Extract:
The Lao PDR economy in 2024 has continued its expansion from the previous year, with the GDP growth rate increasing from 4.2% to 4.3%, and the inflation rate dropping to 23.13% in 2024 from 31.23% in 2023. These improvements were driven by the implementation of macroeconomic policies, fiscal and monetary policies, and the execution of the National Agenda to address economic and financial difficulties. Additionally, the service sector showed strong performance, benefiting from Visit Laos Year and Laos’ ASEAN chairmanship. However, Laos’ economy continues to face several challenges, including global financial instability caused by sustained high policy interest rates in major economies, leading to currency volatility and depreciation in many countries. Domestically, Laos’ economic structure remains imbalanced between production and consumption. Furthermore, limited access to foreign exchange continues to complicate inflation and exchange rate management.
To maintain national financial stability and address inflation, which severely affects people’s livelihoods, the Bank of the Lao PDR (BOL) has continued implementing tight monetary policy and enhancing policy tools’ effectiveness. This includes raising the base interest rate, issuing BOL bonds and fixed-term deposits to absorb excess liquidity, adjusting reserve requirement ratios by increasing them for foreign currency deposits and reducing them for kip-denominated deposits invested in bonds; and implementing a Treasury Single Account system within the BOL. The exchange rate policy was also maintained under a managed float regime. Measures included narrowing the exchange band for the LAK-USD reference rate from ±7.5% to ±7% and expanding the spread between buying and selling rates from 2% to 5% for Lao kip and other currencies. The BOL also established the Lao Foreign Exchange Market Co., Ltd. (LFX) to curb off-system currency exchange and stabilize foreign exchange availability. At the same time, the BOL worked to manage money supply to reflect actual economic conditions, minimize pressure on the Lao kip, and enhance foreign currency management. This included channeling at least 70% of export revenue into the banking system to bolster reserves. The BOL also promoted the use of local currencies in regional trade and investment (such as LAK-VND transactions) and expanded cross-border payment connectivity with neighboring countries. Parallel efforts continued to strengthen both banking and non-bank financial institutions, issuing licenses for the new Lao Bullion Bank to improve financial and currency liquidity. The central bank also proceeded with credit policies to stimulate economic activity and rural financing, while expanding public outreach on policy implementation to foster understanding and public confidence, reducing anxiety and maintaining trust in the national currency.
Looking ahead to 2025, the Lao economy is expected to continue facing unpredictable and complex challenges. The US dollar, Thai baht, Chinese yuan, and gold prices remain volatile. Climate change could impact agricultural production and food prices. At the same time, high import costs and external debt levels continue to pressure macroeconomic management, especially inflation control. Nevertheless, the government has committed to reviewing and adjusting its policies toward a self-reliant economic direction. For its part, the BOL will pursue a mixed monetary policy approach to support stable and sustainable growth. These measures are expected to help the economy grow by 4.8%, bring inflation down to single digits, increase foreign currency reserves, and stabilize the exchange rate.
Download Full Report – Tranlated by Docs by RDK