Laos’ National Debt is Now Larger Than Its GDP – and Could Get Even Bigger

Source: Radio Free Asia

Laos’ national debt has risen to 112 percent of its gross domestic product, a critical level that could grow even bigger as the country struggles with high inflation, a weak currency and low foreign investment, officials from the World Bank and Asian Development Bank said.

Public debt reached US$18.7 billion at the end of 2022 and could rise to 125 percent of GDP soon, the World Bank said in a Dec. 13 report.

Just over half of that is owed to China, which helped Laos build the US$6 billion Lao-China High-Speed Railway as part of its Belt and Road Initiative. Other major Chinese investments in roads and hydropower dams have contributed to the debt.

The Lao government is negotiating to restructure its debt to China and recently postponed a debt payment of $1.2 billion, according to an ADB official.

“That’s a lot of money. The country couldn’t keep up with the payment of both capital and interest,” the official said. “Financial management is ineffective. The country is receiving big blows and suffering from it.”

Service payments on its debt – the regular payments required by loan issuers that include interest and principal – could rise to 39 percent of GDP, the World Bank said.

Besides attracting more investment, Laos needs to boost tourism numbers and find a way to raise the production of domestic goods for export, the World Bank report said. 

“The Lao economy is facing many challenges,” said a Vientiane-based World Bank official who requested anonymity for safety reasons. 

Negotiations with Thai banks and others 

Tourism isn’t recovering from the COVID-19 pandemic and small- and medium-sized businesses are suffering, he told Radio Free Asia on Wednesday.

The government has been trying to improve tax collection, has started to crack down on corruption, and has reduced spending in some areas, according to the ADB official.

The Ministry of Finance has also begun renegotiations with the World Bank, ADB, and some Thai financial institutions – all of whom could be inclined to give Laos new favorable terms because of their own interest in developing Laos’ economy, the ADB official said.

Prime Minister Sonexay Siphandone told lawmakers in June that the government “is determined to control and solve the debt problem,” partly through debt restructuring.

Debt payments started to become a worrisome issue for the government in 2019, a ministry official told RFA. 

“We have a lot of debt that has been accumulating for many years,” he said. “But our government has been taking action to control it.” 

Some 8 percent of Laos’ debt is owed to ADB, 7 percent to the World Bank, and 6 percent to Thai institutions, according to the World Bank.

A Laotian who lives in Vientiane said the government has failed to monitor and inspect the roads and dams that were supposed to move the country’s economy forward.

“Many projects aren’t up to standards,” he said. “For example, many newly built roads are broken a year later.”