Abstract/Summary

Economic Performance and Outlook:

• Cambodia's real economy grew by 5.1% in 2022, driven by strong performance in garment and emerging non-garment industries, alongside a gradual tourism recovery. On the other hand, key sectors such as construction are yet to recover.
• Inflation reached 5.4% in 2022, driven by rising food prices, core inflation, and oil prices.
• The banking sector remains sound and resilient, but concerns persist over shadow banking, particularly in real estate.
• The fiscal deficit decreased to 1% of GDP in 2022, supported by enhanced revenue mobilisation and reduced government spending. In addition, public debt slightly decreased to 34.8% of GDP in 2022, after increases in previous years.
• Looking ahead, Cambodia's GDP is projected to grow by around 5.3 percent in 2023 and approximately 6 percent from 2024 onwards.

External and Internal Risks:

• Cambodia's growth faces external risks from slowdowns in key partners like China and the US, and internal risks related to the weak real estate sector and shadow banking practices, which pose risks to financial stability.

Recommendations:

• Promote Export Diversification: Strengthen business environment transparency, intellectual property rights, and national certification capacities, while improving infrastructure, reducing electricity costs, and lowering trade barriers to enhance production and market access. Invest in human capital to upgrade workforce skills and expand export markets through free trade agreements to reduce reliance on a few concentrated markets.
• Revitalise Tourism: Diversify tourism offerings beyond Angkor Wat by promoting ecotourism and addressing infrastructure challenges. Diversify tourist markets with a focus on promotional campaigns to enhance and expand Cambodia’s image globally.
• Restore Fiscal Space: Increase revenue mobilisation through tax reforms while ensuring efficient spending. Improve capital expenditure disbursement and performance-based budgeting.
• Safeguard Financial Stability: Strengthen bank supervision through stress tests, onsite inspections, and aligning regulatory frameworks with international standards. Prepare for rising NPLs by enhancing resolution options and strengthening insolvency regimes, while developing legislation on deposit insurance and bank resolution.