Trapped in debt: China’s role in Laos’ economic crisis - Lowy Institute

World Bank, Lao Economic Monitor: Reforms for Stability and Growth: Key Findings, October 2024, 5,
International Monetary Fund, Lao People's Democratic Republic: 2024 Article IV Consultation — Staff Report and Statement, 15 October 2024, 6, .
Lao PDR Ministry of Finance (MoF), Public and Publicly Guaranteed Debt Statistics Bulletin, 2024, 15. World Bank, Forging Ahead: Restoring Stability & Boosting Prosperity, Public Finance Review, 2023, 19, IBRD/World Bank,
World Bank, 2024. p. vii.
Though the deal included exporting large volumes of Lao tropical timber to Russia in lieu of cash repayments, driving deforestation. World Bank, Lao PDR- Debt Profile, Sustainability and HIPC Risks, May 17, 2024, 4, 13.
Souksakhone Vaenkeo, “Laos Strives for Upper Middle Income Country Status by 2030,” The Nation (Thailand), January 19, 2016,
Representing two of five remaining Communist regimes in the world, China and Laos have developed a robust relationship since their re-normalisation of diplomatic relations in 1988, following the Third Indochina War.
E.g. Scott Morris, The Kunming-Vientiane Railway: The Economic, Procurement, Labor, and Safeguards Dimensions of a Chinese Belt and Road Project (Centre for Global Development, 2019),
New York Times, “US Seeks Transparency on China’s Loans to Struggling Countries,” October 3, 2024,
World Bank, 2023, p. xvii
EDL-Generation Public Company, a public company listed on the Lao Securities Exchange, is 75% owned by EDL.
Asian Development Bank, Lao People’s Democratic Republic: Enhancing Debt Management and Transparency, September 2022, 2,
World Bank, 2023, p. 17.
Most lending to Laos from China Ex-Im Bank appears to have carried loan terms with interest rates of 2-3%, 20-year maturity, and 5-year grace period. The average terms of the China Ex-Im Bank loans to Laos for the Laos-China Railway project are: 2.3% interest rate, 5-year grace period, 25-year maturity. While less favourable than highly concessional MDB loans (1-2% interest, 5-10 year grace periods, 30-40 year maturities), China’s loan terms were still somewhat concessional and below market rates (Lao PDR Ministry of Finance, 2024: Table 9, p. 19). By contrast, commercial borrowing has been far more expensive, on average carrying an interest rate of 6.9%, 2-year maturity, and 1-year grace period (IMF, Lao People’s Democratic Republic Staff Report for the 2023 Article IV Consultation. Debt Sustainability Analysis, 2023a, Text Table 5, 14, April 6, 2023). file:///Users/u5217575/Downloads/
World Bank, 2023 p.91.
For an econometric investigation of these dynamics, see Mariza Cooray and Rolando Martinez, “Tracking the Hidden Forces Behind Laos’ 2022 Exchange Rate Crisis and Balance of Payments Instability” (2025),
Xu We, “China Welcomes PM of Laos,” China Daily, January 7, 2020,
This decision by Laos may have been due to the exclusion of private bondholders, the China Development Bank, and potentially the Export-Import Bank of China, who combined hold most of Lao debt, from the list of participating creditors. See Toshiro Nishizawa, “Claims of Default in Laos are Bankrupt,” East Asia Forum, August 25, 2022,
For instance, Fitch ceased providing a credit rating for Laos in October 2022 based on insufficient information and noting “limited clarity on the terms of these deferrals [from China] and the impact on the medium-term debt repayment profile.” FitchRatings, “Fitch Affirms Laos at 'CCC-', Withdraws Ratings,” October 10, 2022,
One caveat is that a large share of Lao imports is linked to investment projects with their own associated external financing. Yet, Laos’ reserves were already inadequate at the start of the decade prior to the ramp up in investment and increased only minimally thereafter, despite a decade of rapid economic growth.
In 2019 Laos had the second lowest reserve import coverage ratio amongst Djibouti, Ghana, Maldives, Pakistan, Sri Lanka, and Zambia (Source: World Development Indicators database).
The approach mirrored the logic of "big push" economic development first popularised in the 1950s and receiving a resurgence in the 2000s whereby large upfront investment is seen as the critical ingredient to countries breaking out of poverty. William Easterly, Reliving the ‘50s: The Big Push, Poverty Traps and Takeoffs in Economic Development (Centre for Global Development, 2005), Working Paper No. 65,
Pon Souvannaseng, “Liquidated: US/Japan-Chinese Rivalry, Financial Crises, and Explaining Shifts in Hydropower Finance Regimes in the Mekong,” Asian Perspective 46, no. 1 (2022): 49-75.10.1353/apr.2022.0002.
