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Investing.com -- S&P Global Ratings has assigned ’CCC+’ long-term and ’C’ short-term sovereign credit ratings to Laos with a positive outlook, reflecting potential improvements in the country’s fiscal and external positions.
The positive outlook indicates that Laos’ fiscal and current account surpluses over the next 12 months could strengthen foreign currency reserves and liquidity conditions, supporting debt service on the government’s high foreign currency debt and contributing to declining inflation and exchange rate stability.
Laos is emerging from a difficult period of macroeconomic rebalancing, with its post-pandemic recovery hampered by a heavily burdened government balance sheet and steep depreciation of the Lao kip that led to very high inflation during 2022-2024.
The country’s economy is expected to grow about 4% in 2025, supported by tourism, electricity generation, and mining sectors. However, growth is projected to moderate to around 3% annually from 2026-2028, below pre-pandemic levels of greater than 6%.
S&P notes that Laos’ high foreign currency debt obligations make it vulnerable to potential balance of payments and exchange rate shocks. Long-term public external debt service requirements will average about $1.2 billion over 2026-2028, following a spike to $1.8 billion in 2025, compared with usable foreign exchange reserves estimated at about $1.8 billion currently.
The government has made significant progress in stabilizing conditions by balancing its fiscal position and allowing the Lao kip to trade more in line with fundamentals. These measures have contributed to a current account surplus and a beginning decline in government debt.
S&P forecasts the government’s total net debt stock, including guarantees, to decline to just below 90% of GDP this year, with public and publicly guaranteed debt averaging 86% of GDP through 2028 on a net basis.
More than 40% of Laos’ public and publicly guaranteed external borrowings are on a bilateral basis from China. The country also maintains sizable commercial bond liabilities in the Thai bond market totaling more than $810 million, with approximately $180 million set to mature in December 2025.
Laos’ GDP per capita is low at about $2,100, and its economic performance remains vulnerable to weather patterns and natural disasters due to the high contribution of agriculture and hydropower sectors to the economy.
The ratings agency could revise the outlook to stable if foreign currency liquidity diminishes or access to refinancing deteriorates. Conversely, upward pressure on ratings could emerge if the government’s debt stock declines faster than anticipated or if foreign exchange reserves accumulate more quickly than expected.
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