## 1. Drivers of Inflation in Cambodia ## Source details **Canonical URL:** [1. Drivers of Inflation in Cambodia](https://www.imf.org/-/media/files/publications/cr/2025/english/1khmea2025002-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1khmea2025002-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1khmea2025002-source-pdf.pdf.json) --- ### Context and recent developments - Cambodia’s economy rebounded to 6.0 percent in 2024, up from 5.0 percent in 2023, but the recovery is uneven and faces rising vulnerabilities. - Growth drivers and headwinds: - Strong rebound in garment and agricultural exports and a modest recovery in tourism (below pre-pandemic levels). - Subdued domestic demand due to corrections in construction and real estate. - External pressures: U.S. tariffs, geopolitical fragmentation, border conflict with Thailand (despite the July ceasefire), declining aid flows, and limited policy buffers. - Large-scale return of Cambodian migrant workers from Thailand—estimated at nearly 1 million individuals by end August 2025—disrupted tourism and remittance inflows and strained the domestic labor market. - Nowcasting and early-2025 indicators: - Nowcasting estimates suggest growth of 6.2 percent (y/y) in 2025H1 driven by external demand; exports growth moderated to 7.0 percent (y/y) in September 2025. ### Inflation dynamics and drivers - Recent trajectory: - Headline inflation averaged 0.9 percent in 2024. - Headline inflation peaked at 6 percent (y/y) in January 2025 due to food price volatility (food is 45 percent of the CPI basket) and base effects. - By August 2025, headline inflation eased to 1.8 percent. - Core inflation: 1.0 percent in 2024, softened to 0.7 percent in August 2025. - Key contributors to volatility: - Food-price volatility (food = 45 percent of CPI). - Fuel price movements. - Base effects from low 2024 inflation. - Modest supply-side pressures from border conflict with Thailand (disruptions to food and transport costs). - Projections: - Inflation is projected to rise to around 2.5 percent on average in 2025. - Inflation is expected to moderate to 2.3 percent in 2026. - Inflation is expected to gradually rise to 3.0 percent by 2030. ### Exchange rate, reserves, and foreign exchange market - The Khmer Riel (KHR) experienced appreciation pressure against the U.S. dollar (USD) in 2025. - The National Bank of Cambodia (NBC) purchased USD to provide KHR liquidity for FX market functioning amid strong export and FDI inflows. - Reserves remained adequate, with around 7 months of prospective import coverage. - Gross international reserves (GIR) increased by 12.6 percent (USD 2.5 billion) in 2024 and by around 5 percent in Q1 2025 relative to end-2024. - GIR at end-2024: 49 percent of GDP; covered 7 months of prospective imports; covered 189 percent of public external debt; covered 48 percent of foreign currency deposits; covered 41 percent of broad money. - Reserves in months of next year's imports: 2025 — 6.9; 2026 — 7.1; 2027 — 7.6; 2028 — 8.0; 2029 — 8.5; 2030 — 8.8 ### Monetary and broad money developments - Broad money expanded 17.5 percent (y/y) in 2024; broad money (2025) — 247,246 (monetary survey figure). - Drivers: strong deposit inflows, robust tradable sector performance (exports, FDI), NBC maintained reserve requirement ratios at historical lows since end-2023. - Policy rates and operations: - In April 2025, NBC lowered the marginal lending facility (MLF) by 50 basis points to 5 percent and 7-day liquidity-providing collateralized operations (LPCO) by 50 bps to 3 percent (equivalent to the notional policy rate). - LPCO tenors run from 7-364 days; 364-day LPCO phased out in December 2024. - Reserve Requirement Rate (RRR) on USD deposits returned to 7 percent in 2023Q4 and maintained. - Despite easing, credit growth remained subdued: - Private sector credit growth (12-month) (2025) — 3.5 - Broad money growth (12-month) (2025) — 8.7 - Bank credit to the private sector approximately 126 percent of GDP at end-2024; credit to the private sector (in millions of U.S. dollars) (2025) — 59,838; (In percent of GDP) (2025) — 121.6 ### Fiscal developments and public debt - Fiscal outcomes and revenue: - Overall fiscal deficit: 2.1 percent of GDP in 2024, down from 2.8 percent in 2023. - Tax revenue in 2024: estimated at 12.5 percent of GDP; Cambodia’s tax capacity is estimated at 21 percent of GDP (Fund TA estimate). - Grants declined substantially in 2024 (estimate subject to future revisions). - Spending adjustments in 2024: rollback of social assistance to pre-pandemic levels, tighter discretionary outlays, and lower capital investment. - Public debt and outlook: - Public debt stood at 26 percent of GDP at end-2024, with external debt comprising nearly the entire share and largely concessional. - Public debt projected to increase moderately from 26.8 percent of GDP in 2025 to 27.6 percent in 2030. - Fiscal deficit projected to widen to 3.7 percent of GDP in 2025 and 3.8 percent in 2026. - Revenue target: 14 percent of GDP by 2028. - Financing assumptions: external borrowing projected around 3.0 percent of GDP per annum over the medium term, declining to 2.6 percent of GDP by 2030; new external debt expected largely concessional, average maturity 27 years, average nominal interest rate less than 2 percent. - Medium-term fiscal framework and proposed fiscal rule parameters: - Debt anchor (medium term): 40 percent of GDP. - Deficit ceiling: 3.5 percent of GDP. - Fiscal buffer rule: 2-4 percent of the previous year's revenue. - Domestic debt issuance: - Domestic debt issuance in 2025 amounted to just 0.1 percent of GDP. - Target to increase domestic issuance to approximately 0.9 percent of GDP by 2030. ### External sector, trade, and current account - 2024 current account: small surplus (0.5 percent of GDP). - Exports rose 14 percent in 2024; imports grew 18 percent in 2024. - Exports, f.o.b. (millions USD): 2024 — 26,752; 2025 — 30,297; 2026 — 31,571 - Imports, f.o.b. (millions USD): 2024 — -31,247; 2025 — -35,556; 2026 — -37,092 - Outlook: - Current account deficit projected to widen to 3.0 percent of GDP in 2025 and to -4.5 percent of GDP in 2026 (projection text notes 4.5 percent in 2026 in some sections). - External position assessment: Cambodia’s external position is assessed to be substantially stronger than the level implied by medium-term fundamentals and desirable policies; implied CA gap: 4.7 percent of GDP (cyclically adjusted CA balance 0.9 percent of GDP; EBA-lite CA model norm: –3.9 percent of GDP). - Trade costs and tariffs: - Cambodia’s tariff rate for exports to the United States was revised from 49 percent to 19 percent between April and July 2025. - Combined with Most-Favored-Nation duties, effective border costs can reach 39 percent. ### Financial sector vulnerabilities and supervisory priorities - Asset quality, NPLs, and forbearance: - Credit growth around 3 percent (recently subdued). - NPL ratio exceeded 8 percent at mid-2025. - Forbearance measures (set to expire by end-2025) supported loan restructuring, which increased sharply by mid-August 2025 and reached USD 4.4 billion (about 7.3 percent of total loans). - Banks raised provisions partially; profitability reached record lows but return on assets (2025Q2) — 1.47. - Capital and liquidity: - Capital adequacy and liquidity buffers remained broadly adequate (Regulatory capital to RWA (2025Q2) — 22.90; Tier 1 capital to RWA (2025Q2) — 20.02). - Macro-financial risks and incidents: - Temporary deposit outflows from Prince Bank highlighted vulnerabilities; situation stabilized after NBC reassurance. - Recent sanctions from U.S. and U.K. governments reportedly reflect AML concerns targeting alleged scam centers and cybercrime networks. - Supervisory and resolution measures recommended: - Phase out blanket forbearance by end-2025 to enable timely recognition and resolution of NPLs. - Set aside provisions, recognize losses, implement market-based recapitalization where needed, limit dividend payouts. - Authorities plan to increase the capital conservation buffer from 1.25 percent to 2.5 percent by end-2025 and to revise capitalization regulations toward Basel III alignment. - Strengthen off-site surveillance, on-site examinations, stress-testing capabilities, early supervisory intervention effective January 2026, and develop bank resolution and deposit insurance frameworks. - Early supervisory intervention framework (categorization and actions): - Category 1 — Well-capitalized: CET1: X ≥11%; Tier 1: X ≥15%; Total: X ≥20% — Actions: Not applicable - Category 2 — Adequately capitalized: CET1: 8%≤ X <11%; Tier 1: 11%≤ X <15%; Total: 15%≤ X <20% — Actions include increase reporting, recovery plans, restrict large exposures, increase provisions - Category 3 — Undercapitalized: CET1: 5%≤ X <8%; Tier 1: 7%≤ X <11%; Total: 10%≤ X <15% — Actions include increase registered capital, restrict deposits, prohibit dividends, appoint provisional administrator - Category 4 — Critically undercapitalized: CET1: X <5%; Tier 1: X <7%; Total: X <10% — Actions include revoke license and liquidate institution ### Asset Management Company (AMC) considerations - Staff view: AMCs are last-resort tools; state-sponsored AMC not recommended given preconditions are not met. - Preconditions and risks: - Need realistic valuation of NPLs and losses, operational capacity, strong governance, and functioning legal regime. - Risks of AMCs: obscured losses, implicit bailouts, moral hazard, valuation challenges in thin markets. - Staff prioritizes alternatives: enhance risk assessment, prudential oversight, collateral enforcement, debt resolution, crisis management, liquidity support, and deposit insurance frameworks. - Authorities preparing regulations to allow private AMCs; NBC will not provide liquidity support through purchases of AMC-issued bonds. ### Outlook, growth projections, and principal risks - Growth projections: - Real GDP growth projected to decelerate to 4.8 percent in 2025 and further to around 4.0 percent in 2026. - Growth expected to gradually strengthen to 5.5 percent by 2030. - Medium-term projections (Table 2): 2027 — 4.5; 2028 — 5.0; 2029 — 5.3; 2030 — 5.5 - Downside risks: - Remittance losses, tourism slowdown from border conflict, repatriation of workers widening labor market slack, tariff changes affecting exports to the United States (U.S. exports accounted for nearly 40 percent of total in 2024). - Financial sector vulnerabilities, uncertainty around transshipment-related tariffs, deepening geoeconomic fragmentation, border tensions, elevated private debt and rising NPLs, sanctions raising AML/CFT compliance costs, limited fiscal buffers. - Upside possibilities: - Successful reintegration of returned workers supporting consumption. - Government efforts to expand direct flight networks boosting tourism. - Deeper regional trade and investment integration promoting export growth. ### Structural priorities and infrastructure ambitions - Strategic investment needs: - Pentagonal Development Strategy requires US$ 36.7 billion (80 percent of 2024 GDP). - Five major transport and logistics projects (selected costs and features): - Techo International Airport: airport starting operations in September 2025 with capacity 13 million passengers; phased completion up to 50 million passengers by 2050; OCIC holds 90 percent equity under DBFOO model. - Funan Techo Canal: Project cost USD 1.2 billion; to be completed in 2028 under PPP-BOT by a Chinese-funded company. - Railroad Development: overall investment estimated at USD 10 billion under PPP arrangements; additional tourism rail projects costing USD 3.5 billion. - Road Network: required investment estimated at USD 13.6 billion. - Coastal Logistics Hub (Sihanoukville/PAS): estimated cost USD 750 million. - Transport and Logistics Masterplan 2023-33 table excerpts: - Totals: Number of Projects — 174; Estimated cost — 36,679 — 79.6 (U.S. dollar in million / Percent of 2024 GDP) - Project breakdown examples: - 1.1 Expressways — 97,174 — 15.6 - 2 Railroad — 810,010 — 21.7 - 3 Inland Waterway — 233,251 — 7.1 - 6 Logistic Hub — 15,958 — 2.1 ### Policy implications and recommended priorities - Macroeconomic stability: - Safeguard macro-financial stability; lay foundations for more inclusive and resilient growth through decisive policy actions. - Adopt balanced macroeconomic policies to address the CA gap and cyclical domestic imbalances. - Fiscal policy: - Prioritize spending to minimize borrowing given limited fiscal buffers. - Improve tax compliance and fully implement Revenue Mobilization Strategy (RMS-III) to reach revenue target 14 percent of GDP by 2028. - Reassess extensive tax exemptions; transition from tax holidays to cost-based investment incentives. - Restore policy space through gradual, growth-friendly consolidation complying with the 3.5 percent deficit ceiling. - Implement Treasury Single Account, consolidate accounts, and develop domestic government bond market as concessional financing declines with graduation from LDC status by end-2029. - Monetary policy: - Remain agile and normalize gradually; proceed with restoring reserve requirements to pre-pandemic levels as conditions allow. - Strengthen KHR monetary transmission and deepen KHR money market operations (target for KHR-denominated lending: 10 percent). - Narrow interest rate corridor and consider introducing an overnight deposit facility; continue modernization (reserve requirement averaging, liquidity forecasting). - Provide KHR liquidity as needed to support FX market functioning while monitoring reserve adequacy (around 7 months of prospective import coverage). - Financial sector and crisis preparedness: - Phase out blanket forbearance by end-2025; prepare robust resolution frameworks for NPLs and real estate collateral issues. - Increase provisions, recognize losses, execute targeted recapitalization, limit dividends, and operationalize ELA. - Strengthen supervision, early intervention, stress testing, and coordinated Financial Stability Committees; develop deposit insurance and bank resolution frameworks. - Strengthen AML/CFT frameworks and crypto-asset regulation; intensify efforts to pursue proceeds of fraud and tackle scam centers. - Labor market and social protection: - Scale social assistance targeted to households affected by the border conflict; fully cost assistance and consider fiscal implications. - Scale up active labor market policies: reskilling, job matching, vocational training, entrepreneurship support to absorb returnees. - Structural and governance reforms: - Diversify exports, deepen financial markets, improve institutional quality, accelerate structural reforms, and strengthen anti-corruption, judicial modernization, and transparency. - Improve data quality and coverage, address national accounts, external