Cambodia Investment Review

World Bank Approves $275 Million to Bolster Cambodia’s Economic Growth and Resilience

World Bank Approves $275 Million to Bolster Cambodia’s Economic Growth and Resilience

The World Bank Board of Directors has approved $275 million in credit to support Cambodia’s long-term economic growth and resilience. This financing, sourced from low-interest International Development Association funds for developing countries, aims to promote reforms that enhance private sector competitiveness, strengthen Cambodia’s fiscal position, and provide assistance to the most vulnerable populations.

The credit is designated for the Second Cambodia Growth and Resilience Development Policy Financing Project, addressing ongoing economic challenges that have lingered since the COVID-19 pandemic. This follows a previous allocation of $274 million approved in 2022 under the first Cambodia Growth and Resilience Development Policy Financing.

Shifting Toward Achieving Sustained High-Quality Growth

“While Cambodia’s economy has rebounded from the impacts of the COVID-19 pandemic and subsequent shocks, the focus is now shifting toward achieving sustained high-quality growth,” commented Maryam Salim, World Bank Country Manager for Cambodia. “This new operation will boost private sector competitiveness, strengthen the government’s fiscal position, and provide assistance to the most vulnerable Cambodians.”

Read more: Policy Recommendations for Cambodia’s Economic Recovery: Insights from World Bank’s June 2024 Update

Cambodia experienced its first economic contraction in 25 years due to the pandemic, one of the most severe in East Asia. Although the economy has since recovered, growth has not returned to pre-pandemic levels. This situation is attributed to both the global economic slowdown and inherent structural challenges in Cambodia’s growth model. Key structural issues include weak productivity growth, low human capital formation, and barriers to private business formation and competition.

The country’s economy is highly concentrated in terms of products, export markets, and financing sources, making it susceptible to shocks. Additionally, Cambodia faces significant vulnerabilities to climate change, particularly floods and drought.

Aiming To Support Reforms To Address These Challenges

The new World Bank operation aims to support reforms to address these challenges. Reforms are expected to create an environment where firms can enter, exit, and compete fairly. Furthermore, the project seeks to enhance fiscal resilience by improving spending efficiency, mitigating risks associated with capital expenditure and public-private partnerships, and strengthening the government’s ability to raise financing through sovereign bonds.

In terms of social impact, the operation will facilitate the timely provision of relief to a broader set of vulnerable households in the event of natural disasters or economic shocks. It also aims to improve environmental regulations and bolster disaster risk management.

The World Bank’s June 2024 Cambodia Economic Update underscores essential policy recommendations to support ongoing economic recovery. The report forecasts a growth rate of 5.8% for 2024 and emphasizes the need for strategic fiscal and financial measures. These include reviewing tax incentives, reforming corporate income tax, and introducing personal income tax. Additionally, the report stresses the importance of safeguarding financial stability through intensified bank supervision, consolidation of financial institutions, and preparedness for non-performing loans.

Significance Of Vital Reforms For Cambodia’s Future

To foster a conducive business environment, the report recommends addressing informal sector practices, streamlining customs and licensing processes, and implementing the National Single Window. Enhancing education and workforce development, improving logistics and infrastructure, and upgrading urban services are also identified as key areas for improvement. These measures aim to guide Cambodia toward sustainable and inclusive economic growth, addressing current challenges and achieving long-term stability and prosperity.

In her remarks, Salim highlighted the significance of these reforms for Cambodia’s future. “The commitment to these reforms will determine the trajectory of Cambodia’s economic development. It is crucial to create a competitive business environment and a resilient fiscal framework to support long-term growth and stability,” she said.

The approved financing reflects the World Bank’s ongoing support for Cambodia’s economic resilience and development, aiming to foster a more robust and inclusive economy that can withstand future challenges.

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