Laos is a landlocked country with an inadequate infrastructure and a largely unskilled work force. The country's per capita income in 2004 was estimated to be $1,900 on a purchasing power parity-basis.
Agriculture, mostly subsistence rice farming, dominates the economy, employing an estimated 85% of the population and producing 51% of GDP. Domestic savings are low, forcing Laos to rely heavily on foreign assistance and concessional loans as investment sources for economic development. In FY 1999, for example, foreign grants and loans accounted for more than 20% of GDP and more than 75% of public investment. In 1998, the country's foreign debt was estimated at $1.9 billion. Following its accession to power in 1975, the communist government imposed a Soviet-style command economy system, replacing the private sector with state enterprises and cooperatives; centralizing investment, production, trade, and pricing; and creating barriers to internal and foreign trade.
Within a few years, the Lao Government realized these types of economic policies were preventing, rather than stimulating, growth and development. No substantive reform was introduced, however, until 1986 when the government announced its “new economic mechanism” (NEM). Initially timid, the NEM was expanded to include a range of reforms designed to create conditions conducive to private sector activity. Prices set by market forces replaced government-determined prices. Farmers were permitted to own land and sell crops on the open market. State firms were granted increased decisionmaking authority and lost most of their subsidies and pricing advantages.
The government set the exchange rate close to real market levels, lifted trade barriers, replaced import barriers with tariffs, and gave private sector firms direct access to imports and credit.
In 1989, the Lao Government reached agreement with the World Bank and the International Monetary Fund on additional reforms. The government agreed to expand fiscal and monetary reform, promote private enterprise and foreign investment, privatize or close state firms, and strengthen banking. In addition, it also agreed to maintain a market exchange rate, reduce tariffs, and eliminate unneeded trade regulations. A liberal foreign investment code was enacted and appears to be slowly making a positive impact in the market. Enforcement of intellectual property rights is governed by two Prime Minister's Decrees dating from 1995 and 2002
In an attempt to stimulate further international commerce, the Lao Government accepted Australian aid to build a bridge across the Mekong River to Thailand. The “Thai-Lao Friendship Bridge”, between Vientiane Prefecture and Nong Khai Province, Thailand, was inaugurated in April 1994. Although the bridge has created additional commerce, the Lao Government does not yet permit a completely free flow of traffic across the span.
These reforms led to economic growth and an increased availability of goods. However, the 1997 Asian Financial Crisis, coupled with the Lao Government's own mismanagement of the economy, resulted in spiraling inflation and a steep depreciation of the kip, which lost 87% of its value from June 1997 to June 1999. Tighter monetary policies brought about greater macroeconomic stability in FY 2000, and monthly inflation, which had averaged about 10% during the first half of FY 1999, dropped to an average 1% over the same period in FY 2000. The economy continues to be dominated by an unproductive agricultural sector operating largely outside the money economy and in which the public sector continues to play a dominant role.
GDP: purchasing power parity – $12.65 billion (2007 est.) GDP – real growth rate: 7.5% (2007 est.) GDP – per capita: purchasing power parity – $1,300 (1999 est.) GDP – composition by sector: agriculture: 41.3% industry: 32.2% services: 26.5% (2007 est.) Population below poverty line: 30.7% (2005 est.) Household income or consumption by percentage share: lowest 10%: 3.4% highest 10%: 28.5% (2002) Inflation rate (consumer prices): 4.5% (2007 est.) Labor force: 2.1 million (2006 est.) Labor force – by occupation: agriculture 80% (2005 est.) Unemployment rate: 2.4% (2005 est.) Budget: revenues: $472.3 million expenditures: $646.1 million , including capital expenditures of $NA (2007 est.) Industries: tin and gypsum mining, timber, electric power, agricultural processing, construction, garments Industrial production growth rate: 12% (2007 est.) Electricity – production: 1.715 billion kWh (2005) Electricity – production by source: fossil fuel: 2.99% hydro: 97.01% nuclear: 0% other: 0% (1998) Electricity – consumption: 1.193 billion kWh (2005) Electricity – exports: 728 million kWh (2005) Electricity – imports: 326 million kWh (2005) Agriculture – products: sweet potatoes, vegetables, maize, coffee, sugar cane, tobacco, cotton; tea, peanuts, rice; domestic buffalo, pigs, cattle, poultry Exports: $970 million (2007 est.) Exports – commodities: wood products, garments, electricity, coffee, tin, copper, gold Exports – partners: Vietnam, Thailand, Germany, France, Belgium Imports: $1.376 billion f.o.b. (2007 est.) Imports – commodities: machinery and equipment, vehicles, fuel Imports – partners: Thailand, Japan, Vietnam, People's Republic of China, Singapore, Hong Kong Debt – external: $3.179 billion (2006) Economic aid – recipient: $345 million (1999 est.) Currency: 1 new kip (NK) = 100 at Exchange rates: new kips (NK) per US$1 – 9,600.00 (April 2007), 7,674.00 (January 2000), 7,102.03 (1999), 3,298.33 (1998), 1,259.98 (1997), 921.02 (1996), 804.69 (1995) note: as of September 1995, a floating exchange rate policy was adopted Fiscal year: 1 October – 30 September