sector, and financial soundness indicator gaps. ### Selected exact numeric facts and programmatic figures (preserved) - Growth: 6.0 percent in 2024; 4.8 percent in 2025; 4.0 percent in 2026; 4.5 percent in 2026 (alternative cited); authorities’ projections: 5.2 percent in 2025; 5.0 percent in 2026. - Headline inflation averaged 0.9 percent in 2024; peaked at 6 percent (y/y) in January 2025; 1.8 percent in August 2025; projected around 2.5 percent in 2025; 2.3 percent in 2026; 3.0 percent by 2030. - Food share of CPI: 45 percent. - Broad money expanded 17.5 percent (y/y) in 2024. - NBC policy moves: MLF lowered by 50 bps to 5 percent (April 2025); LPCO lowered by 50 bps to 3 percent (April 2025). - Reserves and coverage: around 7 months of prospective import coverage; Gross official reserves (millions USD): 2024 — 22,511; 2025 — 23,511; 2026 — 26,059. - Public debt: 26 percent of GDP at end-2024; projected 26.8 percent of GDP in 2025; 27.6 percent in 2030. - Fiscal deficits: -2.1 percent of GDP in 2024; projected -3.7 percent of GDP in 2025; -3.8 percent in 2026. - Tax revenue in 2024: estimated at 12.5 percent of GDP; tax capacity estimated at 21 percent of GDP. - Revenue target: 14 percent of GDP by 2028. - Forbearance stock restructured loans: USD 4.4 billion (about 7.3 percent of total loans) by mid-August 2025. - NPL ratio: exceeded 8 percent at mid-2025; Nonperforming loans to total gross loans: 2025Q2 — 7.58 (FSi series). - Banks’ FX exposure: FX loans to total loans (2025Q2) — 87.59; FX liabilities to total liabilities (2025Q2) — 86.68. - Bakong total payment value: 330 percent of GDP. - Nearly 1 million returnees estimated by end August 2025; over 220,000 returnees facilitated through September 10, 2025. - As of July 2025, over 137,000 individuals enrolled in technical and vocational education and training programs, with more than 25,000 reportedly employed following graduation. - Transport & logistics masterplan totals: Number of Projects — 174; Estimated cost — 36,679 — 79.6 (U.S. dollar in million / Percent of 2024 GDP). - Selected balance-sheet and macro figures (Table 1 excerpts): - Nominal GDP (millions USD): 2024 — 46,098; 2025 — 49,200; 2026 — 52,146 - Exports, f.o.b. (millions USD): 2024 — 26,752; 2025 — 30,297; 2026 — 31,571 - Current account (including official transfers) (millions USD): 2024 — 229; 2025 — -1,474; 2026 — -2,372 - Total public debt (percent of GDP): 2024 — 26.1; 2025 — 26.5; 2026 — 27.2 - Gross national saving (percent of GDP): 2024 — 32.7; 2025 — 30.5; 2026 — 28.0 *Source: IMF Cambodia staff report chapter "1. Drivers of Inflation in Cambodia" (extracted content).* ### 1. Drivers of Inflation in Cambodia ______________________________________________________________ 23 ### 1. Drivers of Inflation in Cambodia ______________________________________________________________ 23 ### Context and recent developments - Cambodia’s economy rebounded to 6.0 percent in 2024, up from 5.0 percent in 2023, but the recovery is uneven and faces rising vulnerabilities. - Growth drivers and headwinds: - Strong rebound in garment and agricultural exports and a modest recovery in tourism (below pre-pandemic levels). - Subdued domestic demand due to corrections in construction and real estate. - External pressures: U.S. tariffs, geopolitical fragmentation, border conflict with Thailand (despite the July ceasefire), declining aid flows, and limited policy buffers. - Large-scale return of Cambodian migrant workers from Thailand—estimated at nearly 1 million individuals by end August 2025—disrupted tourism and remittance inflows and strained the domestic labor market. - Nowcasting estimates (Selected Issues) suggest growth of 6.2 percent (y/y) in 2025H1 driven by external demand; however, deceleration signs in 2025H2: exports growth moderated to 7.0 percent (y/y) in September 2025. ### Inflation dynamics and drivers - Recent inflation trajectory: - Headline inflation averaged 0.9 percent in 2024. - Headline inflation peaked at 6 percent (y/y) in January 2025 due to food price volatility (food is 45 percent of the CPI basket) and base effects. - By August 2025, headline inflation eased to 1.8 percent. - Core inflation: 1.0 percent in 2024, softened to 0.7 percent in August 2025. - Key contributors to inflation volatility: - Food-price volatility (food = 45 percent of CPI). - Fuel price movements. - Base effects from low 2024 inflation. - Modest supply-side pressures from border conflict with Thailand (disruptions to food and transport costs). - Projection for inflation: - Inflation is projected to rise to around 2.5 percent on average in 2025. - Inflation is expected to moderate to 2.3 percent in 2026. - Inflation is expected to gradually rise to 3.0 percent by 2030. ### Exchange rate and foreign exchange market - The Khmer Riel (KHR) experienced appreciation pressure against the U.S. dollar (USD) in 2025. - The National Bank of Cambodia (NBC) purchased USD to provide KHR liquidity for FX market functioning amid strong export and FDI inflows. - Reserves remained adequate, with around 7 months of prospective import coverage. ### Monetary and broad money developments - Broad money expanded 17.5 percent (y/y) in 2024; this trend continued into 2025. - Drivers: - Strong deposit inflows. - Robust tradable sector performance (exports, FDI). - NBC maintained reserve requirement ratios at historical lows since end-2023. - Banks’ USD claims on the NBC reached record levels; excess KHR reserves increased. - Policy rates: - In April 2025, the NBC lowered the marginal lending facility (MLF) by 50 basis points (bps) to 5 percent and 7-day liquidity-providing collateralized operations (LPCO) by 50 bps to 3 percent (equivalent to the notional policy rate). - Despite lower policy rates, credit growth remained subdued and decelerated in 2025Q2 amid elevated credit risks, high lending rates, and corrections in construction and real estate. ### Fiscal developments - Revenue and fiscal balance: - Overall fiscal deficit: 2.1 percent of GDP in 2024, down from 2.8 percent in 2023. - Tax revenue in 2024: estimated at 12.5 percent of GDP; Cambodia’s tax capacity is estimated at 21 percent of GDP (Fund TA estimate). - Grants declined substantially in 2024 (estimate subject to future revisions). - Spending adjustments in 2024: - Containment through rollback of social assistance to pre-pandemic levels, tighter discretionary outlays, and lower capital investment. - Public debt: - Public debt stood at 26 percent of GDP at end-2024, with external debt comprising nearly the entire share and largely concessional. - Fiscal outlook: - Fiscal deficit projected to widen to 3.7 percent of GDP in 2025 and 3.8 percent in 2026, driven by reduced auditing, extensive tax exemptions, and increased social assistance for households affected by the border conflict, while infrastructure investment remains strong. - Tax revenue as a share of GDP is expected to improve modestly by 2030 from the authorities’ efforts to improve tax compliance. - Public debt projected to increase moderately from 26.8 percent of GDP in 2025 to 27.6 percent in 2030. - Overall risk of debt distress remains low (DSA). ### External sector and trade - 2024 current account reached a small surplus: - Supported by recovery in tourism earnings and lower payments abroad from income earned on equity. - Exports rose 14 percent in 2024; imports grew 18 percent, driven by intermediate goods and vehicles (partly reflecting FDI into construction and manufacturing). - External position assessment: - Cambodia’s external position is assessed to be substantially stronger than the level implied by medium-term fundamentals and desirable policies, due to anemic domestic demand growth, especially weak private investment demand in non-tradable sectors (Annex I). - Outlook: - Current account deficit projected to widen to 3.0 percent of GDP in 2025 (projection text cuts off thereafter). ### Financial sector vulnerabilities - Credit and asset quality: - Credit growth around 3 percent (recently subdued). - NPL ratio exceeded 8 percent at mid-2025, driven by weak hospitality activity and corrections in construction and real estate. - Forbearance measures (set to expire by end-2025) supported loan restructuring, which increased sharply by mid-August 2025 and reached USD 4.4 billion (about 7.3 percent of total loans). - Banks raised provisions partially in response to rising NPLs; profitability reached record lows. - Capital and liquidity: - Capital adequacy and liquidity buffers remained broadly adequate. - Banks continue to hold substantial real estate collateral even after foreclosures; constraints in court-led resolution framework. - Other risks: - Temporary deposit outflows from Prince Bank (linked to a sanctioned conglomerate) highlighted persistent macro-financial vulnerabilities; the situation stabilized after the NBC issued a public statement reassuring deposit safety. - Recent sanctions from U.S. and U.K. governments reportedly reflect AML concerns and targeted alleged scam centers and cybercrime networks; reported seizures and asset freezes noted in media reports cited by the authorities. ### Outlook and risks - Growth projections: - Real GDP growth projected to decelerate to 4.8 percent in 2025 and further to around 4.0 percent in 2026. - Growth expected to gradually strengthen to 5.5 percent by 2030. - Downside drivers: remittance losses, tourism slowdown from border conflict, repatriation of workers widening labor market slack, tariff changes affecting exports to the United States (U.S. exports accounted for nearly 40 percent of total in 2024). - Trade costs and tariffs: - Cambodia’s tariff rate for exports to the United States was revised from 49 percent to 19 percent between April and July 2025, aligning with regional peers but expected to weigh on growth, profitability and investment in the tradable sector compared to pre-tariff years. - Combined with Most-Favored-Nation duties, effective border costs can reach 39 percent (definition of border costs provided). - Inflation projections (reiterated): - Around 2.5 percent in 2025, 2.3 percent in 2026, and 3.0 percent by 2030. - Fiscal and external outlook (high-level): - Fiscal deficit widens in 2025–26; public debt modestly increases to 27.6 percent of GDP by 2030. - Current account expected to worsen (projected to widen to 3.0 percent of GDP in 2025). ### Policy implications and recommended priorities (as reflected in the chapter) - Safeguard macro-financial stability and lay foundations for more inclusive and resilient growth through decisive policy actions. - Strengthen fiscal position and debt sustainability by: - Prioritizing spending to minimize borrowing given limited fiscal buffers. - Improving tax compliance to modestly increase tax revenue as a share of GDP by 2030. - Reassessing extensive tax exemptions that weigh on revenue. - Address financial sector vulnerabilities: - Prepare for expiry of forbearance measures by end-2025 and ensure robust resolution frameworks for nonperforming loans and real estate collateral issues. - Maintain capital adequacy and liquidity buffers and strengthen bank profitability and asset quality. - Address AML concerns associated with recent sanctions-related actions. - Support labor market absorption and social protection: - Scale social assistance targeted to households affected by the border conflict, while considering full costing and fiscal implications. - Facilitate labor market integration and skills matching for repatriated workers to reduce underemployment and low-productivity informal job absorption. - Manage exchange market and reserves: - Provide KHR liquidity as needed to support FX market functioning while monitoring reserve adequacy (around 7 months of prospective import coverage). *Source: IMF Cambodia staff report chapter "1. Drivers of Inflation in Cambodia" (extracted content).* ### 4.5 percent in 2026, driven by declines in tourism earnings and remittance inflows. Over the ### 1khmea2025002-source-pdf - 4.5 percent in 2026, driven by declines in tourism earnings and remittance inflows. Over the ### Outlook and principal risks - Growth projection: 4.5 percent in 2026, driven by declines in tourism earnings and remittance inflows. - Medium-term projection: deficit expected to narrow with a tourism recovery supported by the new Phnom Penh airport in Kandal Province accommodating new direct-flight routes. - Key downside risks and channels: - Financial sector vulnerabilities (Annex II). - Uncertainty around transshipment-related tariffs—particularly rules of origin and local content thresholds—potentially disrupting export flows. - Deepening geoeconomic fragmentation and persistent protectionist policies disrupting Cambodia’s position in regional value chains. - Border tensions (Thai-Cambodian) could undermine confidence, domestic demand, tourism, and financial sector stability. - Elevated private debt and rising NPLs could trigger corporate defaults and job losses, notably in export-oriented sectors. - Sanctions on scam centers likely to raise AML/CFT compliance costs for banks conducting cross-border transactions. - Limited fiscal buffers due to declining development aid and constrained market access, reducing scope for countercyclical fiscal support. - Climate change risks (floods and droughts) threatening agriculture, infrastructure, energy supply, and increasing fiscal pressures via more frequent disaster response. - Upside possibilities: - Successful reintegration of returned workers supporting consumption. - Government efforts to expand direct flight networks boosting tourism. - Deeper regional trade and investment integration promoting export growth. ### Export frontloading and observed data - Staff and authorities’ baselines and actuals depicted for export value and export growth across 2023–2028 (figures in source charts). - Chart references (as presented): Export Value (Log scale; value of exports in U.S. dollar) with example points US$ 35,000; US$ 25,000; US$ 30,000. - Export Growth (Percent, year-on-year) series comparing previous baseline (2024 Article IV staff report) and new baseline (2025 Article IV). ### Authorities’ views on outlook and risks - Authorities’ growth projections: - Average 5.2 percent in 2025. - 5.0 percent in 2026. - Authorities expect: - Strong export growth in 2025, supported by early-year front-loading and a solid garment order pipeline, with trade momentum continuing into 2026. - Confidence that tariff outcomes will preserve competitiveness relative to key peers. - Garment sector capacity to absorb returning workers from Thailand, mitigating labor shortages and supporting consumption. - Growing contributions from agriculture and light manufacturing to export diversification. - Subdued near-term tourism but optimistic about a recovery in 2026 underpinned by improved