Why Vietnam Should be Worried About Laos’ Economic Crisis

Laos is facing one of its worst economic crises in many years. Last month, inflation hit a 22-year high of 23.6 percent, according to official reports. Consequently, the price of fuel, gas, and gold has increased by 107.1 percent, 69.4 percent, and 68.7 percent, respectively, compared to June 2021’s price. Long lines at gas stations are no longer rare occurrences, which has, in turn, hurt the country’s recovery from the COVID-19 pandemic. The value of the local currency, the kip, has fallen from 9,300 to the U.S. dollar in September 2021 to around 15,000 today. With only $1.2 billion in foreign reserves, Laos is on the brink of sovereign bankruptcy, as the state cannot meet its debt obligations, which require it to pay $1.3 billion per year until 2025. Of Laos’ $14.5 billion in foreign debt, about half is owed to China to fund projects including the newly inaugurated $5.9 billion China-Laos railway connecting Vientiane to the Chinese border.

Against the backdrop of the crisis, Vietnam and Laos this month celebrated the 60th anniversary of the establishment of bilateral relations (1962-2022) and the 45th anniversary of the signing of the Treaty of Friendship and Cooperation (1977-2022). The leaders of both countries affirmed their “special relationship,” that Vietnam and Laos are not just neighbors but are “brothers and comrades” engaged in the joint task of national and socialist construction. Nguyen Phu Trong, the general secretary of the Vietnamese Communist Party described Vietnam-Laos ties as “invaluable” and “one of a kind” in world history. Lao Vice President Bounthong Chitmany asserted that Vientiane is determined to cultivate the “comprehensive unity of the great Vietnam-Laos relationship.”

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Khang Vu