Countries including Sri Lanka, Zambia and Lebanon are already in the grip of crises and are seeking international help to provide new loans or restructure their piles of debt. Investors are yanking money from emerging-market stocks and bonds in search of safer returns elsewhere.

Laos’s problems also underline another feature of the current wave of anxiety around emerging markets: The country’s single biggest creditor is China, giving Beijing a decisive say over whether Laos sinks into default or hangs on until its economic fortunes revive, according to economists.

China is a leading lender to developing economies. Laos owed China $5.1 billion as of December 2021, according to Lao government data, around a third of its total debts of $14.5 billion and almost half of the $10.4 billion it owes to foreign lenders.

Credit-rating firms say China and other creditors will need to give Laos more breathing room if it is to avoid default, as it has scant options for raising new loans elsewhere.

“It is unclear whether China will continue to offer some sort of debt relief to help Laos through this more challenging time,” said Jeremy Zook, director of sovereign ratings at Fitch Ratings in Hong Kong.

China’s Foreign Ministry said China “supports relevant financial institutions to negotiate with Laos and properly solve the debt problem, and is willing to continue to provide assistance to Laos in its ability to cope with current difficulties.” Laos’s Foreign Ministry declined to comment.

Wedged between China, Thailand, Cambodia and Vietnam, landlocked Laos racked up debt in the years before the pandemic to finance an infrastructure binge aimed at boosting regional trade and investment.

It built new roads as part of a wider regional plan to shorten transit times across Southeast Asia. A $6 billion high-speed rail line connecting the Lao capital of Vientiane to China’s southern province of Yunnan opened in December. A big chunk of the financing—$3.4 billion—was a loan from the Export-Import Bank of China, a Chinese state-owned lender, according to World Bank records.

Economic growth in Laos was around 6% to 7% a year in the years before the pandemic. Lao government data show that growth slowed to around 3% in 2020 as public-health restrictions hurt industry and consumption in the country of around 7.4 million people.

The pandemic hammered exports of food, electricity and metals, and remittances from Lao workers in neighboring countries collapsed, strangling sources of financing for the country’s import bill.

As the global backdrop has darkened, Laos’s problems have worsened. Inflation hit an annual rate of 24% in June. A shortage of dollars is squeezing imports of gasoline and other essentials. The World Bank estimates that Laos had foreign-exchange reserves of $1.3 billion at the end of 2021, enough to pay for just over two months of imports.

Though there are some signs of recovery, fuel shortages and rampant inflation are battering the economy, said Heron Lim, an economist at Moody’s Analytics. China’s slowdown risks taking more wind out of its sails, he said. The government has said it would raise the minimum wage, which may add to already severe inflationary pressure. “There is a sense of weakness prevalent at this time,” he said.

Laos’s foreign and domestic debts of $14.5 billion are the equivalent of 88% of its gross domestic product, 20 percentage points higher than in 2019, according to the World Bank.

Repayment difficulties are exacerbated by a slide in Laos’s currency, the kip, as most of its external debts are in foreign currencies, including the U.S. dollar, Thai baht and Chinese yuan. Some smaller loans are denominated in Japanese yen, Korean won and the euro.

The official exchange rate puts the kip down 50% against the dollar compared with a year ago, while an unofficial exchange rate shows an even steeper decline, intensifying the economic pain facing the country’s households and businesses.

Credit-rating firms are warning that Laos may struggle to pay debts falling due this year and next. Laos is on the hook for $1.3 billion of foreign debt repayments on average every year through 2026, a sum equivalent to half the government’s annual revenue. Between 47% and 58% of each year’s total repayments are owed to Beijing, according to Laos government figures and Fitch Ratings.

Rating agency Moody’s Investors Service in June cut Laos’s credit rating to just two notches above the category reserved for those typically in outright default, saying it isn’t clear if the government will be able to keep borrowing to finance its budget deficit or persuade creditors to renegotiate its existing loans. Fitch Ratings has Laos at CCC, a label that means default is “a real possibility.” Other countries with that label include Belarus, Tunisia and Argentina.

The International Monetary Fund concluded a regular check of Laos’s economic health in March, but said Lao authorities haven’t consented to its publication. Some analysts say that points to strain between the Communist government in Vientiane and the Washington, D.C., based-IMF that suggests Laos has little interest in seeking the fund’s help.

But there are some grounds for optimism, analysts and economists say. Exports of hydroelectricity from dams along the Mekong River are growing and the country has reopened to tourists drawn by Laos’s ancient temples, megaliths and limestone caves.

A regional recovery is under way as Southeast Asia dismantles its remaining Covid-19 controls. As a one-party Communist state, Laos isn’t experiencing the political instability that has gone hand in hand with economic strain in other emerging markets, some analysts say.

The government has shrunk its budget deficit by cutting spending and has implemented capital controls to preserve what foreign-exchange reserves it has. It is prodding companies with overseas earnings to pour them into the domestic financial system rather than leave them offshore. In March, it tapped investors in Thailand for new funds, a sign that capital markets may not be entirely shut.

Khoon Goh, head of Asia research at ANZ in Singapore, said he doesn’t think Laos should be tarred with the same brush as Sri Lanka. He said he is optimistic that Laos will be able to negotiate a deferral of some of its looming debt repayments long enough to get growth back on track.

“The recovery is slow going, but hopefully things will start to pick up in the second half,” he said.

China’s approach will be pivotal, analysts say. Fitch Ratings estimates China provided relief on around $800 million of debt in 2020 and 2021, though it isn’t clear if it agreed to reduce the sum owed or just deferred payments. China may be willing to offer more help to protect its investments in Laos, but it is unclear what Beijing might ask in return.

“It does seem the path forward—maybe—is that China gives a bit of leeway for Laos to make it through this liquidity crunch,” said Mr. Zook of Fitch Ratings.