to remain modest, and some improvement is forecast in external accounts. Renewed efforts are needed to spur the development of the domestic private sector.

Selected economic indicators (%) - Lao People's Democratic Republic 2015 2016
GDP Growth 7.0 7.2
Inflation 3.5 4.0
Current Account Balance (share of GDP) -21.2 -17.3

Source: ADB estimates.

Economic performance

Growth was maintained above 7% for a ninth consecutive year in 2014, though fiscal tightening and weaker global demand for minerals moderated the pace by 0.5 percentage points to 7.4%. Two decades of significant economic growth helped to halve the national poverty rate from 46% in 1992 to 23% in 2013.

Economic prospects

Growth is expected to moderate further in 2015 as lackluster demand for minerals weighs on mining and as fiscal constraints curb public investment. Nevertheless, growth in the gross domestic product is forecast at 7.0% in 2015, picking up to 7.2% in 2016.

Investment in power projects will generate much of the growth over the forecast period. More than 20 power projects are under construction, including the $3.5 billion Xayaburi hydropower plant, scheduled for commissioning in 2019 with capacity to generate 1.3 gigawatts. Power generation will get a boost when the large Hongsa lignite power plant, able to generate 1.9 gigawatts, comes on stream later this year and is fully operational in 2016. Total electricity production is projected to rise by 6% in 2015, accelerating significantly in 2016 when six new plants come online.

Excerpted from the Asian Development Outlook 2015.