Laos experienced impressive economic growth, with an annual average GDP growth exceeding 7% between 1985 and 2019. However, since 2019, economic growth has declined due to various factors, including the COVID-19 pandemic and significant national debt.
According to the Asian Development Bank, Laos’ economy contracted from $18.7 billion in 2019 to $14.1 billion in 2023, leading to a decrease in per capita GDP and a depreciation of the Lao kip. Additionally, inflation rates soared, putting a strain on the country’s population.
The International Monetary Fund declared Laos in debt distress in 2023, citing a substantial increase in public debt and interest payments. Various control measures were implemented by the government to address the economic crisis, emphasizing the need for liberalization.
The country now faces the challenge of implementing a liberalization program that includes privatization, lifting controls on trade and capital flows, and possibly dollarizing the economy. Dollarization could potentially benefit Laos by simplifying financial management and boosting investor confidence.
Comparisons to successful dollarization models, such as Cambodia’s, highlight the potential benefits for Laos. Economists have also argued for the advantages of consolidating currencies for economic development.
It is imperative for Laos to consider adopting either de jure or de facto dollarization to navigate its current debt crisis and ensure long-term economic stability.
(The views expressed in this paper are the author’s own and do not reflect the opinions of the Pannasastra University of Cambodia or the Asian Development Bank.)