infrastructure and expanded air connectivity. - Authorities agreed with staff’s views on the inflation outlook and acknowledged trade and border-related risks while viewing recent U.S. tariffs as manageable. ### Key policy issues — A. Policy coordination: harnessing available policy levers with agility - Near-term policy stance: - Slight loosening of the fiscal stance in 2025, followed by a broadly neutral position in 2026. - Focus on temporary and well-targeted assistance for vulnerable households, displaced workers, and SMEs. - Emergency cash transfers to support food security, job search, access to shelter, and income-generating opportunities among conflict-affected populations. - Labor market and reskilling: - Scale up active labor market policies: reskilling, job matching, vocational training, entrepreneurship support. - Objective: address geographic and skill mismatches and absorb excess labor from repatriated workers. - Financial sector vigilance: - The NBC should monitor financial sector developments closely, ensure adequate liquidity provision, and be prepared for adverse scenarios with a sound communication strategy. - Advance efforts to strengthen monetary policy transmission. - Severe downside scenario response: - Fiscal and monetary policies should turn more accommodative with temporary and well-targeted support. - Accelerate resolution of NPLs to restore credit intermediation and prevent further deterioration in bank balance sheets. - Prioritize expenditure for productive infrastructure while protecting health, education, and social safety nets. - Prepare a contingency financing plan including options for external budget support. - NBC actions: lower key rates for marginal lending facility and the 7-day liquidity-provisioning collateral operations; remain agile on reserve requirement ratios to support USD liquidity; operationalize emergency liquidity assistance (ELA). - Implement bank resolution framework tools (market-based recapitalization, mergers, liquidation) given absent deposit insurance and nascent crisis-resolution framework. - Allow greater exchange rate flexibility to buffer external shocks and preserve reserves; intervene if conditions become disorderly. ### Key policy issues — B. Fiscal policy: restoring policy space to address challenges ahead - Short-term: provide temporary and targeted support to vulnerable households and displaced workers; expand the deficit to accommodate targeted assistance for conflict-affected populations instead of building the Fiscal Reserve Fund. - Medium-term: restore policy space through gradual, growth-friendly consolidation complying with the 3.5 percent deficit ceiling and maintain a low overall risk of debt distress under the new fiscal rule proposed by IMF TA. - Fiscal rule parameters (text Table 1): - Debt anchor (medium term): 40 percent of GDP — Ensure debt sustainability under adverse shocks. - Deficit ceiling: 3.5 percent of GDP — Maintain consistency with the debt anchor. - Fiscal buffer rule: 2-4 percent of the previous year's revenue — Contribute to the Financial Reserve Fund to build a fiscal buffer. - Financing assumption: Given decreased access to concessional financing and limited domestic financing sources, staff assumes fiscal deficits to be financed by drawdowns in government deposits. - Revenue mobilization priorities to reach authorities’ revenue target of 14 percent of GDP by 2028: - Fully implement Revenue Mobilization Strategy (RMS-III) with tax administration reforms and planned excise reforms. - Accelerate customs modernization: digital documents and signatures, integration into National Single Window System, invest in advanced technologies and artificial intelligence to speed customs release, strengthen risk-based inspections and post-clearance audits. - Strengthen asset declaration regime, adopt whistleblower protection laws, improve internal audit and secure reporting mechanisms, enhance procurement transparency. - Promote Non-tax Revenue Management Information System (NRMIS) and E-Payment systems for non-tax revenue collection; strengthen monitoring of royalty and lease collections. - Implement personal income taxation (PIT) reform, broaden the VAT base, transition from tax holidays to cost-based investment incentives. - Reduce tax expenditures after careful analysis; support Tax Expenditure Working Group and consider reporting tax expenditure statements delineating estimated value of benefits. - Expenditure efficiency: - Address gaps in social protection, education, and health, especially urban–rural disparities. - Operationalize performance-informed budgeting and spending review framework developed with FAD. - Continue public administration reforms to improve efficiency given high share of the wage bill in the operational budget. - Strengthen infrastructure governance: regular monitoring of contingent liabilities from PPPs, consider an annual cap on new contingent liabilities and PPP contracts, account explicitly for maintenance costs in the budget. - Cash and debt management: - Implement a Treasury Single Account to improve fiscal oversight and cash management. - Consolidate accounts to enhance budget execution, reduce unnecessary borrowing, and clarify available resources. - Develop a domestic government bond market as concessional financing declines with graduation from Least Developed Country status by end-2029. - Authorities’ fiscal stance: - Commitment to fiscal discipline and flexibility; aim to raise tax revenue to 14 percent of GDP by 2028 while likely retaining tax incentives for struggling sectors. - Plan to scale up social assistance and support affected by border conflict (support remains uncosted). - Intend to accommodate priorities primarily through reallocation from non-priority spending rather than increasing debt or drawing on savings. - Reaffirm intention to maintain the fiscal deficit within the new 3.5 percent ceiling. ### Key policy issues — C. Monetary policy: remaining agile and focused - Normalization stance: - Monetary policy should remain agile and normalize at a pace calibrated to evolving economic conditions. - In 2023Q4, NBC lowered the USD reserve requirement rate (RRR) on deposits and non-resident borrowing back to the pandemic-support level of 7 percent to support credit activity. - Policy normalization should proceed gradually through a return of the USD reserve requirements to pre-pandemic levels, mindful of limited evidence of policy effectiveness. - Continue to modernize monetary policy framework (reserve requirement averaging, length of maintenance period, liquidity forecasting) based on IMF TA recommendations (Annex III). - De-dollarization and KHR market development: - Strengthen monetary transmission in KHR and enhance financial sector resilience as part of de-dollarization. - Narrow the interest rate corridor and introduce an overnight deposit facility at the NBC to promote an active KHR interbank market. - Improve liquidity forecasting and market determination of exchange rates. - Gradual transition by firms to paying salaries in KHR and cautious expansion of KHR-denominated lending—currently targeted at 10 percent to avoid currency mismatches on corporate balance sheets. - Complementary growth in usage of the Bakong payment system (total payment value reaching 330 percent of GDP). - Operational measures and market instruments: - Reserve Requirement Ratio and interest rate dynamics noted across 2019–2025 (RRR in USD and KHR; interest rates on term deposits and lending in KHR and USD; reference to Federal funds effective rate in charts). - LPCO tenors run from 7-364 days; 364-day LPCO phased out in December 2024. - Roles for interbank market operations, LPCOs, MLF, NCDs, and reserve requirements described for liquidity management, monetary policy signaling, and de-dollarization. - Digital payments and cybersecurity: - Rapid growth in digital payment adoption requires robust cybersecurity and stronger regulatory and supervisory frameworks to address operational and systemic risks. - Authorities’ view on monetary policy: - Authorities concurred on need for agility; emphasized challenges from high dollarization balancing inflation risks from supply disruptions with disinflationary pressures from weaker growth. - NBC would consider gradually restoring reserve requirements to pre-pandemic levels as conditions allow and is advancing the de-dollarization strategy. - Key initiatives: strengthen KHR money market operations, narrower interest rate corridor, effective future use of a policy rate, expand regional payment connectivity (QR-based, bilateral currency agreements, extending Bakong for cross-border transactions). ### Key policy issues — D. Financial policies: forging resilience for macro-financial stability - Priority actions (summarized from the broader text): - Accelerate NPL resolution and strengthen bank balance sheets to restore credit intermediation. - Maintain credible and transparent communication in absence of deposit insurance and with nascent crisis-resolution framework. - Prepare to activate bank resolution tools (market-based recapitalization, mergers, liquidation) if needed. - Ensure adequate liquidity provision mechanisms (MLF, LPCOs, NCDs) and operationalize ELA. - Strengthen AML/CFT frameworks and prepare for higher compliance costs due to sanctions on scam centers. - Monitor and mitigate contingent liabilities from PPPs and other fiscal risks. ### Selected numeric and programmatic facts and statistics preserved exactly as in source - Growth: 4.5 percent in 2026. - Authorities’ growth projections: 5.2 percent in 2025; 5.0 percent in 2026. - Nearly one-third of migrant households are classified as poor; if unemployment among returnees persists, poverty rates in affected households could rise to 50 percent. - As of July 2025, over 137,000 individuals were enrolled in technical and vocational education and training programs, with more than 25,000 reportedly employed following graduation. - Employment facilitation: over 220,000 returnees facilitated through September 10, 2025. - Fiscal rule parameters: Debt anchor 40 percent of GDP; Deficit ceiling 3.5 percent of GDP; Fiscal buffer rule 2-4 percent of the previous year's revenue. - Revenue target: 14 percent of GDP by 2028. - Bakong total payment value: 330 percent of GDP. - USD reserve requirement rate (RRR) on deposits and non-resident borrowing returned to 7 percent in 2023Q4. - Target for KHR-denominated lending: 10 percent. *International Monetary Fund — Extracted from 1khmea2025002-source-pdf* ### 21. Financial policy should facilitate a ### 21. Financial policy should facilitate a smooth exit from forbearance while strengthening supervisory capacity ### Exit from forbearance and near-term financial stability measures - Phasing out blanket forbearance by end-2025 is critical to enable timely recognition and resolution of NPLs. - Recent deterioration in asset quality and successive economic shocks increase urgency to: - set aside provisions, - recognize losses, - implement market-based bank recapitalization where needed, - limit dividend payouts to safeguard financial stability. - Targeted recapitalization, alongside a gradual buildup of the capital conservation buffer, will help mitigate risks of credit misallocation and prolonged debt overhang. - The authorities plan to revisit capital regulations moving from solvency to adequacy in line with Basel III, and increasing in the capital conservation buffer from 1.25 percent to 2.5 percent by end-2025. - Supervisory plans to address rising NPLs are welcomed; clear and consistent communication is essential to preserve public confidence. ### Banking sector aggregate positions and transition support - The banking system’s strong capital and liquidity positions at the aggregate level, together with temporary and targeted fiscal support to vulnerable households and firms, should support the transition. - Staff welcomes NBC supervisory plans; supervision should be strengthened to monitor banks’ loan portfolio quality via off-site surveillance and on-site examinations. ### Strengthening financial oversight and crisis preparedness - Supervisory priorities: - improve asset quality reporting, - enhance stress-testing capabilities, - implement early supervisory intervention, effective January 2026, - pay attention to capital adequacy in quantity and quality. - Complementary near-term measures: - implement emergency liquidity assistance (ELA), - reform foreclosure and insolvency frameworks. - Medium-term measures: - establish a bank resolution framework, - establish a deposit insurance mechanism. - Given heightened AML/CFT vulnerabilities, NBC should promote robust governance and risk management across the banking sector; banks with elevated reputational and compliance risks should face enhanced scrutiny and strengthened internal controls. - Strengthen supervision of banks and non-bank financial institutions with significant real estate exposure. - Improve coordination between the NBC’s Financial Stability Committee and the National Financial Stability Committee to enhance data collection, information sharing, and timely risk assessments—especially for large conglomerates in real estate and finance. - Develop borrower-based macroprudential tools, broaden consolidated supervision, and expand regulations on large exposures and related-party risks to cover both loans and securities. ### Early supervisory intervention framework (categorization and possible actions) - Categorization is according to the lowest category attributed to any of the three components (CET1, Tier 1, Total); a lower category could be assigned based on EWIs for liquidity and funding, operation and reputation, credit, profitability and governance. - Possible actions by category: - Category 1 — Well-capitalized - CET1: X ≥11% - Tier 1: X ≥15% - Total: X ≥20% - Actions: Not applicable - Category 2 — Adequately capitalized - CET1: 8%≤ X <11% - Tier 1: 11%≤ X <15% - Total: 15%≤ X <20% - Actions: Increase reporting requirements, Recovery plan in writing, Stress test on proposed recovery actions, interim reports on recovery actions, restrict large exposure, increase provisions - Category 3 — Undercapitalized - CET1: 5%≤ X <8% - Tier 1: 7%≤ X <11% - Total: 10%≤ X <15% - Actions: Increase register capital, restrict the acceptance of deposits, restrict offering higher than market rates on liabilities, prohibit dividend payments, replace executives or board members, appoint a provisional administrator - Category 4 — Critically undercapitalized - CET1: X <5% - Tier 1: X <7% - Total: X <10% - Actions: Prohibit the selling of some asset, restructure including divesting subsidiares and brances, downgrade the institution's license, revoke license and liquidate institution - Sources: National Bank of Cambodia. Prakas B37.025.377 - Notes: