Introduction The Lao People’s Democratic Republic (Lao PDR) is facing economic challenges stemming from an unsustainable debt burden, which has now affected the future of its food security and nutrition. Reports indicate that one in seven individuals are grappling with food insecurity in 2023. Rural populations are particularly vulnerable, being twice as likely as their urban counterparts to experience shortages. This strain on households has led to the alarming trend of reducing both the quality and quantity of food consumption, resulting in malnutrition-related issues with serious long-term consequences. In a move to address the food and nutrition security concerns linked to economic and inflationary pressures, the government is putting in place various immediate and long-term mechanisms. Over the past decade, the country has experienced a slowdown in economic growth due to constraints associated with its resource-driven growth model, escalating macroeconomic imbalances, and a less favorable external environment. Fiscal Challenges A history of fiscal deficits and large investments financed through external borrowings have led to a notable increase in the public and publicly guaranteed debt to GDP ratio, estimated to have surpassed 120% in 2023. This is further compounded by worsening kip depreciation and an accumulation of non-concessional debt, resulting in scheduled debt servicing obligations averaging more than 10% of GDP annually from 2024 to 2029. The kip lost half its value against the US dollar in 2022 and another 16.3% in 2023. It also fell against regional currencies in 2023, including 21.3% against the Thai baht and 15.6% against the Chinese yuan, contributing to high domestic inflation. With the kip losing value against other currencies, the ratio of foreign currency deposits to broad money (dollarization) increased to 68.7% in 2023. In addition, the country's provision of generous tax incentives and limited repatriation of export earnings have led to a depletion of foreign exchange reserves. As of end September 2023, gross official reserves—including a $0.8 billion currency swap with the People’s Bank of China—stood at $1.8 billion, equivalent to only 2.3 months of imports and below the three-month adequacy benchmark. Consequently, the International Monetary Fund Article IV 2023 report has classified Lao PDR as being in debt distress with an unsustainable debt burden. Consumer prices have also risen more than wages, causing real income and purchasing power to fall in many households. Average inflation jumped to 31.2% in 2023 from 23% in 2022, with lags in imported price adjustments and higher domestic prices driving the increase. In the first half of 2024, average inflation is estimated above 20%. (Figure 1). Figure 1. Inflation (2020-2024, %) High food inflation has contributed to persistent food and nutrition challenges. Source: Lao Statistics Bureau. Prices for rice, sugar, oil, and chicken have doubled over the course of 2023 (Figure 2). Further, the growing season was delayed due to below average rainfall and the late start of the 2023 monsoon season. Other factors affecting agriculture production included labor shortage and rising input costs. Figure 2. Monthly Rice Prices in Kip Rice prices have risen sharply. Source: World Bank. 2024. Monthly Food Price Estimates by Product and Market: Lao PDR. Risks to Food Security The continuing macroeconomic imbalances are already affecting Lao PDR’s food security. The country’s high debt service obligations have constrained the fiscal space for deploying policies to respond to immediate issues of high inflation, which has placed pressure on people’s incomes and living standards, as well as long-term labor productivity issues. About two-thirds of the population live in rural areas, with many working in agriculture. Yet agriculture contributes only 15% to GDP. Earnings and farm income remain low, and many lack access to enough safe and nutritious food to meet their dietary needs. While household location and livelihood are important determinants of food insecurity, the country’s worsening economic concerns: rising public debt, steep currency depreciation, and elevated inflation, have contributed to persistent food and nutrition challenges. High food inflation is of particular concern, averaging 39.5% in 2023. This has reduced the people’s purchasing power, affecting almost all households, with half forced to devise food-coping strategies, such as reducing food consumption and meal frequency to bridge their nutritional needs. Food insecurity and poor nutrition come at a high cost. There are serious long-term consequences associated with households responding to current stress by reducing food quality and quantity, including malnutrition-related issues (e.g. stunting) that can reduce the lifetime productivity of a child. With a children-under-five stunting rate of 32.8%—among the highest globally—malnutrition is estimated to cost Lao PDR 2.6% of GDP annually. Sustainable Solutions To help address the worsening food and nutrition security linked to inflationary pressures, the Ministry of Agriculture and Forestry raised grant financing from the Global Agriculture and Food Security Program to bring down the cost of essential farm inputs, such as pesticides and fertilizers, and promote climate resilient farming. The government is also working with development partners using multisectoral approaches to help improve food security and nutrition. These include expanding social assistance, improving health services, and investing in clean water and sanitation. Moving forward, long-term sustainable financing mechanisms are needed to address the multidimensional nature of food insecurity within the context of macroeconomic instability. This includes reforms to address the country’s economic and financial challenges and continuing to upscale nutrition-sensitive and climate-resilient social assistance. The multisectoral response program must also include strategies to improve rural livelihoods, including solutions for low agricultural productivity and insufficient access to agriculture credit. Improving farmers’ access to financial services—including microfinance, microinsurance and adapting financial products to meet agriculture cashflow needs—are part of a broader suite of solutions to address these systemic issues. Resources Asian Development Bank. 2024. Asian Development Outlook. Manila. International Monetary Fund. 2023. IMF Country Report: Lao People's Democratic Republic. 2023 Article IV Consultation. Washington, DC. Lao People's Democratic Republic: Department of Planning, Ministry of Planning and Investment. 2024. Mid-Term Review 9th National Socioeconomic Development Plan (2021–2025). Vientiane Capital. Lao People's Democratic Republic: Ministry of Finance. Publications and Statistics. Lao Statistics Bureau. Lao Statistics Bureau. 2024. Lao Social Indicator Survey III-2023: Key Indicators Report. Vientiane Capital. Ask the Experts Emma R. Allen Senior Country Economist, Lao PDR Resident Mission, Asian Development Bank Emma Allen heads the mission’s economics, strategy, and programming unit. She also supports the design and implementation of ADB loans and technical assistance related to public financial management, state-owned enterprise reform, Sustainable Development Goals, knowledge and analytical support, and business environment. Before joining ADB in 2016, she was a labor market economist with the International Labor Organization. She received her PhD in economics in 2015 and her bachelor’s degree in economics and education in 2004 from the University of Newcastle, Australia. Follow Emma R. Allen on Soulinthone Leuangkhamsing Senior Economics Officer, Lao PDR Resident Mission, Asian Development Bank Soulinthone Leuangkhamsing participates in preparing the annual country programming, the country partnership strategy, and the Lao PDR chapter in the Asian Development Outlook. He also supports the processing and implementation of governance and public finance management programs. Prior to ADB, he was an economist at the International Monetary Fund Lao PDR Resident Representative Office. He holds a master’s in business administration from the Asian Institute of Technology School of Management, Thailand and a bachelor of economics from Flinders University in Australia. Asian Development Bank (ADB) The Asian Development Bank is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. Follow Asian Development Bank (ADB) on Leave your question or comment in the section below: View the discussion thread.