In December 1975 the Lao People's Revolutionary Party (LPRP) was declared the ruling party of the newly-christened People's Democratic Republic of Laos. The LPRP has governed the country ever since.

The first decade after 1975 was a period of considerable hardship for the people of Laos. About 10 per cent of the population had left the country, including many of the educated and skilled. From 1975 to 1985 the economy grew at less than three per cent each year, barely enough to feed the population, and an abortive attempt to collectivise agriculture in the late 1970s seriously disrupted production.

At the Party Congress of 1986 the leadership announced a series of economic and social reforms known collectively as chintanakan mai ('new imagination'), which closely resembled the Vietnamese policy of đổi mới ('renovation'). Central to these reforms was the adoption of the New Economic Mechanism (NEM), which was designed to shift the economy away from central planning and towards limited free enterprise, at the same time opening the doors to foreign investment. These reforms have had a positive impact on the development of private enterprises, foreign tourist arrivals, foreign trade and foreign investment, and over the past decade GDP growth in Laos has averaged six per cent. However, Laos remains dependent on support from international donors, notably for its budget deficit.