Laos is making gradual strides in modernising its financial sector, but high public debt, limited access to finance, and macroeconomic vulnerabilities remain substantial obstacles.
Recent progress and structural reforms
Laos has committed to enhancing macroeconomic stability and strengthening financial regulation. Key steps include tighter monetary policy, more disciplined fiscal management, and efforts to stabilise the kip exchange rate. Inflation, which surged above 30 percent in 2023, has fallen sharply and is expected to moderate further in 2025 and 2026. The government posted a fiscal surplus in 2024, helping to reduce the public debt-to-GDP ratio from its recent highs. Foreign exchange reserves have also improved, reaching levels seen as better able to cover import needs. These developments are underpinned by reforms such as repatriation requirements for export proceeds, measures to close the gap between official and parallel exchange rates, and stronger oversight of state-owned enterprises. amro-asia.org+2Världsbanken+2
Banking sector and regulatory framework
The financial sector in Laos remains heavily dominated by banks. Non-performing loans and thin capital buffers are a concern, particularly for smaller institutions. The central bank has launched a ten-year strategic plan (2016-2025) aimed at aligning Laos’s banking regulation with international norms, including adoption of Basel II standards and the newer loan-accounting framework IFRS 9. Progress has been uneven: while some banks are adhering to standardised risk-based supervisory approaches and improving disclosure, many local banks still lag in implementation. amro-asia.org+2Världsbanken+2
Financing access for small and medium-enterprises (SMEs) and inclusion
A critical weak spot in Laos’s financial development is access to finance for micro, small and medium enterprises (MSMEs). Most MSMEs depend largely on internal funds. Barriers include lack of collateral, informal status, weak financial reporting, and limited financial literacy. The predominance of government and large-corporate borrowing limits credit availability for smaller firms. Non-bank financial institutions remain underdeveloped, and financial product innovation is still limited. Improving financial inclusion, particularly through digital and mobile payment solutions, is a priority. Världsbanken+2Världsbanken+2
Debt sustainability and external risks
External debt remains one of Laos’s biggest risks. The country’s public and publicly guaranteed debt stood at over 100 percent of GDP in recent assessments, particularly when factoring in arrears and currency swap obligations. Significant debt service payments loom in the coming years, creating pressure on government finances. Laos’s exposure to foreign exchange shocks and its dependence on export proceeds from sectors like hydropower and minerals render it vulnerable to external volatility. Slow foreign direct investment (FDI), especially outside minerals and energy, and challenges in accessing international capital markets amplify these risks. BTI 2024+3Världsbanken+3Världsbanken+3
Looking ahead: policy priorities and implications
To sustain financial development, Laos must continue reforming. Key priorities include: improving debt management and restructuring as needed to preserve solvency; strengthening bank supervision and increasing resilience to asset quality risks; expanding financial access for MSMEs and underserved populations; deepening financial inclusion via fintech and digital payments; and evolving regulatory standards to international benchmarks.
If successfully implemented, these reforms could help Laos diversify its economic base, reduce vulnerabilities, and foster more stable growth. However, missteps—particularly in managing debt obligations or failing to build the necessary institutional capacity—could undermine progress.
Newshub Editorial in Asia-Pacific – 23 September 2025
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