IMF Concludes 2013 Article IV Mission to Cambodia

Press Release No. 13/451
November 15, 2013

An International Monetary Fund (IMF) team led by Ms. Meral Karasulu visited Cambodia during November 4 -15, 2013 to conduct the 2013 Article IV consultations.1 The team assessed macroeconomic developments and held policy discussions with ministers and senior officials of the Royal Government of Cambodia, and met a large group of stakeholders, including representatives of the academic and business community, civil society, and development partners.

At the conclusion of the visit, Ms. Karasulu issued the following statement:

“Economic activity remains strong driven by robust garment exports, tourism, and construction, despite a tepid global recovery. GDP growth is projected at 7 percent in 2013 due to recent floods and a temporary slowdown during the election period. As global recovery continues, growth is projected to pick up to 7¼ percent next year. Stable food and fuel prices are expected to keep inflation at around 3-4 percent in 2013-14. The current account deficit remains fully financed by foreign direct investment (FDI) and official loans, and is projected to narrow over the medium term as exports continue to grow and the completion of large power projects slows down import growth. Gross official reserves stood at US$3.7 billion in September, about 3½ months of prospective imports.

“Notwithstanding robust growth, the economic outlook is subject to downside risks. The prospective exit from unconventional monetary policy in the U.S. may have significant spillovers to the region, affecting Cambodia’s FDI, tourism, and bank flows from abroad. Slow European growth continues to pose downside risks to garment exports. On the domestic side extreme weather conditions, labor market instabilities, and rapid credit growth, particularly to the real estate and construction sector, pose potential risks. On the positive side, improving power and rural infrastructure as well as more diversified FDI and a renewed reform momentum after the elections could provide a further boost to growth.

“Against this background, discussions focused on safeguarding the momentum of fiscal consolidation while addressing development needs, preserving macro-financial stability, and promoting competitiveness and human capital to support sustainable and inclusive growth.

“Rebuilding government deposits while maintaining an adequate level of capital and social spending remain the top fiscal policy priority. Fiscal revenues continued to improve in 2013 due to buoyant economic activity and strengthened revenue administration. The fiscal balance, excluding grants, is projected to improve further by about a half percentage point of GDP in 2013. Despite this progress, there is room to increase fiscal buffers that can be used to mitigate the adverse impact of potential shocks. Plans to reduce large wage gaps in civil service to increase quality and governance of public services are well placed. These efforts should be part of a broader civil service reform to improve efficiency and productivity in order to preserve the momentum of fiscal consolidation.

“In this regard, planned implementation of the Revenue Mobilization Strategy and Public

Financial Management Reform Programs remain essential to finance vast development needs without jeopardizing fiscal sustainability. These reforms would help further strengthen revenue administration with fair and efficient tax policies and improved governance, while increasing the efficiency of public spending and the quality of public services. Further capacity improvements in managing contingent liabilities would also help safeguard the fiscal space.

“Preserving financial stability in a fast changing financial landscape emphasizes the need to be ahead of the market developments to manage macro-financial risks. Further improvement in the supervision of liquidity risks is critical to improve the resilience of the banking sector against potential funding pressures. In this regard, the recent launch of the negotiable certificate of deposits by the National Bank of Cambodia (NBC) paves the way toward market-based monetary policy operations to better manage liquidity in the financial system.

“Enhanced regulatory and supervisory vigilance would help contain credit growth at sustainable levels. While stronger enforcement of micro-prudential regulations and continued strengthening of supervisory capacity remain essential, better monitoring of bank flows from abroad would help improve monetary control over credit growth. A buoyant real estate market also needs to be closely monitored to avoid potential overheating in the sector. Better coordination of surveillance among key supervisory agencies will help ensure the stability of a rapidly evolving financial system and improve readiness to respond to potential shocks.

“Promoting competitiveness and improving human capital are essential cornerstones of the government’s development strategy to diversify sources of growth and make it more inclusive. Early signs of diversifying FDI could be bolstered with better infrastructure and improved electricity supply. Continued improvement in the business climate, governance, and human capital, including through education and training, would provide support to private sector development.”


1 Under the Article IV consultation, IMF staff under take annual surveillance and analysis of economic developments and policies of member countries for discussion by the Executive Board. The last Article IV consultation discussion with Cambodia was concluded in December 2012.



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