Cambodia Investment Review
Economic activity in Cambodia held steady in 2024, with a revival in exports driven by external demand, despite uneven performance across various sectors. The World Bank’s latest Cambodia Economic Update, titled From Recovery to Resilience: Harnessing Tourism and Trade as Drivers of Growth, released on December 12, 2024, reveals that economic growth is projected to reach 5.3 percent this year, up from 5.0 percent in 2023, with trade playing a central role.
Export Surge and Tourism Recovery
The World Bank highlights a notable rebound in manufacturing exports, particularly in garments, travel goods, and footwear (GTF), as key contributors to Cambodia’s economic performance. A partial recovery in the tourism sector also played a role, with international tourist arrivals reaching pre-pandemic levels. However, while tourist arrivals have increased, spending remains subdued compared to 2019 levels, particularly due to fewer visitors from high-spending countries.
“Cambodia can further boost its growth by diversifying trade and improving productivity,” said Tania Meyer, World Bank Country Manager for Cambodia. “Investing in human capital, in particular education, and deepening reforms to improve the business environment will be key to enable the private sector to create more and better jobs.”
Challenges in Domestic Consumption
While export growth and tourism recovery are encouraging, Cambodia’s domestic consumption remains under pressure. The report notes that subdued credit growth and high household debt are holding back consumer spending, which has dampened the country’s overall economic recovery. The ongoing downturn in the property sector further exacerbates these challenges, contributing to weak credit demand and a continued slowdown in domestic investment.
Despite this, Cambodia’s manufacturing and services sectors are poised to maintain positive growth. The World Bank forecasts that real GDP growth will marginally improve to 5.5 percent in 2025 and 2026, supported by continued foreign direct investment (FDI) inflows, infrastructure development, and a recovery in both the tourism and manufacturing industries.
Focus on Fiscal Reforms and Revenue Mobilization
The World Bank’s report emphasizes the importance of fiscal reforms to sustain growth and ensure fiscal sustainability. While Cambodia has made improvements in fiscal management, it is crucial to boost domestic revenue mobilization to support public investment and social spending. The report calls for further tax reforms, including the discontinuation of pandemic-related fiscal interventions, as well as the introduction of more efficient governance of tax incentives to minimize revenue losses.
The World Bank also underscores the need for Cambodia to diversify its exports, particularly in manufactured and processed agricultural products, as well as services like travel and hospitality. Reducing the country’s reliance on a narrow export base will help mitigate risks posed by external shocks, such as global economic slowdowns and geopolitical tensions.
Reforming the Business Environment for Productivity Growth
A special focus section in the report explores Cambodia’s need to improve productivity to sustain its economic growth and achieve its ambition of becoming a high-income country by 2050. The report outlines several key reforms to support this transition, including accelerating structural transformation toward higher value-added products and services, modernizing and digitalizing businesses, and addressing obstacles that hinder competition and investment.
Specific policy recommendations include improving the ease of doing business by reducing registration costs for small firms, investing in rural infrastructure, and incentivizing businesses to adopt modern technologies and management practices. Strengthening institutions and regulations, particularly in areas such as business insolvency and market competition, is also critical to creating a stable and predictable business environment.
Outlook and Key Risks
Looking ahead, the World Bank projects a modest economic recovery in Cambodia, with real GDP growth expected to reach 5.5 percent in 2025 and 2026. Despite ongoing improvements in domestic consumption, the country faces several risks, including weak global demand, rising debt, and geopolitical uncertainties. The banking sector’s exposure to the real estate downturn and rising nonperforming loans are additional challenges that may impact financial stability.
The World Bank emphasizes the need for continued fiscal consolidation and further reforms to ensure that Cambodia remains on track to meet its long-term development goals. Strengthening the business environment and diversifying exports will be essential to sustaining growth and reducing vulnerability to external shocks. By addressing these challenges, Cambodia can position itself to become a high-income country by 2050, with a more diversified economy that is resilient to global uncertainties.