Listed actions are not exhaustive of those mentioned in the regulation. ### State-sponsored AMC considerations and alternatives - Banking sector reforms should supersede establishment of a state-sponsored asset management company (AMC); AMCs are last-resort tools in systemic crises. - AMC effectiveness depends on preconditions: realistic valuation of NPLs and losses, operational capacity, strong governance, and a functioning legal regime. - Risks of AMCs include obscured losses, implicit bailouts deferring costs to taxpayers, and moral hazard. - Staff prioritizes alternatives: - enhance risk assessment, - strengthen prudential oversight, - implement reforms to collateral enforcement, - deploy debt resolution, crisis management, liquidity support, and deposit insurance frameworks. ### AML/CFT and crypto-assets - NBC and Cambodia Financial Intelligence Unit (CAFIU) should continue coordinating effective AML/CFT supervision of banks and non-bank financial institutions. - Improving regulatory frameworks for cryptocurrency and the digital payment system is urgently needed to avoid risks to financial integrity and financial stability. - Stakeholders should intensify efforts via the National Coordination Committee toward establishing a solid AML/CFT legal and regulatory framework for crypto-assets. - Progress on pursuing proceeds of fraud should be sustained to tackle scam centers. ### Authorities’ views and policy intentions - Authorities broadly agreed with staff on the need to strengthen financial sector resilience and confirmed plans to end regulatory forbearance. - The NBC acknowledged asset quality deterioration and issued a regulation on early supervisory intervention, effective January 2026. - Forbearance on restructured loans will expire at end-2025; NBC noted continued use masked vulnerabilities and may have limited pace of credit normalization. - NBC is revising capitalization regulations in line with Basel III and plans to set the capital conservation buffer at 2.5 percent by year-end. - NBC recognizes importance of reforming reserve requirements, related-party lending rules and establishing a deposit insurance framework, and seeks technical assistance to strengthen the insolvency regime. - NBC does not envisage a state-sponsored AMC but is preparing regulations allowing private AMCs to purchase NPLs and will not provide liquidity support through purchases of AMC-issued bonds. - Bakong description (contextual): Bakong is the National Bank of Cambodia’s blockchain-based payment system enabling real-time, low-cost retail and cross-border transactions; it connects banks and payment providers, supports multi-currency settlement, and uses the KHQR standard to facilitate merchant and cross-border QR payments. Operated as a tokenized deposit system backed by commercial bank reserves, Bakong promotes regional integration, supports de-dollarization, and offers cost-efficient payments attractive to micro and small enterprises. ### Broader structural and macro-financial context (high-level points linked to financial policy) - Near-term outlook: weakened amid a confluence of shocks; strong 2024 growth but uneven recovery, subdued domestic demand, elevated financial pressures; near-term growth expected to decelerate. - Fiscal and external implications: - Fiscal deficit expected to increase due to weak revenue performance and rising spending needs. - Current account deficit projected to widen, driven by imports linked to FDI inflows, and weaker tourism and remittance inflows. - Financial sector vulnerabilities: elevated NPLs, low profitability, high credit risks, and high private sector debt. - Risks tilted to the downside, including possible escalation of trade or border tensions; upside scenarios include successful reintegration of returning workers. - Policy guidance: - Fiscal policy: provide temporary and targeted support for vulnerable households and displaced workers, alongside active labor market policies; pursue medium-term gradual, growth-friendly consolidation to rebuild buffers. - Strengthen revenue mobilization via tax administration reforms, digitalization, and reduced tax expenditures. - Improve expenditure efficiency and infrastructure governance. *Source: IMF staff report excerpts (Financial policy, supervisory reforms, AML/CFT, and related authorities’ views).* ### 36. Monetary policy should remain agile and responsive to evolving conditions. While ### 1khmea2025002-source-pdf - 36. Monetary policy should remain agile and responsive to evolving conditions. While ### Monetary policy and macroeconomic framework - Monetary policy should remain agile and responsive to evolving conditions. - Dollarization continues to limit policy effectiveness. - Normalization should proceed gradually, including restoring reserve requirements to pre-pandemic levels. - Efforts to strengthen monetary transmission in Khmer Riel and improve liquidity management are welcome. - Continued modernization of the policy framework, coupled with transparent communication, will be important to enhance policy credibility and effectiveness. ### Financial sector policies and stability - Financial sector policies should focus on managing rising risks and reinforcing oversight. - The planned phase-out of forbearance by end-2025 is essential to enable timely recognition of distressed assets for provisioning and recapitalization. - Supervisory capacity should be strengthened, including through: - enhanced asset quality reporting, - stress testing, - early intervention tools. - Reforms recommended: - reforms to insolvency and crisis management frameworks, - establishment of a deposit insurance scheme, - continued AML/CFT efforts. - Objective: safeguard financial stability. ### Structural reforms and development priorities - Accelerating structural reforms is critical to unlock opportunities for upgrading the growth model and strengthening economic resilience. - Key priorities: - diversifying exports, - deepening financial markets, - improving institutional quality. - Supportive measures: - implementation of national development strategies, - expansion of digital and green infrastructure, - improved trade facilitation to support productivity and competitiveness. - Governance reforms highlighted: - anticorruption measures, - judicial modernization, - enhanced transparency. - Addressing persistent data limitations is critical to improving surveillance and informing evidence-based policy decisions. ### Institutional engagement - It is proposed that the next Article IV consultation with Cambodia be held on the standard 12-month cycle. ### Box 1 — Drivers of Inflation in Cambodia - Cambodia’s inflation is sensitive to external developments and often driven by supply-side factors linked to terms of trade. - Trade openness trends: - goods exports rose by 20 percentage points (pts) to 58.1 percent of GDP in 2024, driven largely by exports to the U.S. (41 percent of total). - goods imports rose by 13 pts to 68 percent of GDP, with imports from China accounting for nearly half. - As a highly open economy and a price taker in global markets, Cambodia is vulnerable to external shocks that feed into domestic inflation through multiple channels. - A structural VAR shows: - inflation volatility is largely supply-driven, - demand factors helped contain inflation during the pandemic. - External influences: - China’s export prices and U.S. economic activity strongly influence Cambodia’s inflation dynamics. - Historical drivers: - supply disruptions fueled by higher import and commodity prices pushed inflation upward in 2020–21, while weak domestic demand countervailed the supply-side impacts. - In 2021–22, both channels worked in the same direction, pushing inflation to its peak, as strong U.S. demand coincided with supply shocks. - Since 2023, supply-side factors—supported by disinflation in China and global commodity market developments—have contributed to contain inflation pressures. - Comparative persistence: - U.S. economic activity has more persistent effects on Cambodia’s inflation than Chinese export prices. - U.S. demand for Cambodia’s exports promotes income growth for the export sector and pushes inflation from the demand side. - China’s price dynamics impact Cambodia’s inflation through its exports to Cambodia; impacts tend to be relatively short-lived, but persistent disinflationary pressures in China can have lasting effects. - Looking ahead: - weak external demand and subdued inflation in China point to sustained disinflationary pressures. ### Box 2 — Ambition for Upgrading Infrastructure in Cambodia - Progress and challenges: - Cambodia has made significant strides in enhancing its public infrastructure, particularly in logistics and transportation, but weaknesses in its public investment management framework remain. - The Royal Government of Cambodia (RGC) recently reported that 56.4% of the total road networks have been paved by end-2023. - The 2022 PIMA noted continued weaknesses in coordination of public investment between levels of government, medium-term capital budgeting and transparency, the maintenance framework, procurement and project implementation, project and portfolio monitoring, and monitoring of public assets. - Implementation of the 2022 PIMA action plan could help address some of these weaknesses. - Strategic context: - The RGC follows the Pentagonal Development Strategy for economic diversification, competitiveness, and development. - Fully implementing the strategy would require US$ 36.7 billion (80 percent of 2024 GDP). - Financing approach: - The government plans to leverage Public-Private Partnership (PPP) financing and Official Development Assistance (ODA) for large-scale infrastructure projects while mobilizing domestic resources for other initiatives. - PPP has been actively utilized; RGC projects include Techo International Airport, Funan Techo Canal, the railroad network, and expressways. - The government has secured ODA from Japan for upgrading Sihanoukville Autonomous Port. - The RGC continues to finance most of the road network construction and the associated costs of maintenance and repair. - Five major projects to improve transportation and logistics: - Techo International Airport: - Partnered with the Overseas Cambodian Investment Corporation (OCIC) under a DBFOO model. - OCIC holds 90 percent equity. - Airport starting operations in September 2025 with a capacity of 13 million passengers; will be completed in phases to handle up to 50 million passengers by 2050. - Funan Techo Canal: - Connecting Phnom Penh and Sihanoukville ports to enhance agriculture and ecotourism. - Project cost USD 1.2 billion; will be completed in 2028 under a PPP-BOT model by a Chinese-funded company. - Railroad Development: - Masterplan includes maintaining and upgrading existing lines, building a high-speed network, and new routes to northwestern, northeastern, and southeastern Cambodia. - Overall investment estimated at USD 10 billion under PPP arrangements, with additional tourism-focused rail projects costing USD 3.5 billion. - Road Network: - Upgrading and expanding the road network to link economic hubs, factories, SMEs, and special economic zones, especially between Preah Sihanouk, Bavet, and Phnom Penh. - Required investment estimated at USD 13.6 billion. - Coastal Logistics Hub: - Sihanoukville designated as one of Cambodia’s main economic hubs; will expand the capacity of the Preah Sihanouk Autonomous Port (PAS). - Estimated cost USD 750 million. - Specific table excerpt: - U.S. dollar in million / Percent of 2024 GDP - Road Network 9413,602 29.5 *International Monetary Fund — CAMBODIA* ### 1.1 Expressways97,174 15.6 ### 1.1 Expressways97,174 15.6 ### Transport and Logistics Projects and Estimated Costs - Project Type and Number: - 1.1 Expressways — 97,174 — 15.6 - 1.2 National , Provincial and other connecting road — 856,429 — 13.9 - 2 Railroad — 810,010 — 21.7 - 3 Inland Waterway — 233,251 — 7.1 - 4 Sea Waterway — 205,461 — 11.8 - 5 Aviation — 103,298 — 7.2 - 6 Logistic Hub — 15,958 — 2.1 - 7 Additional project — 499 — 0.2 - Totals: - Number of Projects — 174 - Estimated cost — 36,679 — 79.6 - Source: Transport and Logistic Masterplan 2023-33. ### Real GDP and Recovery (Figure 1) - Real GDP index (2019=100) plotted across 2016–2025 with note: "Real GDP remains well below the level suggested by the pre-pandemic trend." - Key sector contributions (Index, 2019=100): Manufacturing, Construction, Services, Agriculture, Others. - Frontloading of export orders sustained momentum in the first half of 2025. - Imports growth partly reflected FDI inflows into construction and manufacturing. - Border tensions with Thailand disrupted tourism; approvals in construction projects have increased recently with a pickup in related FDI inflows and imports. - Chart axis shown from 60 to 160 for Real GDP index. ### External Sector and Trade (Figure 3) - 2024 current account: small surplus supported by exports, tourism and remittances. - Financial account: sizable inflows mainly driven by robust FDI. - FDI concentration: manufacturing — particularly garment, footwear, wood products, and food processing. - International reserves: continued to increase in 2024; coverage remains broadly adequate. - Current Account Balance components (Percent of GDP) plotted 2016–2024: Trade balance, Services balance, Income balance, Current transfers balance, Current account balance. - Current Account Financing components (Percent of GDP) plotted 2016–2024: Other short-term flows and errors/omissions, Change in official reserves, Foreign assets of banks, net, Foreign direct investment, net, Medium- and long-term loans. ### Public Finances (Figure 2 and Tables) - Near-term projection: Fiscal deficit is projected to widen in the near term. - Tax revenue growth has lagged GDP growth recovery; import duties have lagged import growth. - Expenditure projected to remain stable over the medium term. - Covid-related spending needs have fallen; regular cash transfer programs have been strengthened. - Fiscal consolidation expected over the medium term but may be delayed due to recent trade shocks. - Fiscal balance chart: Domestic revenue, Grants, Current expenditure, Capital exp. (ext. funded), Capital exp. (dom. funded), Net Lending/Borrowing — Percent of GDP across 2013–2026. ### Monetary and Financial Development (Figure 4 and Table 5) - Private sector debt buildup has been rapid though it has started slowing in recent months. - Broad-based moderation in credit growth among banks. - Real estate remained a significant contributor to credit growth; mortgage lending has declined. - Loan-to-deposit ratio started coming down sharply as banks’ loan growth continues to moderate. - Lending rates remained high despite some policy easing by the U.S. Federal Reserve Board; dollarization remains