Cambodia Investment Review

Asian Development Bank Outlines Major Policy Challenges for Cambodia’s LDC Graduation Post-2027

Asian Development Bank Outlines Major Policy Challenges for Cambodia’s LDC Graduation Post-2027

Cambodia Investment Review

Cambodia is preparing for a significant shift as it approaches its anticipated graduation from the United Nations’ least-developed-country (LDC) category in 2027, a milestone that underscores decades of developmental progress. This transition is detailed in the Asian Development Bank’s (ADB) 2024 Economic Outlook, which highlights both the achievements and the forthcoming challenges.

As noted in the ADB report, Cambodia has surpassed critical thresholds necessary for graduation: the gross national income per capita has reached $1,590, exceeding the $1,306 threshold; the human assets index is at 77.8, above the 66 required; and the economic vulnerability index has improved to 24.1, comfortably below the 32 limit. These metrics position Cambodia well for its second consecutive positive review this year, paving the way for its graduation.

Read More: ADB Report Urges Cambodia to Scale Up Green Investment for Sustainable Growth and Climate Resilience

Phasing Out Of Certain Trade Benefits For Cambodia

Graduation from the LDC category is expected to foster long-term economic benefits by enhancing Cambodia’s attractiveness for foreign direct investment (FDI) and accelerating economic growth through positive signals about the country’s development and stability. It is also likely to promote economic diversification, reduce dependency on specific markets and products, and lead to stronger institutional development and governance.

However, the ADB report also warns of immediate challenges, particularly the loss of trade benefits crucial for Cambodia’s key exports. The graduation will notably affect Cambodia’s garment, footwear, and textile (GFT) exports to the European Union (EU), which in 2023 accounted for 12.7% of the country’s total exports. The World Trade Organization (WTO) predicts a potential 6.0% decline in exports due to the loss of LDC-specific trade benefits. Additionally, the reduction in official development assistance (ODA), which has significantly contributed to Cambodia’s development in the past decade, poses a financial challenge.

Key Investments Needs For A Conducive Business Environment

To navigate these challenges effectively, Cambodia is urged to expand its engagement in free trade agreements, particularly with the EU, to secure market access post-graduation. The ADB suggests that Cambodia intensifies its efforts towards economic diversification into new markets and higher value-added products. Additionally, pursuing the Generalized System of Preferences Plus (GSP+)—which offers zero-tariff benefits to countries after they graduate—is recommended, provided Cambodia ratifies the necessary environmental and governance conventions.

Further recommendations from the ADB include investing in human capital, enhancing climate-resilient infrastructure, and supporting the growth of micro, small, and medium-sized enterprises (MSMEs). Strengthening domestic resource mobilization to reduce dependency on ODA and diversify funding sources for public investments in infrastructure and social development is also emphasized.

As Cambodia edges closer to this pivotal moment, the strategies it employs and its adaptability to the evolving economic landscape will critically determine its post-graduation trajectory and continued development.

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