Lao People’s Democratic Republic - Joint Bank-Fund Debt Sustainability Analysis - External Debt Distress Assessment

Jul 19, 2026

Joint IMF-World Bank analysis for Lao PDR under the Low-Income Countries Debt Sustainability Framework assesses both external and overall debt distress. Despite projections showing declining public and publicly guaranteed (PPG) and external debt-to-GDP ratios under tighter policies and stronger growth, solvency and liquidity indicators stay above indicative thresholds across the 10-year horizon. The “unsustainable” rating reflects reliance on continued debt service deferrals, domestic bond market financial repression, and vulnerabilities such as weak debt-carrying capacity, NIIP deterioration, rollover risks, limited market access, import dependence, and low gross international reserves.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages27

Reading Time1 h 8 min

AccessFree to download

Risk of external debt distress

Overall risk of debt distress

Granularity in the risk rating

Debt coverage and key assumptions

Contingent liability stress test

Public Disclosure Pub lic Disc losure Authorized Approved by: Manuela Francisco and Lalita Moorty (IDA), and Rupa Duttagupta and Niamh Sheridan (IMF) | LAO PEOPLE’S DEMOCRATIC REPUBLIC: JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS | | | --- | --- | | Risk of external debt distress | In debt distress | | Overall risk of debt distress | In debt distress | | Granularity in the risk rating | Unsustainable | | Application of judgment | No | Lao PDR is assessed to be in external and overall debt distress under the Low-Income Countries Debt Sustainability Framework (LIC-DSF) .2 The current Debt Sustainability Analysis (DSA) projects public and publicly guaranteed (PPG) and external debt-to-GDP ratios to be on a declining path, reflecting significantly tighter domestic policies, stronger GDP growth, and a more stable exchange rate (ER) . However, Lao PDR is assessed to be “in debt distress” since both solvency and liquidity indicators remain well above indicative thresholds throughout the 10-year projection horizon; given the reliance on continued debt service deferrals amid ongoing discussions with China. The“unsustainable” rating also reflects financial repression in the domestic bond market; and Lao PDR’s significant economic vulnerabilities, including a negative net international investment position (NIIP), substantial rollover risks, constrained access to international markets, high import dependence, and low gross international reserves (GIR) . These vulnerabilities heighten the risk of renewed ER pressures and adverse debt dynamics, as in the 2024 DSA, where projected persistent real effective exchange rate (REER) depreciation increased debt ratios. Furthermore, concrete plans related to a credible medium-term financing and debt management strategy (MTDS) , sustained revenue-based fiscal consolidation; and broader structural reforms to boost growth potential, remain to be articulated. 1 This DSA has been prepared jointly by the IMF and World Bank, following the 2018 Guidance Note on the Bank-Fund Debt Sustainability Framework for Low-Income Countries and the 2024 Supplementary Guidance Note. 2 The Lao PDR Composite Indicator of 2.27 indicates a weak debt-carrying capacity, based on the October 2025 IMF’s World Economic Outlook (WEO) and the 2024 World Bank’s Country Policy and Institutional Assessment (CPIA) . 1. Debt coverage includes central government and publicly guaranteed state-owned enterprises (SOEs) debt (Text Table 1) . All guaranteed SOE debt in the baseline carries an explicit central government guarantee. There is no outstanding IMF credit. External debt is defined on a currency basis. Although the authorities began reporting non-guaranteed SOE debt in the 2024 Debt Bulletin (covering end-2023), the data remain highly aggregated, by SOE and currency, with no information on creditors or terms. Consistent with the 2024 DSA, this year’s coverage therefore excludes non-guaranteed SOE debt, and state and local government debt, for which no data are available. | | | | --- | --- | | | | | 1 | Subsectors of the public sector Sub-sectors covered | | | Central government X | | 2 | State and local government | | 3 | Other elements in the general government | | 4 | o/w: Social security fund | | 5 | o/w: Extra budgetary funds (EBFs) | | 6 | Guarantees (to other entities in the public and private sector, including to SOEs) X | | 7 | Central bank (borrowed on behalf of the government) | | 8 | Non-guaranteed SOE debt | 2. A customized contingent liability stress test is used to assess additional risks from publicprivate partnerships (PPPs), SOEs, government arrears, and bank recapitalization needs (Text Table 2) . Given continued SOE default risks, the test includes an additional shock of 3.9 percent of GDP in year two of the projection to capture non-guaranteed SOEs debt (20 percent of the US$3 .1 billion outstanding as of end-2024) . The PPP-related shock uses the default value of 35 percent of the PPP c

FAQs

Why is Lao PDR assessed as being in external and overall debt distress?

Both solvency and liquidity indicators remain above indicative thresholds throughout the 10-year projection horizon, even though baseline debt ratios decline.

What factors drive the “unsustainable” risk rating in the analysis?

It reflects continued reliance on debt service deferrals, domestic bond market financial repression, and major economic vulnerabilities including a negative NIIP, rollover risks, constrained international market access, high import dependence, and low gross international reserves.

How does the analysis incorporate additional risks through stress testing?

A customized contingent liability stress test adds shocks for PPPs, SOEs, government arrears discovery, and potential bank recapitalization needs, producing a one-off increase in the debt-to-GDP ratio in year two.

Jul 19, 2026

Uploaded by Lucas Martin