persistently high. - Bank credit indicators: - Banks private sector credit growth (year-on-year) plotted 2019–2025 (Jun 25). - Contribution to bank credit growth by sector: Real-estate related, Financial institutions, Trade, Agriculture, Manufacturing, Other, Personal Lending, Total credit growth. - Monetary Survey highlights (selected figures): - Net foreign assets (2024) — 92,559; (2025) — 107,959 - National Bank of Cambodia foreign assets (2024) — 90,601; (2025) — 97,848 - Net domestic assets (2025) — 139,287 - Domestic credit (2025) — 225,181 - Broad money (2025) — 247,246 - Foreign currency deposits (2025) — 209,174 - Private sector credit growth (12-month) (2025) — 3.5 - Broad money growth (12-month) (2025) — 8.7 - Memo: Foreign currency deposits (in millions of U.S. dollars) (2025) — 50,990; In percent of broad money (2025) — 84.6 - Credit to the private sector (in millions of U.S. dollars) (2025) — 59,838; (In percent of GDP) (2025) — 121.6 ### Banking Sector Exposure to Real Estate (Figure 5) - Bank credit growth declined across all sectors, but real-estate sectors remained relatively high (2017–23 vs 2024 averages). - Banks' overall real estate related exposure (2017–March 2025) — Share of RE related loans and total exposure trends. - Gross Non-Performing Loan Ratio by Sector (2019–2024): overall and sectoral NPL ratios show increases in real estate related sectors but remain below hotels and restaurants and retail trade. - Residential Property Price Index (Index, 2020=100): Phnom Penh and Other provinces — show pickups after downward trend (Aug 2025). - Approved Construction Projects by Area (Thousands of square meters; millions of USD) — plotted 2018–Q2 2025 for Residence, Commercial, Industry, Commercial, Tourism, Investment, Construction value (right scale). - Sectoral credit concentration across banks shown via Herfindal-Hirshman Index, 2023. ### Selected Economic Indicators (Table 1) - Key socio-economic facts: - Per capita GDP (2023, US$): 2,477 - Population (2023, million): 17.1 - Life expectancy (2022, years): 70.0 - Literacy rate (2022, percent): 83.8 - Output and prices (annual percent change): - GDP in constant prices: 2022 — 5.1; 2023 — 5.0; 2024 — 6.0; 2025 — 4.8; 2026 — 4.0 - Inflation (end-year): 2022 — 2.9; 2023 — 2.7; 2024 — 3.0; 2025 — 1.0; 2026 — 2.2 - Inflation (annual average): 2022 — 5.3; 2023 — 2.1; 2024 — 0.9; 2025 — 2.5; 2026 — 2.3 - Saving and investment (percent of GDP): - Gross national saving: 2022 — 15.9; 2023 — 34.6; 2024 — 32.7; 2025 — 30.5; 2026 — 28.0 - Gross fixed investment: 2022 — 35.3; 2023 — 33.3; 2024 — 32.2; 2025 — 33.5; 2026 — 32.6 - Public finance (percent of GDP): - Revenue: 2022 — 18.4; 2023 — 16.2; 2024 — 15.2; 2025 — 14.6; 2026 — 14.4 - Domestic revenue: 2022 — 16.7; 2023 — 15.0; 2024 — 14.3; 2025 — 13.9; 2026 — 13.7 - Net lending (+)/borrowing(-): 2022 — -0.3; 2023 — -2.8; 2024 — -2.1; 2025 — -3.7; 2026 — -3.8 - Total public debt (percent of GDP): 2022 — 25.5; 2023 — 26.3; 2024 — 26.1; 2025 — 26.5; 2026 — 27.2 - Balance of payments (millions of dollars): - Exports, f.o.b.: 2022 — 23,175; 2023 — 23,569; 2024 — 26,752; 2025 — 30,297; 2026 — 31,571 - Imports, f.o.b.: 2022 — -31,995; 2023 — -26,553; 2024 — -31,247; 2025 — -35,556; 2026 — -37,092 - Current account (including official transfers): 2022 — -7,572; 2023 — 554; 2024 — 229; 2025 — -1,474; 2026 — -2,372 - Gross official reserves (millions USD): 2022 — 17,805; 2023 — 19,998; 2024 — 22,511; 2025 — 23,511; 2026 — 26,059 - Memorandum: Nominal GDP (in millions of U.S. dollars): 2022 — 39,089; 2023 — 42,404; 2024 — 46,098; 2025 — 49,200; 2026 — 52,146 ### Medium-Term Macroeconomic Framework (Table 2) - GDP growth (percent change) projections: - 2022 — 5.1; 2023 — 5.0; 2024 — 6.0; 2025 — 4.8; 2026 — 4.0; 2027 — 4.5; 2028 — 5.0; 2029 — 5.3; 2030 — 5.5 - Consumer prices (end-year): 2025 — 2.2; 2026 — 2.5; 2027 — 2.7; 2028 — 2.9; 2029 — 3.0; 2030 — 3.0 - Saving and investment (percent of GDP) through 2030: Gross national saving 2025 — 30.5; 2026 — 28.0; 2027 — 28.5; 2028 — 28.7; 2029 — 29.0; 2030 — 29.3 - Public finance (percent of GDP) highlights: - Revenue: 2025 — 14.6; 2026 — 14.4; 2027 — 14.4; 2028 — 14.4; 2029 — 14.4; 2030 — 14.5 - Net lending (+)/borrowing(-): 2025 — -3.7; 2026 — -3.8; 2027 — -3.6; 2028 — -3.4; 2029 — -3.3; 2030 — -3.2 - Balance of payments and reserves: - Exports (percent change) 2025 — 4.2; 2026 — 7.0; 2027 — 7.7; 2028 — 8.2; 2029 — 8.1; 2030 — 8.1 - Imports (percent change) 2025 — 13.8; 2026 — 4.3; 2027 — 6.4; 2028 — 7.1; 2029 — 7.5; 2030 — 7.3 - Gross official reserves (millions USD): 2025 — 23,511; 2026 — 26,059; 2027 — 29,584; 2028 — 33,744; 2029 — 38,232; 2030 — 43,203 - Reserves in months of next year's imports: 2025 — 6.9; 2026 — 7.1; 2027 — 7.6; 2028 — 8.0; 2029 — 8.5; 2030 — 8.8 - Public debt (percent of GDP) projected: 2025 — 26.5; 2026 — 27.4; 2027 — 27.5; 2028 — 27.4; 2029 — 27.4; 2030 — 27.5 ### Balance of Payments Details (Tables 3a and 3b) - Current account (including official transfers), millions USD: - 2021 — -10,886; 2022 — -7,572; 2023 — 554; 2024 — 229; 2025 — -1,474; 2026 — -2,372 - Trade balance (millions USD): 2021 — -11,199; 2022 — -8,820; 2023 — -2,984; 2024 — -4,496; 2025 — -5,260; 2026 — -5,520 - Exports, f.o.b. (millions USD): 2021 — 19,527; 2022 — 23,175; 2023 — 23,569; 2024 — 26,752; 2025 — 30,297; 2026 — 31,571 - Garments exports (millions USD): 2021 — 11,396; 2022 — 12,986; 2023 — 11,285; 2024 — 13,920; 2025 — 16,088; 2026 — 16,891 - Imports, f.o.b. (millions USD): 2021 — -30,726; 2022 — -31,995; 2023 — -26,553; 2024 — -31,247; 2025 — -35,556; 2026 — -37,092 - Petroleum imports (millions USD): 2021 — -2,930; 2022 — -4,497; 2023 — -4,260; 2024 — -4,715; 2025 — -4,259; 2026 — -4,387 - Capital and financial account (millions USD): 2021 — 12,257; 2022 — 7,005; 2023 — 650; 2024 — 1,152; 2025 — 3,953; 2026 — 4,904 - Foreign direct investment (millions USD): 2021 — 3,392; 2022 — 3,429; 2023 — 3,806; 2024 — 4,222; 2025 — 4,864; 2026 — 5,275 - Gross official reserves (millions USD): 2021 — 20,265; 2022 — 17,805; 2023 — 19,998; 2024 — 22,511; 2025 — 23,511; 2026 — 26,059 ### General Government Operations (Table 4, selected items) - Revenue (millions): 2023 — 23,842; 2024 — 29,664; 2025 — 28,264; 2026 — 28,675; 2027 — 30,725 - Nongrant revenue (millions): 2023 — 22,112; 2024 — 26,877; 2025 — 26,047; 2026 — 26,969; 2027 — 30,099 - Tax revenue (millions): 2023 — 19,875; 2024 — 24,187; 2025 — 23,118; 2026 — 23,655; 2027 — 26,010 - Total expenditure (millions): 2023 — 31,649; 2024 — 30,136; 2025 — 33,186; 2026 — 32,573; 2027 — 36,906 - Expense (millions): 2023 — 21,680; 2024 — 20,967; 2025 — 22,946; 2026 — 22,551; 2027 — 25,017 - Net acquisition of nonfinancial assets (millions): 2023 — 9,969; 2024 — 9,170; 2025 — 10,240; 2026 — 10,023; 2027 — 11,889 - Net lending (+)/borrowing(-) (millions): 2023 — -7,807; 2024 — -473; 2025 — -4,922; 2026 — -3,899; 2027 — -6,181 - Net incurrence of liabilities (millions): 2023 — 2,368; 2024 — 2,851; 2025 — 4,389; 2026 — 8,363; 2027 — 6,352 - Government deposits (percent of GDP, memorandum): 2021 — 13.1; 2022 — 13.8; 2023 — 12.5; 2024 — 12.8; 2025 — 10.4; 2026 — 8.2 ### Financial Soundness Indicators (Table 6, selected FSIs, percent) - Core FSIs (selected): - Regulatory capital to risk-weighted assets: 2019 — 21.77; 2020 — 22.66; 2021 — 22.31; 2022 — 21.66; 2023 — 22.52; 2024Q2 — 22.46; 2024 — 22.41; 2025Q2 — 22.90 - Tier 1 capital to risk-weighted assets: 2019 — 18.80; 2020 — 19.62; 2021 — 19.27; 2022 — 18.80; 2023 — 19.74; 2024Q2 — 19.85; 2024 — 19.97; 2025Q2 — 20.02 - Nonperforming loans to total gross loans: 2019 — 1.55; 2020 — 1.82; 2021 — 1.74; 2022 — 2.71; 2023 — 5.13; 2024 — 5.96; 2024Q2 — 6.56; 2025Q2 — 7.58 - Return on assets: 2019 — 1.75; 2020 — 1.69; 2021 — 1.95; 2022 — 2.45; 2023 — 1.02; 2024 — 1.09; 2024Q2 — 1.16; 2025Q2 — 1.47 - Additional FSIs (selected): - FX loans to total loans: 2019 — 87.73; 2020 — 86.92; 2021 — 87.34; 2022 — 87.58; 2023 — 87.24; 2024 — 88.28; 2024Q2 — 87.30; 2025Q2 — 87.59 - FX liabilities to total liabilities: 2019 — 89.46; 2020 — 88.85; 2021 — 88.97; 2022 — 88.16; 2023 — 87.14; 2024 — 85.60; 2024Q2 — 87.19; 2025Q2 — 86.68 - Residential real estate loans to total gross loans: 2019 — 8.78; 2020 — 9.30; 2021 — 10.13; 2022 — 10.06; 2023 — 10.54; 2024 — 11.70; 2024Q2 — 11.23; 2025Q2 — 10.64 *Sources: Transport and Logistic Masterplan 2023-33; Cambodian authorities; and IMF staff calculations, estimates, and projections.* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Current account, trade, services, and transfers - The current account (CA) balance reached a small surplus of 0.5 percent of GDP in 2024, down from a surplus of 1.3 percent of GDP in 2023. - The 2024 CA surplus reflected: - a moderate trade deficit and a modest negative income balance, offset by surpluses in the services and transfer balance. - strong exports (exports rose 14 percent in 2024). - a recovery in tourism earnings (still low compared to pre-pandemic levels). - remittances and lower payments abroad from income earned on equity. - Trade dynamics: - Exports were bolstered by recovering global demand—particularly from the U.S. and EU—and continued strength in garments, footwear, and travel goods. - Momentum persisted into 2025, supported by front-loading of orders ahead of anticipated U.S. tariffs. - Imports rose by 18 percent in 2024, reflecting stronger demand for intermediate goods, likely tied to ongoing infrastructure projects and recent FDI-related activity. - The trade deficit declined considerably in 2023–2024, aided by strong exports and a slowdown in imports due to subdued domestic demand and slow recovery in non-tradable sectors. - Domestic context and vulnerabilities: - Domestic imbalances include slow recovery in non-tradable sectors, subdued domestic demand, a correction in the real estate market, muted credit activity, and rising financial sector vulnerabilities. - Considerable uncertainty exists due to data gaps in external sector statistics. ### Capital and financial account, FDI, and banks - Capital and financial account recorded higher inflows in 2024, driven by robust foreign investment. - Foreign direct investment (FDI) inflows remained robust in 2024 at over 9 percent of GDP, reflecting sustained investor confidence in manufacturing and a scale-up of infrastructure projects. - Most FDI inflows were directed to manufacturing (garments, footwear, wood products, food processing) and renewable energy. - Medium-to-long-term debt inflows remained broadly stable. - Banking sector external positions: - Banks increased their foreign asset holdings while reducing liabilities. - This strengthened their net foreign asset position by about 4 percent of GDP relative to 2023, contributing to higher net foreign assets. ### International reserves and coverage - Gross international reserves (GIR) increased by 12.6 percent (USD 2.5 billion) in 2024. - By end-2024: - GIR stood at 49 percent of GDP. - GIR covered 7 months of prospective imports. - GIR covered 189 percent of public external debt. - GIR covered 48 percent of foreign currency deposits. - GIR covered 41 percent of broad money. - The ARA metric for credit-constrained economies implies an optimal threshold of 4 months of imports; Cambodia’s coverage exceeds this metric. - Reserves continued to rise in Q1 2025, increasing around 5 percent relative to end-2024. - Policy note: A high level of international reserves remains advisable for Cambodia’s highly export-dependent economy with a managed float exchange rate regime and a high degree of dollarization. - The de facto exchange rate arrangement remains crawl-like. ### External position assessment, CA gap, and REER dynamics - Overall assessment: Cambodia’s external position in 2024 is assessed to be substantially stronger than the level implied by medium-term fundamentals and desirable policies. - Cyclically adjusted CA and model comparison: - Cyclically adjusted CA balance: 0.9 percent of GDP. - EBA-lite CA model norm: –3.9 percent of GDP. - Implied CA gap: 4.7 percent of GDP. - Adjusted CA: 0.9 (in percent of GDP). - CA Norm (from model): -3.9 (in percent of GDP). - CA Gap: 4.7 (in percent of GDP). - CA-Actual: 0.5 (in percent of GDP). - Cyclical contributions (from model): (-)-0.4 (in percent of GDP). - Natural disasters and conflicts: 0.0 (in percent of GDP). - o/w Relative policy gap: 2.1 (in percent of GDP). - Structural context explaining negative norm: Cambodia’s stage of development, a negative net international investment position (NIIP) driven by strong FDI inflows, and a considerable young working-age population associated with lower aggregate saving levels. - Uncertainty and data limitations: - The assessment is subject to considerable uncertainty due to potential shifts in external demand and financing conditions and continued data gaps, evidenced by high and volatile errors and omissions in balance of payments data. - The CA gap partly reflects underlying BOP data gaps and structural factors not captured by the model, including informality. - Real effective exchange rate (REER) trends and model results: - Pre-pandemic decade: REER appreciated by 2.5 percent annually. - Since 2020: REER appreciated at about 0.9 percent annually on average. - Average REER rose modestly by 0.2 percent in 2024. - First half of 2025: REER appreciation accelerated with a 3.5 percent increase relative to the 2024 average, largely reflecting foreign currency inflows from front-loaded export orders ahead of potential tariff hikes. - EBA-CA model implied REER gap (applying an elasticity of -0.5): undervaluation of -10.5 percent. - REER model implied overvaluation: 35.8 percent based on an estimated CA gap of -16.2 percent of GDP. - The divergent model results indicate considerable uncertainty around the exchange rate assessment. ### Policy implications and recommendations - Address data limitations: - Improve external sector statistics and reduce errors and omissions in balance of payments data. - Macroeconomic policy stance: - Adopt more balanced macroeconomic policies to address the CA gap and cyclical domestic imbalances. - Structural reforms to diversify growth and strengthen resilience: - Shift economic growth toward a more diversified and adaptable model underpinned by productivity growth with higher domestic investment. - Strengthen non-tradable sectors and develop more resilient labor markets to harness the large demographic dividend. - Accelerate structural reforms and strengthen social safety nets to promote income and consumption growth and ensure more inclusive economic growth. - External-sector specific recommendations: - Build and maintain foreign reserve buffers (noting current coverage and ARA benchmark). - Strengthen policies to manage dollarization and exchange-rate dynamics consistent with a crawl-like de facto arrangement. *Prepared by Carlos Pelaez Gomez (FIN).