According to a recent report by the ASEAN+3 Macroeconomic Research Office (AMRO), Cambodia’s economy is projected to experience a gradual recovery in 2023, driven by robust domestic activities. While the growth of the garment sector is expected to slow down due to reduced demand from the US and EU, the non-garment manufacturing sector is forecasted to continue experiencing high growth. The report estimates that the country’s GDP growth rate will increase from 5.3% in 2023 to 6.2% in 2024.
One positive aspect highlighted in the report is the projected easing of consumer price inflation in 2023. This can be attributed to the moderation of global oil and food prices. Headline CPI inflation is expected to decrease to 2.6% in 2023, a significant decrease from the 5.3% recorded in 2022.
Additionally, Cambodia’s current account deficit is anticipated to narrow sharply in 2023 due to improvements in trade balances. The deficit significantly reduced to 25.7% of GDP in 2022 from 40.4% in 2021 and turned into a surplus of 3.4% of GDP in the first half of 2023. However, the current account balance is projected to register a small deficit of 2.6% of GDP for the entire year of 2023 and is expected to widen to 5.1% of GDP in 2024, according to AMRO’s Annual Consultation Report for Cambodia.
The value of the Khmer riel has experienced slight depreciation since May 2023, leading the National Bank of Cambodia (NBC) to resume forex interventions from September 2023. After a period of stability against the US dollar, the NBC intervened in the forex market with $50 million in September and an additional $40 million in October.
Despite the positive outlook, Cambodia’s economic recovery faces external risks and domestic vulnerabilities. These include a potential slowdown in China’s economic recovery, a weaker global economy due to prolonged high US interest rates, and a potential surge in global oil prices, all of which could have adverse effects on Cambodia’s open and dollarized economy.
To address these challenges, the report recommends prioritizing the restoration of fiscal space by phasing out pandemic-related stimulus and implementing counter-inflationary measures. Additionally, the report suggests that the National Bank of Cambodia should take a gradual and cautious approach to normalizing monetary and macro prudential policy measures. Strengthening supervision in the banking and non-banking sectors, adjusting reserve requirement ratios and capital conservation buffers in response to market conditions, and tightening regulatory oversight and supervision of unregulated shadow banking activities are also deemed critical.
Under the new government, the report emphasizes the need for a steadfast commitment to structural reforms to sustain economic growth momentum. This includes diversifying the economic structure, particularly in the manufacturing sector, enhancing workforce skills, addressing high logistics costs, promoting SME financing through digital lending options, implementing comprehensive climate change measures, and fostering the digital economy.
Source: Khmer Times
