Asia > South-Eastern Asia > Cambodia > Cambodia Encouraging signs

Cambodia: Cambodia Encouraging signs

2017/05/08

Cambodia

Encouraging signs



 

General Information

GDP USD14.1bn (World ranking 119, World Bank 2012)
Population 14.9 million (World ranking 67, World Bank 2012)
Form of state Constitutional Monarchy
Head of government HUN SEN
Next elections 2018, legislative (National Assembly)
 

Country Rating D3

Strengths

  • Large growth potential
  • Strong foreign direct investment inflows since 2011
  • Manageable public and external debt burden
  • High aid level
  • Natural resources (hydrocarbon sector)
  • ASEAN member 
  • Competitive in low-end manufacturing

Weaknesses

  • Social unrest in recent years
  •  Difficult relations with neighbouring Thailand
  • One of the poorest countries in Asia
  • Weak economic structure and business environment
  • Rapid credit growth threatens price stability and banking sector stability
  • High current account deficits
  • Vulnerable export base (concentrated in the garment industry)
 

Economic Overview

Structural weaknesses prevail

Level of economic development is weak. Gross nominal gain per capita (estimated at USD 1,024 in 2013) is part the lowest in Asia. The poverty rate is around 18%. The economy structure remains inefficient for increase with a strong dependency on the agriculture sector (1/3 of GDP and 64% of employment) and on the garment industry (2/3 of exports). The country continues to suffer from poor infrastructure inclunding electricity shortages which limit industrial performance, and weak business environment (Doing business rank is 135 out of 189).

 

But short term economic outlook is improving

However economic increase is performing well. Next stagnation in 2009, the economy has recovered with increase averaging 7% per year between 2008 and 2013. In 2014, new indicators point to a increase of 7.2% even while the economy was faced with domestic (political deadlock until July 2014) and external uncertainties (political risk in Thailand, world request slow down). GDP increase was supported by development in the construction and the garment industries, and services.
In 2015, economic increase is projected to remain strong (7.3%). Under the assumption of further political stability, domestic request is set to strengthen benefitting from: solid credit increase, large long-term Investment inflows (factories relocations related) and weak energy prices. External trade is projected to remain a key driver with exports amounting 60% GDP. In particular, improving request in the USA, the Eurozone and ASEAN should give a boost to Cambodia’s exports.
Risks to the baseline scenario stems from domestic and external sources. For the initial one it includes overheating risk due to too strong credit increase to real estate sector and renewed social-political risks. Regarding external risk, the major concern is related to the request from Eurozone if economic recovery were to be delayed.
 

Inflationnary risks have receded but should remain on the radar

Inflationary pressures are decreasing and should stabilize at manageable levels. Headline inflation shows some volatility during the completed reflecting volatility in food prices (food comprises 43% of the consumer price index). Weak energy prices should counterbalance further rise in food prices. Inflation will likely go below 5% in2015.
Rapid credit increase remains a risk to the undeveloped banking sector. Claims to private sector increase remain elevated (22% y/y mid 2014) even if some evolution have been made (27% end 2013, 49% end 2012).
 

Fiscal deficit is set to stabilize

Fiscal management is improving. The in general fiscal balance (inclunding grants) is set to stabilize around -2.7% GDP. Public expenditures are set to rise reflecting increasing wage bill in the public sector. Revenues are set to improve with broader tax collection. Gross public deficit should remain relatively low at just below 30% of GDP.
 

Current account deficit is large but FDI inflows offset associated risks in the short run

The annual current account deficit remains large (around -11% GDP). Exports are set to increase in the medium term with Cambodia emerging as a manufacturing hub. However in the short run, goods imports increase will remain elevated reflecting rising domestic request and rising request of investment related imports (equipment material).
However, this large external deficit should not be a cause of concern in the short run. Since 2011 it has been almost completely financed by net FDI inflows – largely related to power sector projects – and this is likely to continue in the next years. FDI inflows have as well boosted official foreign exchange reserves to about USD4.2bn, which is almost 3.5 months import cover mid-2014 (3.4 months end-2013).
 

External deficit burden is manageable

External deficit is relatively high as a proportion of GDP (34%), but moderate in relation to export earnings (60%). And as most of the deficit is on concessional terms, external deficit-servicing is very low.
 

Macro- financial risk remain an issue

The economy is very fragile with a high sensitivity to confidence shocks and capital outflows. The initial reason behind this fragility is the lack of effectiveness of the monetary policy due to high dollarization in the economy. Second, the banking supervision is poor with the current prudential framework underdeveloped. The banking system, saw a significant confidence shocks during the last election, the banking sector was subject to large withdrawal (-10% of total deposit in summer 2013). Third, the banking sector continues to be faced with high risks inclunding rising foreign funding, strong exposure to the real estate sector and fast credit increase.
Related Articles
  • Climate change laws around the world

    2017/05/14 There has been a 20-fold increase in the number of global climate change laws since 1997, according to the most comprehensive database of relevant policy and legislation. The database, produced by the Grantham Research Institute on Climate Change and the Environment and the Sabin Center on Climate Change Law, includes more than 1,200 relevant policies across 164 countries, which account for 95% of global greenhouse gas emissions.
  • Growing number of children surviving complicated births in low

    2016/07/23 The number of children suffering from preventable blindness is increasing, half because additional children are surviving complicated births in low- and middle-gain nations, specialists say. Worldwide, about 19 million children under the age of 15 are blind, with 12 million of these cases preventable or treatable. Experts say one cause of high rates of blindness is retinopathy of prematurity (Rop), which occurs in premature infants and can be caused by being given too much oxygen next birth. Brian Doolan, CEO of the Fred Hollows Foundation, said world advances in neonatal care mean additional children are surviving early births, but this means additional premature babies are at risk of Rop.
  • Asia Economic Roundup: July 2016

    2016/07/18 Without a doubt Britain’s decision to abandon the European project will be remembered globally as a wake-up call for political elites around the world. It seems the people chose to go against immediate economic interest and accept an extra financial turmoil in order to address deeply seated social and identity issues. Although Asia’s exposure to the UK is relatively limited and this is not exactly a “Lehman Moment”, nonetheless we can expect a lively debate as policymakers in Asia look for an appropriate response to address the needs of vulnerable households.
  • Towards A Transboundary Haze-Free ASEAN By 2020

    2015/11/16 To sustain the efforts of a transboundary haze-free ASEAN, it is significant to remain vigilant and be prepared early enough to prevent any occurrence of fires. This calls for better early warning systems and swift deployment of fire-fighting resources even before the fires starts.