* ### Annex III . Implementation of Past Advice ### Annex III . Implementation of Past Advice ### Policy Coordination - Under adverse shocks, fiscal policy should be the first line of defense, given limited monetary policy transmission. - The Royal Government of Cambodia (RGC) is preparing for graduation from Least Developed Country (LDC) status in 2029, which may reduce access to highly concessional loans and grant financing. - The RGC has assessed the government's debt risk as moderate and outlined measures to manage potential fiscal deficits and support the economy: - Focus on implementing prudent fiscal policies while maintaining flexibility to respond to evolving situations; ensure crisis interventions are prompt and well-targeted. - Monetary policy will remain accommodative to support economic growth while ensuring financial, FX, and price stability. ### Fiscal Policy - The fiscal framework needs upgrading to support economic resilience and stability. - Over the medium term, the RGC will pursue a dual strategy of gradual fiscal consolidation and rebuilding fiscal buffers through the Medium-Term Fiscal Framework (MTFF) 2026-2028 within the Public Finance Management Reform Program. - MTFF objectives: Link budgets to RGC priority policies; Strengthen efficiency of revenue collection and budget allocation; Ensure macroeconomic stability and public financial sustainability. - Budget System Reform Strategy (BSRS) originally for 2018-2025, extended through 2028, aims to strengthen budget discipline by linking budgets to policy priorities and basing allocations on performance information. - Key fiscal figures and measures: - 2025 projected total budget deficit: 3.48 percent of GDP (within established deficit threshold of 5 percent). - Fiscal Reserve Fund implementation postponed; allocations now scheduled to begin in 2027. - Fund allocation rule: amount equal to 2 percent of the national-level current revenue from two years prior (N-2). - To contain the fiscal deficit in 2026, the RGC plans to reduce total expenditure by 1.7 percent compared to the 2025 budget. - This adjustment includes a 10.9 percent drop in capital expenditure. - Wage spending is set to increase by 2.4 percent. ### Revenue Mobilization and Trade Facilitation - Revenue mobilization requires a multi-pronged approach: tax policy reforms and improved revenue administration. - General Department of Taxation (GDT) is implementing "Tax Administration 2.0+" and preparing "Tax Administration 3.0" with emphasis on: - Digital Integration: e-registration, e-filing, e-payment. - Audit Optimization: implement a Standard Operating Procedure (SOP) on Auditing. - Debt Management: strengthen tax debt management to minimize outstanding arrears and prevent future accumulation. - E-Invoicing: pilot e-invoicing with private sector engagement and develop legal/regulatory frameworks. - General Department of Customs and Excise (GDCE) actions: - Implement New Systems: pilot Pre-Arrival Processing; implement the Global Travel Assessment System (GTAS); establish an Authorized Economic Operator (AEO) program. - Manage E-commerce: prepare a new management approach for e-commerce platforms to strengthen oversight of cross-border activities in the medium term. - Other measures: - VAT on Digital Services: expand VAT revenue collection to tax digital goods and services traded electronically. - Cambodia National Single Window: project in its third stage to integrate ministries/institutions issuing permits, licenses, certificates; connect to ASEAN Single Window for electronic exchange of trade-related documents (e.g., ATIGA e-Form D and ACDD). - Tax incentives extended and remain in effect until further RGC notice, including: - Stamp-duty and registration-tax exemptions. - Postponement of capital gains tax for the real estate sector. - VAT and income tax exemptions for the tourism sector in Siem Reap. - Suspension of the prepayment of tax on income for the garment sector. - Authorities advised to carefully analyze costs and benefits of granting tax exemptions. ### Monetary Policy - Monetary policy normalization should resume at a pace calibrated to economic recovery and banking sector liquidity conditions. - Reserve Requirements and KHR Promotion: - US Dollar (USD): Reserve Requirement Rate (RRR) reduced from 9% to 7% in December 2023 and extended through the end of 2025. - Khmer Riel (KHR): RRR cut from 8% to 5% in May 2024, with a further reduction to 3% planned for January 2025. - KHR Promotion Strategy: authorities drafting a strategy and working with ministries and stakeholders to promote use of the KHR. - Interest Rate and Liquidity Operations: - NBC is streamlining main policy rates—7-day Liquidity-Providing Collateralized Operation (LPCO), Marginal Lending Facility (MLF), and 7-day Negotiable Certificate of Deposits (NCD)—by linking them to a reference rate and gradually narrowing the interest rate corridor. - Corridor Floor (NCD Rate): 7-day KHR NCD rate raised from 0.5% to 0.75% in mid-July 2024 and to 1% in December 2024. - Corridor Ceiling (LPCO & MLF Rates): 7-day LPCO and MLF rates cut in December 2024 (to 3.5% and 5.5%, respectively) and again in March 2025 (to 3% and 5%, respectively). - Expanded Collateral: eligible collateral for the 7-day LPCO expanded to include a bank’s USD current account, in addition to NCDs and government bonds. - Operational Framework Enhancements: - Same-Day Settlement: since March 6, 2025, auctions and settlements for LPCOs and NCDs are conducted on the same day (T+0 basis) every Thursday. - Paperless Procedures: 7-day LPCO process made paperless. - Emergency Liquidity Assistance (ELA): new Prakas on ELA is being translated and reviewed to improve the framework and address operational issues. - Foreign Exchange Rate Calculation: - Authorities considering streamlining the official market-based exchange rate by including bank-customer transactions in its calculation to better reflect prevailing market conditions. - Forbearance measures: - Authorities assessing options for gradual exit from prolonged forbearance while preserving financial stability, focusing on proper classification and reporting of forborne loans, adequate provisions, and sufficient capital and liquidity buffers. ### Financial System Policy - Intensified supervision, coordinated monitoring, and development of policy tools to fortify the financial sector. - Key actions and progress: - Discussions with the Ministry of Economy and Finance and the Non-Bank Financial Services Authority to strengthen the oversight and coordination role of the Financial Stability Committee. - New capital adequacy and solvency framework finalized; review of the Prompt Corrective Action framework still under discussion within the regulatory committee. - Ongoing review of macroprudential policy to expand the toolkit, particularly with Debt-Service-to-Income (DSTI) and Loan-to-Value (LTV) limits; related policy research in progress within the NBC's financial stability committee. - Corporate sector monitoring and crisis preparedness: - Progress on action plans to establish a crisis resolution framework; deposit protection regulation being finalized, though current economic situation may not allow implementation of the scheme at this time. - Strengthened inter-agency coordination on supervision and financial stability risk assessment. - Credit provided by real estate developers to homebuyers is subjected to stringent prudential requirements and closely monitored to address regulatory arbitrage. - Improved data collection and sharing across agencies enhances understanding of non-financial corporations with large exposures to construction and real estate sectors. - AML/CFT enhancements underway, including enforcement of reporting requirements on gold imports and exports. ### Structural Policies - Priorities: enhancing financial inclusion and digital connectivity; addressing climate change vulnerabilities for sustainable and inclusive growth. - Climate-related fiscal measures: - For 2026-2028, RGC plans a feasibility study on introducing carbon pricing mechanisms, assessing elements of a potential carbon tax such as rate and base and evaluating institutional and administrative readiness for climate-related tax policies. ### Improve Data Quality and Coverage - Improve data collection and sharing across relevant agencies. - Key institutional and technical steps: - Sub-decree issued to establish the National Institute of Statistics (NIS) as a national public administration institute. - Governance: NIS governed by a board composed of representatives from relevant ministries; representative from the Ministry of Planning (MOP) serves as chairperson. - Supervision: NIS operates under the technical supervision of the MOP and the financial supervision of the Ministry of Economy and Finance (MEF). - NBC introduced a new function to its platform for recording inter-bank transactions and collecting data on bank-customer transactions. - Limitations persist in data sharing mechanisms among government agencies, particularly regarding timely communication and data delivery. ### Anti-corruption Legal Framework - Tackling corruption and strengthening governance remain critical. - Legislative status: - Progress on a specific Law on Whistleblower Protection and a Law on Transparency and Access to Information remains pending; neither has been finalized or enacted. - Current whistleblower protections are limited to a clause within the existing Anti-Corruption Law. --- ### Annex IV. Asset Management Company (AMC) - Authorities considering regulations to allow establishment of private AMCs; some private sector banks favor a state-sponsored AMC, while authorities are mindful of fiscal and quasi-fiscal risks and are not pursuing a state-sponsored AMC. - Context and rationale: - Financial institutions face substantial increases in non-performing loans (NPLs); writing them off is critical. - Association of Banks in Cambodia (ABC) supports a public AMC though views differ among members; envisaged objectives include cleaning bank balance sheets quickly, encouraging capital injections, facilitating corporate restructuring, reviving asset prices (particularly real estate), and reducing uncertainty. - NBC preparing regulations to allow private AMCs while strengthening bank resolution framework and establishing deposit insurance. - General guidance and prerequisites for AMCs: 1. State-sponsored AMCs often a last-resort option for systemic crises; can facilitate NPL resolution, allow banks to focus on core operations, provide economies of scale and centralized expertise. 2. Preconditions before choosing an AMC: - Commitment to recognizing and fairly allocating losses (including related parties). - Address legal, institutional, regulatory, and market shortcomings for NPL management. - Realistic assessment of risks and costs an AMC will entail. 3. Proper conditions not present for establishing a state-sponsored AMC; sound judgments needed on targeting and asset selection, financial implications, and alternatives: - Target banks: focus on weak but viable banks with viable restructuring plans; owners must take losses or dilution. - Target assets: effectiveness hinges on clearly defined mandate, e.g., large, homogenous NPLs such as loans to large corporates or real estate projects. - Assess financial implications: government may need to inject capital or absorb obligations if recovery falls short; NBC should not take quasi-fiscal risks by funding the AMC or taking its assets as collateral. - Timing considerations: assess probability of a financial crisis to inform decision on public AMC versus alternatives. 4. Design features critical for success: - Clear objectives, prudent selection and valuation policies, defined government funding mechanisms given limited cash buffers and incipient capital market access. - Strong governance with independent management, regular audits and reporting, and a well-defined lifespan with a sunset clause. 5. Risks and challenges: - Difficulties in setting appropriate transfer prices amid thin markets and high price volatility. - Adverse selection as banks may have better information on asset quality. - Moral hazard risk if banks expect future bailouts. - Valuation model unreliability due to lack of recent comparable sales. - Potential for significant AMC losses, high set-up costs, operational complexities, and political interference. - Annex IV. Box 1 — Notable examples of public AMCs and outcomes: - Public AMC recovery rates are impacted by asset type and are usually below 33 percent; examples with stronger legal frameworks: - Sweden (1992): Securum recovered about 50.9 percent of book value; assets mainly large corporate loans and real estate; transparent and closed promptly; funded through direct government capital injection. - Malaysia (1998): Danaharta recovered about 63.7 percent of asset value (mainly property-backed loans) with minimal fiscal losses; government guaranteed bonds issued in exchange for NPLs. - Ireland (2009): NAMA took €74bn in property loans; acquired loans at about 43 percent of book value and recovered more than 60 percent of book value; returned a profit to the state. *Prepared by IMF staff; actions and assessments reflect updates as of July 2, 2025.