Lao People's Democratic Republic

The People’s Democratic Republic of Laos, a country of breathtaking natural beauty known historically as the Kingdom of Lan Xang (“land of a million elephants”), boasts a rich cultural heritage, profoundly influenced by Buddhism. Laos is a Communist one-party State. It has seen decades of remarkable peace and political stability since the end of the Vietnam war. French colonisation since the end of the 19th century left a lasting mark on Lao infrastructure and government systems.

Once considered the least developed and most mysterious of former French Indochina, Laos adopted significant economic and political reforms in the late 1980s. Since 1989, the country has gradually opened up, with the hammer and sickle disappearing from the national flag in 1991. Laos strives to spur economic growth to catch up with its powerful neighbours.

A landlocked country spanning more than 1 000 km from north to south, about 100 times the size of Luxembourg, Laos is situated in the heart of the Mekong sub-region with an area of 236 800 km2. The Annamite Mountain range forms most of the eastern and southern border. Almost in parallel, the Mekong, the country’s large, majestic stream, defines most of the territory to the west over 1 865 km. The fertile plains of the Mekong River are the focus for almost all of Laos’ rice production and other agricultural products. At its narrowest point, in the central province of Khammouane, Laos is no more than 120 km wide.

The country is home to over 7.5 million inhabitants, with a remarkable diversity of some 50 ethnic groups, including Lao-Tai, Mon-Khmer, Hmong-Mien and Chinese-Tibetan. Laos also has one of the youngest populations in the region, with potential for a significant demographic dividend for future development.

Despite Laos’ abundant natural resources, including minerals (tin, gold, copper, zinc, ore, bauxite, and many rare elements) and hydropower, it continues to face challenges in poverty reduction. According to the Lao PDR Poverty Profile in 2019, almost a fifth of Lao people are still living on incomes below the national poverty rate of 1 USD per day.

Lao PDR has enjoyed consistent economic growth between 6-8% over the last decade, although the COVID-19 pandemic, and the resulting macroeconomic crisis have negatively affected this trend. In 2023, Laos posted a growth rate of 3.7% only. According to World Bank forecasts, the average annual growth will be around 4.1% in 2024 and 3.7% in the following years. Gross national income per capita dropped from 2,598 USD in 2019 to 2 ,075 USD in 2023. Income inequalities and current inflation rates of 25% year on year have led many people to the brink of poverty, triggering labour emigration to neighbouring countries, mostly Thailand.

Despite the progress made to meet the Sustainable Development Goals (SDGs), Lao PDR still faces significant challenges in areas like healthcare, nutrition and education. In February 2021 Lao PDR was recommended to graduate from Least Developed Country status with an extended preparatory period until 2026. The country hopes to achieve the lower middle-income status if they manage to maintain steady economic growth, mainly by exporting its natural resources and hydropower to neighbouring countries and by expanding its tourism sector.

Tourism in Lao PDR is a growing sector and plays a crucial role in economic recovery and providing employment opportunities. Prior to the COVID-19 pandemic, the tourism sector represented the country’s third biggest earner of export revenue behind mining and hydropower. International tourism arrivals reached a peak in 2019 as 4.79 million visitors came to Laos and spent USD 934 million. This marked a key contribution to the Lao economy, accounting for 10.4% of GDP and the employment of 300 000 people in the country. 2024, with the Visit Laos campaign and the ASEAN chairmanship, is expected to reach again pre-pandemic numbers in the tourism sector.  

Today, Laos stands at a crossroads. Its abundant natural resources, coupled with a young and growing population, offer significant economic potential. However, the country must navigate challenges like a failing education system, important income inequality and severe environmental deterioration. By addressing these issues and fostering sustainable development, Laos can achieve a prosperous and equitable future. The government of Lao PDR outlined its poverty reduction strategy and meeting the SDGs by 2030 in its 9th National Economic and Social Development Plan for 2021-2025. The plan aims:

• to prepare the country for the graduation from Least Developed Country status;
• to ensure employment and improve living standards with inclusive, equal and fair access to benefits;
• to ensure political stability, building a peaceful, united, democratic, just, civilised and orderly society;
• to achieve socio-economic development while ensuring a balance between economic, social and environmental development; and
• to effectively implement the National Green Growth Strategy and the SDGs.

The projects and programmes currently being implemented in Lao PDR through LuxDev form part of the Indicative Cooperation Programme V established between the two countries for the period 2023-2027. The main areas of intervention in Laos are as follows:

• health and nutrition;
• skills development in the tourism/hospitality and agriculture/forestry sectors;
• local development;
• rule of law, access to justice and good governance.