No More among the World’s Most Poor: The Booming Economy of the Lao People’s Democratic Republic | Asian Development Bank

No More among the World’s Most Poor: The Booming Economy of the Lao People’s Democratic Republic

Article | 2 June 2016

Historically, the Lao People’s Democratic Republic has had some of the highest poverty rates in Southeast Asia but a mix of energy and mineral exports, manufacturing, services, tourism, construction and agriculture are coming together to grow the economy, create jobs and lift people out of poverty.

Historically, The Lao People’s Democratic Republic has suffered from some of the highest poverty rates in Southeast Asia but steady economic growth in recent years is changing the country’s story from deprivation to increasing prosperity, according to ADB's Asian Development Outlook 2016.

The poverty rate in the country has fallen from 33.5% in 2003 to 23.2% in 2013. In 2011, gross national income per capita – generally speaking the country’s average annual income – surpassed $1,000. As a result, the World Bank reclassified the country from low-income to lower-middle income. By 2020, the government hopes to graduate from the United Nations’ status as a least-developed country.

Economic trend shows promise

If current economic trends are any indication, the Lao People’s Democratic Republic has a good chance of reaching those goals and dramatically improving the lives of people in the country. Gross domestic product growth – or the expansion of the country’s economy, which is key to lowering poverty – is forecast to reach 6.8% in 2016 and 7.0% in 2017. These are some of the highest growth rates in Asia. 

“The country’s economic growth was once driven primarily by exporting energy – mostly hydropower – to its more prosperous neighbors, including Thailand. But the country’s economy is becoming more diversified, with manufacturing, services and tourism all helping to create the jobs that can lift people out of poverty.”

The country’s economic growth was once driven primarily by exporting energy – mostly hydropower – to its more prosperous neighbors, including Thailand. But the country’s economy is becoming more diversified, with manufacturing, services and tourism all helping to create the jobs that can lift people out of poverty.

The services sector grew by an estimated 8.5% with the number of bank branches and microfinance institutions continuing to increase. Tourism-related services such as hotels, restaurants and transportation continued to expand as tourist arrivals rose by 12.6% to 4.7 million visitors in 2015.

Invest in Lao PDR

During the same period, revenue from tourism increased by 13.1% to $725.4 million. With wage costs in the People’s Republic of China now almost four times higher than in the Lao People’s Democratic Republic, industry grew by an estimated 8%.

And money from outside the country continues to pour in. Foreign direct investment supported the building of power plants, residential and commercial property, and projects in special economic zones.

The traditional bedrock of the economy – energy exports – have also continued to grow. Output of electricity, mostly sold to Thailand, rose after the Hongsa lignite-fired power plant and new hydropower plants started commercial production. The production of copper, gold, and silver from the major mines has increased, as has agriculture, which expanded by 2.0% in 2015.

Lao PDR moving forward

More good news is expected in the years to come, according to the Asian Development Bank’s Asian Development Outlook 2016. Electricity production is expected to maintain growth as more new hydropower plants come online this year. Work on new hydropower plants is driving growth in construction and creating jobs generated by that sector.

Robust expansion is projected for services, driven by growth in tourism and development in finance and telecommunications. Agriculture is also expected to expand in 2016 if the weather cooperates. Softer demand for minerals is expected to slow the mining sector.

The impact of slowing growth in the People’s Republic of China will be felt in some areas of trade and investment, but this is expected to be countered in part by projected growth in neighboring Thailand and Viet Nam, which will lift exports, tourism, and remittances in the Lao People’s Democratic Republic.