Laos is grappling with severe economic challenges, having borrowed heavily, primarily from China through the Belt and Road Initiative, to fund extensive infrastructure projects, including about 80 hydropower dams on the Mekong River and its tributaries. Despite these efforts, the anticipated revenue has not materialized, and debt repayments are mounting. Last year, Laos’ total government-guaranteed domestic and international debt reached 13.8 billion US dollars, or 108 percent of the country's GDP, with approximately half of the 10.5 billion US dollars in foreign debt owed to China.

The economic strain was exacerbated by the pandemic, causing the Lao currency, the kip, to depreciate significantly, fueling rampant inflation, which averaged 31 percent over 2023. The World Bank attributes the kip’s falling value to the lack of foreign currency available due to large external debt repayments and limited capital inflows. This financial pressure has diverted funds away from essential services such as education and healthcare, severely impacting the population's well-being, especially in urban areas where consumer prices have doubled.

Experts argue that Laos’ strategy of rapid economic growth through large-scale infrastructure projects was flawed. Dr. Kearrin Sims from James Cook University suggests a more balanced approach prioritizing poverty alleviation and sustainable development. The debt crisis has led to significant challenges for the state electricity company, Électricité du Laos, which owes about 40 percent of the public debt. Mismanagement, over-borrowing, and poor planning have resulted in a surplus of energy production capacity and idle projects. Laos is now seeking ways to raise money, including selling state assets and negotiating debt deferrals with China, but substantial debt write-offs are needed to achieve financial stability.