In the 1990s and early 2000s, Lao PDR’s economy grew at an annual average rate of 6.3 percent and poverty
incidence fell from 46 percent of the population in 1992-93 to 33.5 percent in 2002-03. During the Asian
economic crisis (1998-1999) inflation climbed to an annual average of 110 percent and growth fell to 4 percent.
Resolution of the crisis and Lao PDR’s macroeconomic policies helped stabilize the economy and growth resumed
at around 6 percent in the early 2000s. The adoption of a stabilization program since 2000 and implementation of
several reform programs since 2001 – in public expenditure management, banking, SOEs, forestry, trade and the
private sector – contributed to this improvement. During 2003-06, inflation declined from 15.5 percent to 6.8
percent and real GDP growth accelerated from 6.1 percent to 8.1 percent.
The large inflows of FDI in the hydropower and mining sectors have significantly contributed to growth in recent
years. However, increasing reliance on natural resources means that growth will progressively be more sensitive
to the volatility of commodity prices and could impede development of other sectors. These risks will need to be
prudently managed in future. Non-resource sectors (agriculture, manufacturing and services) have also
contributed to overall growth and FDI has increased significantly in the last a few years.