Vientiane (VNA) – The Lao Government’s decision to raise salaries for civil servants in 2026 to help restore purchasing power amid rising living costs is facing significant challenges, including limited fiscal space, a heavy public debt burden and the economy’s continued exposure to external shocks, according to the World Bank (WB)’s Lao Economic Monitor June 2026.
According to the WB report, amid a fragile economic recovery, the salary increase is considered an important step to retain qualified civil servants while helping workers cope with rising living costs. Inflation in Laos remains high, reaching 10.2% in April due to the impact of the global fuel price crisis, directly affecting people’s livelihoods and real incomes.
The WB also noted that the salary increase could have spillover effects on the labour market, putting pressure on the private sector to raise wages to retain workers as many businesses face labour shortages amid an outflow of workers seeking jobs abroad.
The biggest challenge facing the salary policy is maintaining budget balance amid limited fiscal space. According to the report, although revenue collection improved in 2025 to 21.2% of GDP, creating additional room for higher spending, the Lao Government continues to face a heavy public debt burden.
Debt-service payments alone accounted for 3.2% of GDP, equivalent to around 16% of total budget spending and domestic revenue in 2025.
This burden reduces resources available for priority areas such as education, healthcare and infrastructure development.
To ensure long-term macroeconomic stability, the WB recommended that salary increases be implemented alongside public finance reforms. The Lao Government should expand budget revenue by fully enforcing the amended Income Tax Law, reviewing incentive policies and reducing tax exemptions that cause revenue losses, it said.
The WB also proposed shifting from broad-based fuel subsidies to targeted cash assistance for vulnerable groups, helping protect the poor more effectively without adding to the budget burden.
The report stressed that bringing public debt back to a sustainable level and improving the efficiency of public financial management will be decisive to ensuring a sustainable recovery of the Lao economy./.