Simon Creak and Keith Barney, “The Role of Resources in Regime Durability in Laos: The Political Economy of Statist Market Socialism,” Communist and Post-Communist Studies 55, no. 4 (2022): 35-58. .
Ben Otto, “Foreign Money Pours into Laos: Neighboring Countries Jostle for Work in Resources and Hydropower, Western Companies Also Step In,” Wall Street Journal, January 29, 2013,
Sources: Pre-2015 projects: S. Custer, A. Dreher, T.B. Elston, B. Escobar, R. Fedorochko, A. Fuchs, S. Ghose, J. Lin, A. Malik, B.C. Parks, K. Solomon, A. Strange, M.J. Tierney, L. Vlasto, K. Walsh, F. Wang, L. Zaleski, and S. Zhang, Tracking Chinese Development Finance: An Application of AidData’s TUFF 3.0 Methodology (Williamsburg, VA: AidData at William & Mary, 2023). Post-2015 projects: Lowy Institute, Southeast Asia Aid Map, 2024, Data based on “spent” figures for China loan disbursements to Laos, in current dollars.
Carl Middleton, Nathaniel Matthews, and Naho Mirumachi, “Whose Risky Business?” in Hydropower Development in the Mekong Region, ed. N. Matthews and K. Geheb (Routledge, 2015), 127-152.
Although there are questions on methane releases from reservoirs. Variable rainfall and sedimentation of reservoirs under climate change could also affect the long-term financial performance of Lao hydropower.
World Bank, 2023a, p. 47. Hydropower projects also generate share dividends and small amounts of other tax revenue. See Khaosan Pathet Lao, “Laos Aims to Become Electricity Source of Southeast Asia,” November 21, 2023,
See also AMRO, Annual Consultation Report Lao PDR – 2023 (ASEAN+3 Macroeconomic Research Office, November 9, 2023), 44,
These are an investor preference in large energy projects, as developers upfronting large capital outlays typically base their own financing on the assurance of a buyer and price for their output. See Keith Barney and Kanya Souksakoun, “Credit Crunch: Chinese Infrastructure Lending and Lao Sovereign Debt,” Asia & the Pacific Policy Studies 8 (2021): 94-113,
Amy Trandem, Offloading Risks & Avoiding Liabilities: How Financial Institutions Consider Hydropower Risks in Laos (Focus on the Global South, February 2019),
These are conservative figures, excluding projects with uncertain off-takers. Installed capacity should be modified by the capacity factor of each hydroelectric operation to establish actual annual electricity output. However, capacity factors in Lao hydropower are often approximately 60%.
Barney and Souksakoun, 2021. Some of these projects have since been transferred to EDL-Gen.
JICA, 2020, focus on a key 2016 Power Development Plan (PDP) which forecasted rapid increases in domestic energy demand, before its replacement with a new PDP in 2019. See JICA, The Study on Power Network System Master Plan in Lao People's Democratic Republic Final Report (2020), EDL’s energy forecasting may have exerted less influence over investment decisions compared to more direct elite rent seeking interests.
World Bank, Project Appraisal Document: Lao PDR Power Distribution Improvement Project, May 10, 2023b, 12,
Megawatt figures derived through dividing by 8,760 hours per year. For similar estimates of domestic surplus capacity, see EDL (2024). Overview of Power Sector and Strategy of Lao PDR. Presentation Sep. 2024. A reserve margin of about 10-15% over seasonal peak demand is considered reasonable.
Assuming cost of hydropower construction at US million per MW. An unreleased donor report in 2020 arrived at a similar estimate, pointing to a recurring annual liability for EDL of some USfoot30 million Anonymous Bilateral Report, 2020.
David J. H. Blake and Keith Barney, “Impounded Rivers, Compounded Injustice: Contesting the Social Impacts of Hydraulic Development in Laos,” International Journal of Water Resources Development 38, no. 1 (2021): 130-151,
JICA, 2020; Barney and Souksakoun, 2021. For a useful overview of this megaproject, see International Rivers, “The Nam Ou Cascade Hydropower Project,” March 24, 2022,
Anonymous Bilateral Report, 2020: 25.
AMRO, Annual Consultation Report Lao PDR – 2022 (ASEAN+3 Macroeconomic Research Office, September 12, 2022), 46,
Including from the Electricity Generation Authority of Thailand (EGAT) and the Provincial Electricity Authority Thailand.
Personal communication, anonymous expert informant, 13 January, 2024.
