Laos requires structural reforms to meet its goal of becoming an upper-middle-income ( UMI ) economy over the coming decade, according to the International Monetary Fund ( IMF ).

Compared with existing UMI economies, Laos faces “significant structural gaps” in the areas of governance, business regulation, labour markets, and human development, the IMF says in a report released on February 20.

“Ambitious structural reforms – especially in human development, governance, and the business environment – are essential for [Laos] to lift medium-term growth and sustainably move toward its goal of reaching UMI status by 2035,” it says.

Specifically, the Fund also calls for reforms that raise education and health outcomes, strengthen public-sector effectiveness and regulatory quality, control corruption, reduce bureaucratic and regulatory burdens, and safeguard openness.

Such reforms could lift output by more than 3% in the year they are implemented and more than 4% in the medium term. They would also “underpin more effective policy management and a more resilient and sustainable trajectory of development”, it says.

Laos was on track to meet the 2035 target before Covid erupted in 2020. But the pandemic and other external shocks – notably debt distress and double-digit inflation arising from unsustainable fiscal and monetary policies – eroded income per capita.

Achieving UMI status over the coming decade is now estimated to require annual growth of at least 5% ( the government’s current five-year plan for 2026 to 2030 targets 6% ).

Significant gaps

The report notes that governance in Laos improved during the 2000s but has been “broadly” flat since the mid-2010s, scoring below average compared with other lower-middle-income ( LMI ) economies.

Business and labour regulations are also below the LMI average. Meanwhile, human development outcomes are broadly in line with peers but well below those of UMI economies.

By contrast, external sector outcomes have been above the LMI average and close to the UMI average. “These gaps suggest that there is significant scope … to improve structural fundamentals to align with its aspirational peers,” the report concludes.

Asean currently has only three UMI economies — Indonesia, Malaysia, and Thailand.  Six have LMI status – Cambodia, Laos, Myanmar, the Philippines, Timor-Leste, and Vietnam. The remaining two, Brunei and Singapore, are classified as high-income.