Cambodia Investment Review
Cambodia’s efforts to promote a resilient recovery from recent economic shocks has been bolstered by a $274 million credit from the World Bank for the Cambodia Growth and Resilience Development Policy Operation. The financing approved by the World Bank’s Board of Executive Directors will support reforms that will boost growth and strengthen Cambodia’s resilience.
Cambodia’s economy was badly affected by the COVID-19 pandemic, with GDP contracting by 3.1 percent in 2020, the country’s first recession in 30 years. Simulations show that the poverty rate increased by 2.8 percentage points, pushing about 460,000 individuals into poverty.
The government responded quickly and effectively to the pandemic, assisting business and vulnerable families, but the associated rise in spending has meant that fiscal consolidation will be required in the period ahead.
Supporting access to finance for small and medium enterprises
While the economy has recovered in 2021 and 2022, the weakening external environment means that returning to the strong rates of growth seen prior to the pandemic will prove challenging. The ongoing war in Ukraine, economic slowdown in the United States — Cambodia’s largest export market — and slower growth in China will all affect Cambodia’s trade prospects. The country is also highly vulnerable to the impacts of climate change, with high exposure to floods and drought.
The operation supports reforms that will streamline the business registration processes, promote competition, and expand access to finance for small and medium enterprises. Other reforms will enhance fiscal resilience, including by improving the management of Public Private Partnerships and facilitating the issuance of government debt in the domestic market.
The operation will also facilitate the timely provision of relief to a broader set of vulnerable households in the event of a natural disaster or economic shock.
Cambodian governments 3Rs of development
Maryam Salim, World Bank Country Manager for Cambodia said: “While Cambodia’s ‘Living with COVID-19’ strategy has helped rebuild the economy, the country remains vulnerable to downturns in external demand and disruptions in global supply chains.”
“This new operation will help Cambodia boost private sector competitiveness, strengthen its fiscal position, and provide assistance to its most vulnerable people,” she added.
The operation is anchored in the government’s post-pandemic Economic Recovery Plan, which has three broad objectives of recovery, reform, and resilience, and builds on the $200 million Cambodia Relief, Recovery, and Resilience Development Policy Financing operation approved in 2021.
The financing provided by this operation will help to alleviate some of the fiscal pressures that the government is now facing, having run relatively large deficits in recent years. The $274 million credit is provided by the International Development Association (IDA), the World Bank’s fund for the poorest countries.