In 2024 crypto mining may have accounted for about 400 MW, or 20% of domestic peak energy demand (Anonymous informant, 2 Sep., 2024). EDL has also experienced payment arrears from crypto-currency producers: Chono Lapuekou, “Laos Plans Crackdown on Non-Compliant Crypto Firms,” Laotian Times, November 15, 2023,
AMRO, 2022; AMRO, 2023: 4).
Thai Ratings Information Service (TRIS), Credit News: EDL-Generation Public Company, no. 88/2024, May 30, 2024,
Anonymous Bilateral Report, 2020, 26. Thai Ratings Information Service (TRIS), Credit News, EDL-Generation Public Company, no. 88/2023, May 19, 2023,
World Bank, 2023a, 86; AMRO, 2022.
Radio Free Asia, “Rainy Season Exacerbates Laos’ Power Outages,” July 2, 2024,
AMRO, 2023.
Anonymous Bilateral Report, 2020, 7, 22.
Luke Hunt, “Laos’ Debt Raising Eyebrows,” The Diplomat, December 14, 2012, ; Aubrey Belford and Amy S. Lefevre, “Economic Fears Expose Laos' Unequal Boom,” Reuters, December 23, 2013, Public documents from the ADB and the World Bank for the last 20 years consistently referred to EDL’s weak financial condition and the need for a Financial Sustainability Plan.
Admittedly, such optimism bias was arguably widely shared at the time.
The 2013 IMF Article IV report contains specific analysis of the debt implications of the Laos-China railway. See: IMF, Lao People’s Democratic Republic Staff Report for the 2013 Article IV Consultation—Debt Sustainability Analysis, October 31, 2013, 5, 10,
See: K. Ismail, R. Perrelli, and J. Yang, Optimism Bias in Growth Forecasts—The Role of Planned Policy Adjustments, IMF Working Paper 20/229, November 8, 2020, style='color:#00c288; font-weight:bold;'>Optimism-Bias-in-Growth-Forecasts-The-Role-of-Planned-Policy-Adjustments-49804. J. E. Flores, D. Ferceri, S. Kothari, and J. Ostry, Worse Than You Think: Public Debt Forecast Errors in Advanced and Developing Economies, prepared for the 3rd Annual Conference of the European Fiscal Board, "High Debt, Low Rates and Tail Events: Rules-Based Fiscal Frameworks under Stress," Brussels, February 26, 2021, IMF, Growth and Adjustment in IMF Supported Programs: Evaluation Report 2021 (Independent Evaluation Office of the International Monetary Fund, Washington, DC, 2021), style='color:yellowgreen;'>growth-and-adjustment-in-imf-supported-programs.
For a review of other country cases of putative debt trap diplomacy, see Deborah Brautigam, "A Critical Look at Chinese ‘Debt-Trap Diplomacy’: The Rise of a Meme," Area Development and Policy 5, no. 3 (2019): 1-14,
Albeit at the expense of potentially billions of dollars in losses for Chinese banks, whether wittingly or not.
Lee Jones and Shahar Hameiri, Debunking the Myth of ‘Debt-trap Diplomacy’: How Recipient Countries Shape China’s Belt and Road Initiative, Chatham House Asia-Pacific Program Research Paper, August 2020,
Not least in a context where assets held by EDL-Gen may be re-packaged and sold to a new entity.
International Crisis Group, Stepping into South East Asia’s Most Conspicuous Criminal Enclave, January 17, 2024,
Washington Post, “China’s Promise of Prosperity Brought Laos Debt — and Distress,” October 12, 2023,
Ralph Jennings, "China Leveraging Laos to Link up its Southeast Asian Economic Interests," South China Morning Post, October 27, 2024, David Hutt, "Cambodia, Laos Sack Foreign Ministers in Preparation for More Combative Geopolitics," Radio Free Asia, November 24, 2024,
Greg Raymond, Jagged Sphere: China’s Quest for Infrastructure and Influence in Mainland Southeast Asia (Sydney: Lowy Institute, 2021),
Ching Lee, The Specter of Global China: Politics, Labor, and Foreign Investment in Africa (Chicago: University of Chicago Press, 2018). Mira Käkönen, "Entangled Enclaves: Dams, Volatile Rivers, and Chinese Infrastructural Engagement in Cambodia," Advances in Southeast Asian Studies 16, no. 2 (2023): 269–295,
Ministry of Finance of the People’s Republic of China (MoF PRC), Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative, April 25, 2019,
ASEAN+3 Macroeconomic Research Office (AMRO), Annual Consultation Report Lao PDR – 2020, July 29, 2020, see also AMRO, 2024, 52.
AMRO, 2023.
AMRO, 2023, 18, 45.
While threatening the UNESCO World Heritage status of the former royal capital. Osborne, M. (2023). Mekong River: Work Has Begun on the Luang Prabang Dam Site. The Interpreter. 6 March.
