Cambodia Investment Review
The International Monetary Fund (IMF) has concluded its 2023 Article IV consultation in Cambodia, and the preliminary findings underscore the nation’s robust economic recovery from the adversities of the pandemic. With an anticipated growth projection of 5.3% for Cambodia in 2023, there’s substantial optimism about the Kingdom’s economic trajectory – despite strong global economic headwinds.
The economic momentum of Cambodia is apparent from its acceleration in growth rate, moving from a modest 3% in 2021 to a more pronounced 5.2% in 2022. According to the development organization, this recovery has been fueled by a robust manufacturing sector and the revival of the services domain. The rejuvenation of the tourism industry, combined with the booming exports of solar panels and electrical components, has further amplified the economic resurgence. However, the growth narrative isn’t uniformly positive, as evidenced by the muted recovery in the garment exports segment and a noticeable slowdown in construction activities.
Davide Furceri, who led the IMF team during its mission to Cambodia, remarked on the country’s economic progress. “The Cambodian economy is navigating its way steadily out of the pandemic-induced slump, powered by manufacturing prowess and a revitalized services sector. The upbeat performance in tourism and the spike in exports, especially solar panels and electrical components, are propelling the nation towards sustained economic growth,” he said in the statement.
Inflation Will Moderate To An Average Of 2.3% For 2023
Inflation, a crucial economic indicator, has also witnessed fluctuations. From its peak in June of the preceding year, inflation surged to 3.8% in September 2023. This uptick can be attributed to the rising costs of essential commodities, such as food and fuel. Nevertheless, the economic predictions suggest that inflation will moderate to an average of 2.3% for 2023, eventually aligning with its historical trend of about 3% by the subsequent year, barring any unforeseen disruptions in commodity prices.
Speaking about Cambodia’s fiscal landscape, Furceri commented, “The fiscal scenario presents a mixed bag. The deficit is expected to peak at 3.6% this year, primarily due to transient spikes in spending. However, a silver lining emerges as projections hint at this deficit shrinking to 2% by 2024, stabilizing further at an average of 2.5% in the foreseeable future.”
On the monetary front, the Cambodian government’s policies implemented during the pandemic phase are gradually being rolled back to maintain a sense of economic equilibrium. A significant policy shift is also on the horizon, with a shift from an exchange rate targeting paradigm to a direct inflation targeting mechanism. This is expected to enhance the efficiency of monetary transmission and steer the economy towards de-dollarization.
Continued Efforts In The Realm Of Anti-Money Laundering
The banking sector, a pivotal cog in the economic machinery, remains in a healthy state, underpinned by profitability and sound capitalization. However, there are challenges, especially with the rise in non-performing loans, which, as of recent data, constitute 4.6% of the total loan portfolio. Addressing these challenges, measures like the gradual discontinuation of loan forbearance and the introduction of regulations to reinforce capital adequacy and risk management have been instituted.
A significant feather in Cambodia’s economic cap is its efforts in the realm of Anti-Money Laundering. The country’s concerted endeavors to bolster the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework have not gone unnoticed. This commitment was vindicated when Cambodia was removed from the Financial Action Task Force’s list of high-monitoring jurisdictions in February 2023.
Looking ahead, there are clear imperatives for Cambodia’s economic strategy. Structural reforms are of paramount importance, with an emphasis on diversifying trade partnerships, incubating new growth vectors, and tapping into opportunities presented by climate transition initiatives. The shift in manufacturing focus to products like solar panels and electrical components is a testament to this forward-thinking approach. Furceri ended, “Elevating public governance standards and ensuring transparency are non-negotiable for attracting foreign direct investments and guaranteeing macroeconomic stability.”
