Laos is building railways, highways and power networks to turn its location into an advantage. Sitting between China and mainland Southeast Asia, the country wants to become an important transit route for people, goods and electricity.
But much of that infrastructure has been financed with debt, leaving Laos to manage a bill that remains large even as its economy begins to stabilize.
In November 2025, Laos returned to international bond markets after staying away since issuing a Thai baht bond in 2023. It raised US$300 million through bonds listed on the Singapore Exchange, carrying an 11.25 percent interest rate.
Credit ratings also improved. Fitch and S&P, which had stopped rating Laos in 2022 because of limited data, returned with a CCC+ rating. Moody’s, which continued to monitor Laos, raised its rating to Caa2 after the bond was issued.
Yet in February 2026, the International Monetary Fund (IMF) still classified Laos as being in “debt distress”, meaning its public and foreign debt remained too difficult to manage sustainably.
The contrast reflects the larger story of Laos’ connectivity push.
A Railway Expected to Help Pay the Debt
The most prominent project is the Laos-China Railway, linking Kunming in China’s Yunnan province with Vientiane.
The Lao section runs about 414 kilometers from Boten on the Chinese border to the capital. The project cost around US$6 billion and was built through a joint venture in which Chinese state-owned companies hold 70 percent and Laos holds 30 percent.
Much of the financing came from a US$3.54 billion loan from China’s Export-Import Bank. Since the railway opened in late 2021, it has added around US$2.3 billion to Laos’ external public debt.
The railway has nevertheless attracted growing traffic. In 2024, it carried 19.11 million passengers, up 15 percent from the previous year, and 19.64 million tonnes of cargo, up 10.5 percent. By early October 2025, passenger numbers had reached 15.48 million, although growth had slowed to 2.38 percent year-on-year.
By March 2025, cumulative cargo volume had passed 56 million tonnes, including around 13 million tonnes of cross-border cargo. The Lao government expects the railway operator to become profitable in 2026. That would give Laos a much-needed source of revenue from one of its largest infrastructure investments.
Laos Built More Power Than It Can Use
Electricity is an even bigger part of Laos’ debt problem. For years, Laos has invested heavily in hydropower, hoping to become the “battery of Southeast Asia” by selling electricity to neighboring countries.
But building power plants and transmission networks costs a lot of money. Électricité du Laos, the state-owned electricity company, had around US$5.4 billion in debt in 2023, including US$1.8 billion directly backed by the government.
There is another problem: Laos has more electricity than it can currently use.
According to the World Bank, Laos’ electricity surplus increased from 8,100 gigawatt-hours in 2021 to 16,900 gigawatt-hours in 2025. In simple terms, a large amount of the electricity-generating capacity that Laos built is sitting underused because domestic demand and exports have not grown fast enough.
Laos is now trying to sell more electricity abroad. A new 500-kilovolt connection with China became fully operational in April 2026. It increased the amount of electricity that can move between the two countries and could allow Laos to send around 3 billion kilowatt-hours of electricity to China each year.
The Highways Come With Another Bill
The same approach extends to roads.
The Laos-China Expressway is planned to stretch 440 kilometers from Vientiane to Boten under a Build-Operate-Transfer arrangement. So far, only the first 110-kilometer section between Vientiane and Vang Vieng has been completed, opening in late 2020.
The section cost around US$1.3–1.5 billion and was financed partly through Chinese state-bank loans, including a 1.8 billion yuan loan from China Development Bank at 4.45 percent interest over almost 30 years. The concession lasts 50 years.
Drivers already pay tolls, with rates updated in January 2026 to between 1,500 and 6,500 kip per kilometer depending on vehicle size and weight.
The remaining sections toward Luang Prabang, Oudomxay and Boten are still in feasibility studies and investor negotiations. Their combined investment needs are expected to run into several billion dollars, with completion targeted for 2030.
Recovery Has Started, but the Debt Remains
Laos’ public and government-guaranteed debt reached around 116 percent of GDP at the end of 2022, while the kip lost about half its value between 2021 and 2022.
Of Laos’ roughly US$10.5 billion in external debt, almost half is held by Chinese creditors. China has helped prevent a default through debt-payment deferrals worth around US$2.5 billion and a currency swap facility of roughly US$800–900 million.
Laos is still expected to make around US$700 million in annual payments to China through 2028.
There has been meaningful improvement since the second half of 2024. Inflation fell from 26 percent in June 2024 to 5.6 percent in December 2025, while public debt fell from its peak to around 94 percent of GDP at the end of 2024.
These improvements helped Laos regain access to international bond markets. But the IMF’s February 2026 assessment still placed the country in debt distress, with low foreign-exchange reserves and high external debt keeping financial risks elevated.
Laos has built the physical connections to become a regional transit hub. The next phase is turning those railways, roads and power lines into reliable sources of revenue while meeting the debt payments that financed them.