* ### 6. The authorities are appropriately focusing on alternatives—banking sector reforms— ### 6. The authorities are appropriately focusing on alternatives—banking sector reforms— ### Banking sector reforms and market discipline - Authorities are implementing: - early supervisory intervention; - enhanced diagnosing of asset quality; - advancing regulations on bank resolution, emergency liquidity assistance, and deposit insurance frameworks. - Legal reforms in progress aim to improve bankruptcy, foreclosure and collateral recovery processes to facilitate NPL resolutions. - Reforms target governance-related risks to strengthen market discipline and improve bank business models under enhanced supervisory and regulatory frameworks. ### Annex V. Governance and Anti-Corruption — Introduction and context - Purpose: review Cambodia’s governance and anti-corruption landscape and macro-critical implications to inclusive growth; take stock of progress on past staff recommendations (Annex VIII, 2022 Article IV consultation); identify economic sectors with significant corruption vulnerabilities; recommend priority reforms. Analysis draws on evidence from 2023–2025. - Key indicators and trends: - Corruption Perceptions Index (CPI) score: rose from 20 (2019) to 24 (2022); declined to 22 in 2023 and further to 21 in 2024. - ASEAN average CPI: 39.4. - Rule-of-law score: 0.31 (2022-24), down from 0.35 in 2015. - WJP Rule of Law Index “Regulatory Enforcement” factor: 0.26; civil and criminal justice categories: 0.26 (2022–24). - Sub-scores: freedom from improper government influence: 0.15; corruption within the judicial system: 0.16. - Prindex land tenure insecurity: increased from 35 percent in 2020 to 42 percent in 2024. ### Governance vulnerabilities by sector - Land management: - Weak legal safeguards and broad discretionary authority enable large-scale economic land concessions and approval of special economic zones with little oversight; instances of violations of existing laws reported. - Solicitation of bribes for approval of construction or environmental licenses flagged by stakeholders. - Public procurement: - High risk of bribes or gifts expected to secure government contracts, especially in construction and infrastructure. - Private sector operates a website publishing public tenders; no unified public-sector procurement platform currently. - Absence of a public beneficial ownership register linked to procurement processes. - Health sector: - Procurement of medicines and medical equipment remains opaque; risks of favoritism and embezzlement. - Natural resources (forestry and mining): - Elevated vulnerabilities; illegal logging and extractive operations often proceed with complicity of local authorities and elites. - Customs and tax administration: - Informal payments widespread, affecting national revenue and public spending. - Systemic reinforcement: - Patronage networks and weak institutional checks reinforce corruption risks. ### Anticorruption institutional developments and gaps - Anti-Corruption Unit (ACU): - Reactivated high-profile investigations; increased coordination with National Audit Authority (NAA) and Cambodia Financial Intelligence Unit (CAFIU). - Enforcement activity increased (investigations targeting central and provincial officials; operations addressing bribery, abuse of power, trafficking of influence; investigations into laundering of proceeds of corruption). - Concerns remain about insufficient independence. - Draft laws and legislative gaps: - Draft Access to Information (“A2I”) law being led by Ministry of Information; submission to Parliament postponed until 2029 and contingent on prior approval of a law reforming the Law of Free Press and enactment of a Law for the Prevention of Fake News. - Draft whistleblower protection law pending review by Ministry of Justice before submission to Parliament. - Ministry of Justice preparatory work on Criminal Code review; no expectation of substantial changes to provisions needed for fight against corruption. - Constraints on state capacity to detect and punish corruption and to recover assets. - National Audit Authority (NAA): - Expanded publication of audit reports and participation in Anti-Corruption Coordination Commission. - Initiated audits in priority sectors (procurement, subnational budgeting) in 2023 and 2024; many findings have not led to follow-up investigations or sanctions. - Limited operational autonomy, absence of strategic plan, constrained effectiveness and institutional independence. ### Rule of law implications - Property rights and land tenure security: - Weak rule of law undermines protections against arbitrary state seizure; WJP sub-factor on expropriation roughly 0.26 on a 0–1 scale. - Land tenure insecurity deters investment and development; urban poor communities affected. - Judicial integrity: - Plateaued WJP scores (0.26) in civil and criminal justice categories (2022–24). - Sub-scores showing deeper vulnerabilities: freedom from improper government influence 0.15; corruption within judicial system 0.16. - Ongoing reforms: drafting of law on organizational structure of commercial courts and procedural code for commercial disputes; approval of the law creating commercial courts expected before the end of the year, with procedural norms to follow soon thereafter. ### Recommendations and priorities (macro-critical interventions) Given limited institutional capacity and need to maintain momentum, three priority areas and additional measures are highlighted: (a) Reform asset declaration regime and legal framework - Amend the Anti-Corruption Law and the Asset Declaration Law to ensure: - public access to declarations; - coverage of spouses and children; - full digitalization. - Adopt phased strategy for risk-based audits on asset declarations focusing on high-risk officials in procurement, land management, tax and customs, and extractives. - Guarantee institutional independence of ACU authorities. Justification: restore trust in public institutions and deter abuse of power in sectors driving public investment and revenue mobilization. (b) Enhance transparency and whistleblower protection - Adopt the draft law on access to information, ensuring application across all ministries and state bodies. - Finalize and adopt law on whistleblower protection aligned with international best practices. - Derogate Article 41 of the Anti-Corruption Law, which criminalizes good-faith disclosures. Justification: reduce leakages and inefficiencies, particularly in public procurement; improve detection of unexplained wealth and recovery of assets. (c) Strengthen procurement oversight and beneficial ownership transparency - Build a centralized public platform integrating procurement data across sectors. - Disclose full bidding documents and results, including beneficial ownership information. Justification: ensure fiscal discipline and improve public service delivery as Cambodia scales up infrastructure and health investments. (d) Enhance integrity of public officials in priority sectors - Strengthen recruitment mechanisms in tax and customs, land management, construction and environmental permits to comply with high integrity standards. - Conduct audits and integrity checks over public officials in these sectors with coordination support from ACU, CAFIU, and NAA. - Put in place secure reporting channels for solicitation of bribes or other corruption. Justification: safeguard revenue collection, improve efficient and transparent public spending, reduce corruption risks in critical economic sectors. (e) Adopt pending legislation for specialized commercial courts - Enact draft law on organizational aspects of commercial courts. - Enact draft law on procedure of commercial disputes. Justification: enhance contract enforcement, strengthen property rights, provide efficient resolution of business disputes and NPLs; support investor confidence and private sector development. *Source: IMF staff report content (Annex V: Governance and Anti-Corruption; section on banking sector reforms and market discipline).* ### Annex VI. Table 1. Cambodia: Data Adequacy Assessment for Surveillance ### Annex VI. Table 1. Cambodia: Data Adequacy Assessment for Surveillance ### Use of data and estimates - Estimates from a nowcasting model developed by ICD technical assistance are used to guide the quarterly assessment of economic activity. - The data provided to the Fund have some shortcomings that somewhat hamper surveillance. - The data provided to the Fund have serious shortcomings that significantly hamper surveillance. (These two sentences appear in the source as categorical statements used in the assessment framework.) ### Key data gaps and limitations - Large informal economy activities are not adequately tracked. - Information on the corporate sector is limited, including on financing provided for real estate activities by non-financial corporates. - Labor market data are quite limited; the last labor force survey was conducted in 2019. - On national accounts: - Frequency and timeliness significantly hamper surveillance. - Higher frequency indicators are available only for a few sectors—mainly goods exports. - On government accounts: - Coverage and granularity limitations exist. - Significant lags for debt data. - Slow conversion from TOFE to GFS presentation. - Questionable classification in items such as acquisitions of non-financial assets, grants, and subsidies. - On monetary and financial statistics: - Coverage limitations somewhat hamper effective monitoring of intermediation by non-bank financial institutions. - On external sector statistics: - Errors and omissions are large: 3.3 percent of GDP in 2023. - Direct investment, the international investment position (IIP), and travel services data have shortcomings in quality and granularity. - Risks associated with credit provided by real estate companies are not properly captured. - Timeliness of financial soundness indicators has deteriorated. ### Changes since the last Article IV consultation - NBC has made progress compiling direct investment from banks. - Progress made to strengthen the organization and governance of the National Institute of Statistics (see annex IV referenced in source). - Timeliness of financial soundness indicators has deteriorated. ### Corrective actions and capacity development priorities - With Fund support, progress is being made to: - Update the CPI weights. - Develop high frequency indicators of economic activity. - Update the input-output and supply-use tables for national accounts. - Improve Financial Soundness Indicators (e.g., classification of instruments to align with 2019 FSI guide). - Ongoing technical assistance to enhance compilation and validation of external sector statistics, including: - Goods components of the Balance of Payments. - International Investment Position (IIP). - Direct investment. - External debt statistics. - Travel services. - Upcoming IMF Statistics Department missions will review the institutional development plan to strengthen the capacity of the National Institute of Statistics to conduct the Report on the Observance of Standards and Codes (ROSC). - Capacity development priorities noted elsewhere in the source that support data improvements include: - Improving statistics and ensuring information sharing across agencies to support informed policy formulation and Fund surveillance. - Strengthening regulatory and supervisory capacity of the National Bank of Cambodia and improving the monetary policy framework (linked to statistical needs). ### Rationale for staff assessment - Overall assessment: some shortcomings in the data that somewhat hamper surveillance, including for national accounts, government financial statistics, and external sector statistics. - Specific bases for assessment: - National accounts: low frequency and timeliness; limited high-frequency indicators beyond goods exports. - Government accounts: coverage and granularity limits; classification and presentation issues; debt lags. - Monetary and financial statistics: coverage gaps for non-bank financial institutions. - External sector statistics: sizeable net errors and omissions (3.3 percent of GDP in 2023) and quality/granularity gaps for direct investment, IIP, and travel services. - Real estate–related credit risks not well captured. ### Notable numeric and dated items from the assessment context - Errors and omissions in external sector: 3.3 percent of GDP in 2023. - Last labor force survey: 2019. - (Contextual items elsewhere in the supplied content but relevant to data/capacity context) - Cambodia participates in the e-GDDS and publishes data on its National Summary Data Page since May 2018. - MDRI relief forgiven: SDR 56.83 million (amount forgiven as part of MDRI, noted elsewhere in the supplied content). *Source: Annex VI. Table 1. Cambodia: Data Adequacy Assessment for Surveillance (staff report text provided).* ### 1. The debt sustainability analysis (DSA) covers central government debt and state-owned ### The debt sustainability analysis (DSA) covers central government debt and state-owned enterprise (SOE) debt guaranteed by the central government ### Coverage, methodology, and contingent liabilities design - DSA coverage: - Central government debt and state-owned enterprise (SOE) debt guaranteed by the central government. - By law, state and local governments and the central bank do not engage in borrowing, and SOEs do not contract non-guaranteed loans. - No extra-budgetary funds; the National Social Security Fund is funded by deposits and does not constitute a liability for the general government. - External debt is defined on a currency basis (as in the previous DSA). - Contingent liabilities stress tests included: - Public-private partnerships (PPPs) and a financial market shock (Text Table 2). - SOE debt shock set to 0 percent of GDP because SOEs are not allowed to contract external debt and guarantees to SOEs are included in public and publicly guaranteed (PPG) debt. - End-2024 capital stock of PPPs estimated at around 40 percent of GDP; assuming a 35 percent shock to the total PPP stock corresponds to a contingent liability of 14 percent of GDP. - Financial market shock calibrated at 10 percent of GDP (double the default value of 5 percent) to reflect elevated risks from high private sector indebtedness and banking sector vulnerabilities. - Design summary (Text Table 2 highlights): - Other elements of the general government not captured in 1.0 percent of GDP: 0.0 - SoE's debt (guaranteed and not guaranteed by the government) 1/2 percent of GDP: 0.0 - PPP: 35 percent of PPP stock → 14.0 percent of GDP - Financial market (default 5 percent of GDP): 10.0 percent of GDP - Total contingent liabilities (2+3+4+5): 24.0 percent of GDP - Note on triggering default SOE shock: The default shock of 2% of GDP is triggered only if government-guaranteed debt is not fully captured under the country's public debt definition. ### Background on public and external debt (end-2024) - External PPG debt: - US$ 11.9 billion (25.9 percent of GDP) at end-2024. - External debt-to-GDP ratio declined by 0.4 percentage points in 2024. - Bilateral creditors account for the majority of total external debt at 61.6 percent. - More than one-half of bilateral debt is owed to China. - External debt contracted on concessional terms; present value (PV) of external debt = 19.9 percent of GDP at end-2024. - External debt composition (Text Table 3): - Total: 11,915 (in million of U.S. dollars) — 25.8 percent of GDP — 100.0 percent of external debt - Multilateral: 4,575 — 9.9 percent of GDP — 38.4 percent of external debt - Bilateral: 7,340 — 15.9 percent of GDP — 61.6 percent of external debt - of which: China 4,068 — 8.8 percent of GDP — 34.1 percent of external debt - Legacy arrears: - Debt stock includes legacy arrears to the Russian Federation and the U.S. of about US$ 0.6 billion (principal only, excluding any accumulated interest), equivalent to 1.5 percent of GDP. - Authorities report US$ 2.6 billion due to Paris Club creditors; the Paris Club reports total claims of US$ 4.3 billion (2024 Annual Report). - Public domestic debt and domestic bond market: - Domestic debt negligible at US$ 115 million (0.3 percent of GDP) at end-2024. - Government began issuing local-currency bonds in September 2022. - Between 2023 