Laos has achieved rapid economic growth and poverty reduction over the past 20 years, having been the second-fastest growing economy in ASEAN and amongst the 15 fastest growing economies in the world. However, Laos remains as one of the poorest countries in Asia, and economic growth has now slowed. In addition, the government is faced with high debt distress following years of intense deficit financed growth and weak revenue collection. Lao PDR’s poor economic situation is expected to be compounded by the effects of the COVID-19 pandemic.

In Laos, pockets of wealth have emerged in urban areas, and poverty has become increasingly associated with rural and ethnic groups. The spillover effect of such economic growth has contributed to the improvement of livelihoods in peri‐urban and nearby rural areas while, indirectly, migrants’ remittances have enhanced the development of rural areas. However, economic inequality has increased and is predicted to widen further in future years. 

The growth of the past two decades was predominantly driven by large-scale investments in capital intensive sectors, particularly in mining and hydropower. However, these investments have failed to support job creation and have resulted in high rates of natural resource depletion and environmental degradation. The annual cost of environmental degradation was estimated at 19.3% of GDP in 2017. Even before the COVID-19 pandemic emerged, the Government recognized that growth was fuelled by natural resources and that a new economic model was needed to reduce poverty, conserve the environment, and strengthen resilience to natural disasters and economic shocks.

Laos is experiencing the most rapid rate of urbanization in Southeast Asia, as identified by the UN-Habitat World Cities Report (2016). Rapid urbanization is expected to create new development challenges for the country. To meet those challenges, and to build more inclusive, safer, resilient, and sustainable cities, development programming in Laos must aim for a transition from a traditional focus on poverty eradication in remote, rural areas to one that also supports well-planned and well-managed urban spaces, societies, and economies. Laos has already made considerable investments in its transformation from a land-locked disadvantaged country into an opportunistic land-linked country, with major improvements in transportation linkages both within the country and with neighbouring countries.

To set the country on a more sustainable development path, Laos needs to diversify its productive system by encouraging the production of higher-value goods and services. Currently, Laos is lagging in terms of skilled human resources and cutting-edge technologies to produce quality products for the competitive Asian markets. Up until now, neither the public, nor the private sector have prioritized human resource development. The “Mapping Research and Innovation in Lao People’s Democratic Republic” report demonstrates the need to develop a range of operational policy instruments to encourage research and development (R&D) and innovation, including human resource development. There is no operational policy instrument in place yet to foster networking among the business, government, and university sectors and to achieve sustainable growth and development.