Keith Zhai and Kay Johnson, “Taking Power: Chinese Firm to Run Laos Electric Grid Amid Default Warnings,” Reuters, September 4, 2020.
Khaosan Pathet Lao, “Laos-China JV Power Transmission Company Launches Full Operation in Laos,” January 31, 2024, . The $625 million was used by EDL to repay debt on-lent from the Lao Government in 2023 and 2024. See ASEAN+3 Macroeconomic Research Office (AMRO), Lao Consultation Report Lao PDR, 2024, 14.
World Bank, Systematic Country Diagnostic Lao People’s Democratic Republic (Washington, D.C.: World Bank, 2021), 39.
AMRO, 2022, 16 reports that EDL would need to pay about $50 million annually as service fee to EDL-T (and thus mostly to CSG) for grid access.
“Nam Ngum 3 Dropped From Hydropower List,” Bangkok Post, February 8, 2025. EGATi is the international investment arm of EGAT. As a result of this, EDL may now need to repurchase shares in NN3 (Anonymous Informant, 19 Dec. 2024).
TRIS, Credit News - EDL-Generation Public Company Ltd., No. 88/2024, May 30, 2024, AMRO, 2024, 20.
International Monetary Fund (IMF), Lao People’s Democratic Republic Staff Report for the 2024 Article IV Consultation—Debt Sustainability Analysis, November 2024, 14, file:///Users/u5217575/Downloads/.
Reuters, "Thai Regulator Accuses Energy Absolute CEO and Deputy of Fraud," July 13, 2024,
World Bank, 2023.
International Monetary Fund (IMF), World Economic Outlook: Policy Pivot, Rising Threats, 2024b, 119, file:///Users/u5217575/Downloads/.
Although the urban middle and upper classes in Laos are accustomed to currency hedging under conditions of deepening dollarisation, including through gold, foreign currency, and property.
Maliszewska, M., and D. van der Mensbrugghe. The Belt and Road Initiative: Macro and Sectoral Impacts. de Soyres, F., A. Muladbic, S. Murray and M. Ruta (2019). Common Transport Infrastructure: A Quantitative Model and Estimates from the Belt and Road Initiative. The first study estimates that Lao’s GDP would be up to 9% larger in 2030 compared to a baseline scenario, implying annual growth of about 6.9% instead of 6% over 2020-2030. The second study estimates GDP could be up to 22% higher than the baseline but does not provide a specific timeline or details on the baseline used. Assuming this would be achieved by 2030, similar to the first study, results in annual growth of 8% over 2020-2030.
That is, with an average external interest rate of 2% and domestic interest rate of 7%.
International Monetary Fund (IMF), Supplement to 2018 Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries, 2024c, file:///Users/u5217575/Downloads/.
Diego Rivetti, Achieving Comparability of Treatment under the G20’s Common Framework (Washington, DC: World Bank Group, 2021),
Sebastian Horn, Carmen Reinhart, and Christoph Trebesch, Hidden Defaults, Policy Research Working Paper 9925 (Washington, DC: World Bank Group, February 2022),
Our debt restructuring scenario is similar to that put forward by AMRO 2024,51. We do however estimate a somewhat higher degree of required debt relief. AMRO focuses on total government debt and excludes guaranteed SOE debt. Whereas we focus on public external debt, which includes guaranteed SOE debt but excludes domestic government debt. AMRO also focuses on gross financing needs as its key liquidity measure whereas we use debt service as a share of revenue as this is more relevant to Laos’ circumstances of limited fiscal revenue and an underdeveloped domestic financial system, as well as primary fiscal surpluses at present.
Muyang Chen "Beyond Donation: China’s Policy Banks and the Reshaping of Development Finance." Studies in Comparative International Development 55, no. 4 (2020): 436-459.
Toshiro Nishizawa "China’s Role in Sovereign Debt Restructuring." China International Strategy Review 6 (2024): 100–121.
Deborah Brautigam and Yinqiu Huang, "Integrating China into Multilateral Debt Relief: Progress and Problems in the G20 DSSI," SAIS-CARI Briefing Paper No. 9 (April 2023),
Reuters, "Exclusive: PowerChina Unit Sues Laos Utility for 55 Million," March 5, 2025, The lawsuit alleges $486 million in unpaid dues and an estimated $66 million in unpaid interest from EdL, accumulated between January 2020 - December 2024. This may relate to issues with the Power Purchase Agreement between the entities. The total represents 4% of Lao GDP.
While IMF involvement could open the institution to criticism that it was bailing out Chinese policy banks, as noted any write-downs would be distributed according to standards of comparable treatment.