Laos was on the verge of bankruptcy

Lack of fuel, property stratification and corruption in public administration risk turning the Lao PDR into a bankrupt country. In mid-June 2022, Moody's downgraded the country's rating to the "junk" level. Fitch also assigned the country a triple C rating, which means a high probability of default on the debt.

The country has a significant debt burden and does not have enough time to repay the debt at the expense of foreign exchange reserves. The Lao KIP, the main currency of this Asian state, fell by 23.5% against the US dollar in 2022.

According to the Financial Times, referring to World Bank data, in December the country's gross reserves amounted to about $ 1.3 billion. This is clearly not enough to cover Laos' import debt for several months.

Some experts associate the current state of affairs in Laos with the consequences of the impact of the pandemic and Russia's military actions in Ukraine.

However, in fact, the problems of Laos have been accumulating for the last 10 years.

In 2010, the volume of the external debt of the Lao PDR was only $160 million and could be covered by internal reserves. By 2018, the debt was already $1.2 billion. In 2022, it increased to $1.45 billion. The Diplomat calls corruption the main reason for the economic collapse of the DPRK.

This factor is also recognized by the authorities of the country. A loud statement was made this week by Prime Minister Phankham Viphavan, speaking at the National Assembly. He admitted that embezzlement and managerial mistakes on the part of managers and employees of 178 state-owned enterprises were the main cause of their chronic losses. The administration of the companies, the politician said in a polite retelling of the state media, did not follow a well-thought-out business plan, recruiting staff and managers based on nepotism.

According to the World Bank, the national debt of Laos is 88% of GDP. The state needs about $1.3 billion a year to fulfill its obligations until 2025. At the same time, the volume of the country's foreign exchange reserves is now less than $ 1.2 billion.

In these conditions, 7.3 million Lao residents, who are among the poorest groups on the planet, may be beyond survival.

It is known that Laos has about 47% of its debt to China, with which the country cooperates in the framework of major infrastructure projects. There will be no default if Beijing agrees to restructure the debt. Otherwise, the Lao authorities will be forced to turn to the IMF, as Sri Lanka and Pakistan did earlier. In this case, the economic sovereignty of Laos will be significantly undermined.