and 2024, total bond issuance rose by nearly 30 percent to US$ 74.9 million. - Planned 2024 issuance target of US$ 115 million was not met. - Authorities reduced the withholding tax on bond interest by 50 percent to stimulate demand. - PPPs: - Total PPP stock assessed by authorities at US$ 18.4 billion (39.9 percent of GDP) as of end-2024. - Authorities have established a digital platform and strengthened legal/regulatory arrangements, including a new PPP law enacted in November 2021 and the General Department of Public-Private Partnerships (GDPPP). ### Macro outlook and assumptions (baseline and near-term performance) - 2024 performance: - Real GDP growth: 6.0 percent in 2024, up from 5.0 percent in 2023. - Headline inflation averaged 0.9 percent in 2024 (down from 2.1 percent in 2023). - Core inflation: 1.1 percent in 2024. - Broad money growth: 17.5 percent (y/y) in 2024. - Exports rose 13.5 percent in 2024; imports grew 17.7 percent in 2024. - International reserves cover approximately 6.9 months of prospective 2025 imports. - Overall fiscal balance estimated at -2.1 percent of GDP in 2024 (compared to -2.8 percent in 2023). - Baseline projections (selected): - Real GDP growth projected: 4.8 percent in 2025 and 4.0 percent in 2026. - Assumed potential growth: pick up to 5.5 percent by 2030 (compared to 6.0 percent in previous DSA) and moderate to 5.0 percent over the long term. - Inflation projected: around 2.5 percent on average in 2025; 2.3 percent in 2026; rising gradually to 3.0 percent by 2030. - Primary deficit projected: 3.4 percent of GDP in 2025 and 3.6 percent of GDP in 2026. - Current account deficit projected: 3.0 percent of GDP in 2025 and 4.5 percent in 2026. - Monetary and financial conditions: - NBC lowered reserve requirement ratio to 7 percent in 2023 and maintained it. - In April 2025, NBC lowered the marginal lending facility (MLF) by 50 basis points to 5 percent and 7-day liquidity-providing collateralized operations (LPCO) by 50 basis points to 3 percent, equivalent to the notional policy rate of 3 percent. - Credit growth remains subdued despite lower interbank rates; bank credit to the private sector approximately 126 percent of GDP at end-2024 and loan-to-deposit ratio of 108. - Banks’ US$ claims on the NBC reached record levels; excess KHR reserves increased. - Financing assumptions: - External borrowing projected around 3.0 percent of GDP per annum over the medium term, declining to 2.6 percent of GDP by 2030. - New external debt expected largely concessional, average maturity 27 years, average nominal interest rate less than 2 percent. - Annual domestic bond issuance increases from less than 0.1 percent of GDP in 2022 to 0.9 percent of GDP in 2030. - Total outstanding PPG debt projected to reach around 36.7 percent of GDP by 2045, below the debt anchor of 40 percent under the proposed fiscal rule. ### Risks, realism checks, and country classification - Risks to the outlook: - Tilted to the downside: higher tariffs, weaker external demand, escalation at Thai-Cambodian border, elevated private debt, rising NPLs, global supply-chain shifts, limited fiscal buffers, constrained market access, and high dollarization limiting monetary policy. - Realism and assumptions: - Realism tools indicate macroeconomic and fiscal assumptions are reasonable. - Growth projections are more conservative than those implied by standard multipliers; public capital investment contributes less to GDP growth than in the past. - Projected change in primary deficit-to-GDP ratio over the next three years is modest and within the historical range for LICs. - Country classification: - Debt-carrying capacity classified as medium (unchanged). - Composite Indicator (CI) index: 2.99. ### Debt sustainability outcomes and stress-test results - External debt distress risk: - Risk of external debt distress assessed as low; no external indicator breaches its threshold under baseline or adverse scenarios. - External debt projected to peak at 26.9 percent of GDP in 2028, moderating to 25.3 percent by 2045. - PV of external debt-to-GDP ratio projected to hover around 19 percent (up from 15 percent in previous DSA), driven by revisions to debt service. - Vulnerabilities to contingent-liabilities shock: - Contingent-liabilities shock has the most severe impact on external debt: PV of external debt-to-GDP rises from 19.8 percent in 2025 to 34.5 percent in 2028, then converges to around 30 percent over the long term. - Total PPG debt: - Total PPG debt expected to rise from 26.1 percent of GDP in 2024 to 32.8 percent of GDP in 2035. - PV of total debt-to-GDP ratio estimated to increase gradually to 25.2 percent in 2035. - PV of debt-to-revenue ratio and debt service-to-revenue ratio projected to increase over time. - Stress-test specifics: - Under growth shock: PV of total debt-to-GDP rises to 53.4 percent by 2045. - Contingent liabilities shock is the most extreme for the debt service-to-revenue ratio, with a noticeable spike in 2028 due to short-term borrowing assumptions to meet financing needs. *Source: IMF staff DSA (Cambodia) — content unit: 1khmea2025002-source-pdf.* ### 22. Domestic debt issuance is small but needs to increase to meet financing needs in the ### 22. Domestic debt issuance is small but needs to increase to meet financing needs in the long term amid falling availability of concessional external borrowing ### Domestic debt issuance and financing needs - Domestic public debt issuance began in 2022. - Domestic debt issuance in 2025 amounted to just 0.1 percent of GDP. - While government savings remain ample over the medium term, meeting long-term financing needs—particularly in light of declining external concessional financing following the anticipated graduation from least developed country (LDC) status by end-2029—requires increasing domestic debt issuance to approximately 0.9 percent of GDP by 2030. - Further efforts to develop the domestic government bond market will help mobilize resources needed for sustainable economic development and make a smooth transition when Cambodia graduates from LDC status. ### Risk rating and debt outlook - Cambodia’s risk of external and overall debt distress remains low. - No indicator breaches its threshold under either the baseline or adverse scenarios; the risk of overall debt distress is assessed as low. - PPG debt is projected to rise by 6.3 percentage points of GDP during the next decade, and its level is projected to stabilize. - Maintaining total outstanding PPG debt within the debt anchor of 40 percent over the long term requires improved revenue mobilization and spending efficiency. ### Vulnerabilities and policy priorities - Key vulnerabilities include exposure to growth shocks and contingent liabilities from PPPs and the banking sector. - Policy priorities and recommended actions: - Promote sustainable growth and diversify the economy to increase resilience to external shocks. - Maintain fiscal discipline through improved revenue mobilization and spending efficiency to keep PPG debt within the 40 percent debt anchor. - Improve PPP risk evaluations and close data gaps in monitoring PPPs, including continued development of a comprehensive PPP database and institutional arrangements (e.g., a high-level Contract Management Committee and Project Management Units within line ministries). - Strengthen macroprudential regulations and implement banking sector reforms—particularly strengthening regulatory and supervisory capacity—to contain contingent liabilities risks. - Develop the domestic government bond market and increase domestic debt issuance going forward. ### Climate change impacts on debt sustainability - World Bank climate impact models project that climate change could lower Cambodia's GDP by 3.0 to 9.0 percentage points by 2050, with the effect distributed evenly over time, implying an average reduction in its annual growth of 0.1 to 0.4 percentage points. - As a result, the debt-to-GDP ratio in 2045 could rise from 36.7 to between 37.9 and 39.9 percent. - The projection does not consider the potential benefits of climate adaptation and mitigation policies in boosting potential growth, and the baseline projection already accounts for structural vulnerabilities. ### Authorities’ views - The authorities expressed strong commitment to: - Debt sustainability and macro-financial stability. - Development of the domestic government bond market, with plans to increase domestic debt issuance. - Managing PPP risks, including development of a comprehensive PPP database and relevant institutional arrangements. - Strengthening fiscal risk monitoring by integrating recommendations on fiscal rules and risk frameworks. - Strengthening supervisory and regulatory frameworks to maintain macro-financial stability. *Source: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1khmea2025002-source-pdf - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Recent economic developments and near-term outlook - Real GDP grew by 6.0 percent in 2024. - Authorities project real GDP to expand at around 5.0 percent in both 2025 and 2026. - Exports rose by 15.4 percent YoY in the first nine months of 2025. - Approved fixed-asset investment surged by 67 percent in the first ten months of 2025. - Tourist arrivals by air increased by 22.4 percent YoY during January–September 2025. - Inflation is expected to remain moderate at around 2.5 percent in 2025. - International reserves are equivalent to about seven months of imports. ### Key macroeconomic risks and resilience factors - Downside risks: slower global and regional growth; rising geo-economic fragmentation; trade and border-related shocks. - Resilience drivers: strong export momentum, solid agricultural production, sustained tourism recovery, garment sector resilience, improved logistics infrastructure, export diversification into agriculture and light manufacturing. - Labor market: labor shortages in garment, construction, and agriculture sectors; government measures to support SMEs and formalization to absorb return of migrant workers. ### Fiscal policy stance and reforms - Authorities committed to fiscal discipline under the Medium-Term Fiscal Framework (MTFF). - Near-term fiscal policy will provide targeted support to vulnerable households while maintaining medium-term fiscal discipline. - Revenue and public financial management priorities: - Improve domestic revenue mobilization amid declining concessional financing. - Further digitalization of tax administration. - Enhanced compliance and improved debt management. - Continued implementation of the Revenue Mobilization Strategy 2024-2028 (RMS-III). - Review tax incentive schemes and strengthen monitoring of tax expenditures. - Expenditure priorities: health, education, social protection, and growth-enhancing public investment; improve spending efficiency through performance-based budgeting. - Intention to deepen the domestic government bond market gradually to diversify financing and support capital market development. ### Monetary and exchange rate policy - National Bank of Cambodia (NBC) to remain agile and data-driven. - NBC will carefully assess timing and pace of reserve requirement normalization to balance growth support and financial stability. - Strengthen coordination between liquidity management and fiscal operations for orderly money market conditions. - Modernize monetary policy framework to strengthen transmission in Khmer riel, including: - Deepening interbank and money markets. - Narrowing the interest-rate corridor. - Operationalizing a formal policy rate over time. - De-dollarization strategy: enhance monetary policy effectiveness while maintaining exchange-rate stability as a nominal anchor. - Payments and digitalization: - Advance regional payment connectivity for cross-border retail payments. - Enhance domestic digital payment ecosystem via wider adoption of KHQR. - Strengthen cybersecurity standards and promote digital and financial literacy. ### Financial sector policies and crisis preparedness - Authorities focused on safeguarding financial stability amid rising non-performing loans (NPLs), softening property market, and external uncertainties. - NBC reviewing forbearance measures for a gradual, calibrated exit to avoid pro-cyclicality and preserve system-wide stability. - Close monitoring of credit developments and sectoral exposures via off-site surveillance and risk-based on-site supervision. - Operationalize the Prakas (regulation) on Early Supervisory Intervention (ESI) in 2026 to enable a forward-looking process to identify and address emerging weaknesses. - Strengthen supervisory coordination, macroprudential oversight, and toolkit to ensure: - Adequate provisions. - Appropriate classification of forborne loans. - Robust capital and liquidity buffers. - Crisis preparedness measures: - Enhance bank resolution and insolvency frameworks. - Develop deposit insurance. - Improve emergency liquidity assistance (ELA) mechanism. ### Structural and governance reforms - Accelerate economic diversification and competitiveness under the Pentagonal Strategy-Phase I (2023–2028). - Policy priorities to support high-quality, inclusive growth: - Boost agricultural productivity. - Support SME development. - Upgrade transport and logistics infrastructure. - Attract higher-value manufacturing. - Advance green transition via renewable energy (solar and wind), smart-grid infrastructure, and electric vehicle promotion. - Governance reforms: - Strengthen anti-corruption measures and rule of law. - Prepare law establishing institutional architecture for commercial courts and subsequent procedural regulations. - Strengthen AML/CFT compliance, particularly risks from virtual assets. - Strengthen supervisory cooperation and legal enforcement to mitigate integrity risks. - Data and statistics improvements: - Enhance data quality, coverage, and inter-agency coordination, especially for real estate, nonbank financial institutions, and external sector statistics. - Modernize digital data collection and strengthen institutional capacity with continued IMF technical assistance. ### Authorities’ assessment and engagement with IMF - Authorities broadly concur with staff’s assessment and recommendations while maintaining a more optimistic growth outlook based on recent developments and structural reforms progress. - Authorities reaffirm commitment to safeguarding macroeconomic stability and enhancing resilience through coordinated fiscal, monetary, and structural policies. - Appreciation expressed for IMF mission team engagement and technical assistance; look forward to ongoing collaboration. *Statement by Mr. Idwan Suhardi Bin Hakim et al., November 21, 2025 — Cambodian authorities’ statement included in source content.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1khmea2025002-source-pdf.pdf_