Cambodia Investment Review
An International Monetary Fund (IMF) mission to Cambodia, led by Kenichiro Kashiwase, has raised concerns about increasing risks to the country’s economic stability in 2024, despite a projected growth rate of 5.5 percent. The mission, conducted from September 17-30, flagged vulnerabilities in key sectors, including rising private debt, a slowdown in construction and real estate, and increasing non-performing loans (NPLs). The IMF warned that while Cambodia’s economy shows signs of recovery, these risks could undermine future growth prospects.
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Sectoral Slowdown Amid Uneven Growth
Cambodia’s economic growth in 2023 was estimated at 5 percent, matching the pace of 2022. However, the IMF cautioned that while growth in garment exports, agriculture, and tourism is expected to drive a 5.5 percent expansion in 2024, the construction and real estate sectors are experiencing a correction after years of rapid growth. “The construction and real estate sectors are going through a correction, following rapid growth in prior years,” said Kenichiro Kashiwase, IMF mission leader.
Additionally, inflation, while moderating, remains a concern. Inflation averaged 1.6 percent in the first half of 2024, down from 2.1 percent in 2023, reflecting global commodity price trends and weak domestic demand. The IMF expects inflation to stabilize at around 1.5 percent for the year before rising toward a long-term trend of 3 percent.
The IMF also highlighted growing fiscal pressures. Cambodia’s fiscal deficit was estimated at 2.8 percent of GDP in 2023, driven by declining tax revenues and rising tax exemptions. Delays in infrastructure execution further exacerbated the situation. The deficit is projected to rise to around 3 percent of GDP in 2024, with public debt expected to increase moderately over the next decade. Despite these challenges, the IMF noted that the risk of debt distress remains low.
However, deteriorating asset quality in the financial sector, particularly the rise in NPLs to 6 percent of total loans, is a cause for concern. The IMF attributed this to the phasing out of COVID-19-related forbearance measures and warned of potential financial instability.
Rising Private Debt and Financial Sector Vulnerabilities
Cambodia’s financial sector is facing significant challenges due to rising private debt and a slowdown in credit growth. The IMF noted that NPLs, particularly in the tourism and real estate sectors, pose risks to both economic growth and financial stability. “Emerging vulnerabilities with the temporary roll-back of the COVID-19 forbearance measures have contributed to this rise,” Kashiwase added.
To address these challenges, the IMF urged Cambodia to phase out forbearance measures and enhance supervision of loans by real estate developers to homebuyers. The IMF also recommended developing a comprehensive macroprudential policy strategy and establishing a crisis resolution framework to safeguard financial stability.
The IMF’s Article IV consultation concluded with a call for continued modernization of Cambodia’s monetary policy, efforts to strengthen fiscal buffers, and structural reforms to improve productivity and diversify growth drivers.