## _cr1246 ## Source details **Canonical URL:** [_cr1246](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1246.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1246.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1246.pdf.json) --- ### Outlook and Risks - Growth - Staff estimate overall growth at 5¾ percent in 2011. - Nonagricultural growth is estimated at 7½ percent in 2011. - Recent severe floods reportedly destroyed 10 percent of the wet season harvest and could shave 1 percentage point off growth. - In 2012, overall GDP growth could reach 6½ percent, supported by: - return of agricultural output to pre-flood trends; - ongoing recovery in the real estate sector; - robust garment exports due to improved cost competitiveness and privileged access to key advanced economies. - Garment exports rose more than 30 percent in 2011; exports to the European Union were up more than 60 percent from 2010. - Rice exports through September tripled under the new rice policy (first three quarters of 2011). - Inflation and credit - Headline inflation peaked at 6.7 percent in September 2011. - Strong credit growth is estimated to exceed 30 percent (y/y) in 2011. - Inflation is expected to level off and would average about 4½ percent in 2012. - External position and stability - The current account deficit (including official transfers) is projected at about 9½ percent of GDP in 2011–12. - Gross official reserves rose to US$3 billion in November 2011 (an increase of nearly US$300 million since the beginning of the year), equivalent to about 4¼ months of prospective imports. - The riel has remained close to its post-2008 average in real effective terms and is judged broadly in line with fundamentals. - Under the baseline scenario, growth is expected to return to its potential of about 7½ percent over the medium term. - Cambodia’s current account deficit (including official transfers) would gradually fall to about 5¾ percent of GDP by 2016. - Risks and spillovers - U.S. and Europe account for 70 percent of Cambodia’s garment exports (60 percent of total exports) and the bulk of high-end tourist arrivals. - Garment manufacturing and tourism together are forecast to contribute 3 percentage points, or more than one-third, to growth in 2012. - On average, a 1 percentage point decline of growth in the United States and Europe would result in about a 1¼ percentage point drop of growth in Cambodia. - BIS data: claims of euro area banks on Cambodian residents amount to less than 0.8 percent of Cambodia’s GDP (compared with an average exposure of about 5½ percent of GDP for Asian economies). - The ratio of foreign currency deposits to total deposits is 95 percent as of October 2011, constraining the effectiveness of monetary policy. - A 10 percent increase in rice prices would push Cambodia’s inflation up by 2 percentage points. - Medium-term projection contingent on reforms to improve the business environment, upgrade physical infrastructure, and enhance public sector revenue and service delivery. ### Fiscal space — developments and constraints - Fiscal developments - The deficit (excluding grants) rose to over 8 percent of GDP in 2009. - In 2010, domestic financing was halved to 1 percent of GDP. - In 2011: - revenue-to-GDP ratio stayed broadly at its 2010 level; full year revenue expected to fall about ¼ percent of GDP short of the budget; - government redirected about CR200 billion from existing capital spending plans for reconstruction after floods; - the supplementary 2011 budget called for additional spending of about CR250 billion; - government deficit (excluding grants) expected to exceed 6 percent of GDP, ½ percent of GDP higher than implied by the initial budget; - need for domestic financing will remain sizable (about 1 percent of GDP). - Government deposits in the banking system fell from about 8 percent of GDP in 2008 to 4 percent of GDP in 2011. - Fiscal policy implications - Government deposit buffer is a key anchor for stability in absence of a government securities market and limited lender-of-last-resort capacity. - Given limited fiscal space, fiscal contingency plans should focus on: - effectiveness of spending; - accelerating high-impact social priority and infrastructure outlays; - maximizing synergies with flood reconstruction of rural infrastructure. - High degree of dollarization limits countercyclical use of exchange and interest rates; fiscal policy remains the main macro stabilization tool. ### Box 1 — How Much Fiscal Space Does Cambodia Have? - Context and approach - Fiscal stimulus in 2009 substantially reduced fiscal space; government deposits dropped from about 8 percent of GDP in 2008 to 4 percent of GDP in 2011. - A downside scenario replicates low real GDP and export growth of 2009–10 in 2012–13, producing a revenue shortfall similar to 2009. - Estimated revenue shortfalls range between 0.5 to 1.3 percent of GDP depending on filtering methods. - A revenue shortfall of 1.3 percent of GDP is used in the illustrative downside exercise. - Scenarios analyzed - Option A: Government boosts discretionary spending by 1 percent of GDP in the year of the shock (2012); thereafter consolidation is as gradual as after 2009, with the increase in domestic financing removed only in 2015. - Option B: No discretionary spending stimulus, with only revenue-side automatic stabilizers at work. - Main conclusions - With a growth contraction comparable to 2009, automatic revenue stabilizers mean that a stimulus of more than 1 percent of GDP should be ruled out. - Both options A and B lead to the government deposit-to-GDP ratio sliding to less than two standard deviations of past domestic financing needs in 2012, assuming a revenue shortfall in 2012 of 1.3 percent of GDP. - A gradual withdrawal of stimulus under Option A will exhaust government deposits by 2014. - Downside risks would significantly worsen external debt sustainability with debt (in NPV terms) rising above 250 percent of revenue. - Such deterioration would likely coincide with a tightening of concessional funding supply from advanced economies, increasing the need to protect the government deposit buffer. - Quantitative illustration - Revenue shortfall assumed at 1.3 percent of GDP for the downside exercise. - Government deposit trajectories under Option A and Option B compared to domestic financing thresholds defined by one and two standard deviations (1995–2010). ### 2012 Budget and policy responses - Budget stance and targets - Authorities commit to keeping the ratio of current spending to GDP below 11½ percent of GDP and unchanged from 2011. - Revenue administration enhancements planned to yield about ½ percent of GDP. - As a result of consolidation measures, domestic financing and the drain on government deposits will be substantially reduced, and the fiscal deficit (excluding grants) would be reduced to about 5¾ percent of GDP. - Contingency measures if revenue falls short - Consider unwinding cuts in petroleum import duties made in early 2011 to offset higher global fuel prices. - Consider raising “sin taxes.” - Speed up collection of tax arrears. ### Rebuilding fiscal space — revenue measures and contingent liabilities - Revenue measures - Medium-term consolidation path proposed to: - reduce the deficit (excluding grants) to slightly under 4 percent of GDP in 2016; - replenish government deposits in the banking system; - reduce public external debt to the pre-crisis level of 27 percent of GDP by 2016. - Primary instrument: increase in the ratio of tax revenue to GDP (on average by about ½ percent of GDP per year). - Staff estimate gap to potential revenue that could be closed by strengthened tax administration amounts to about 3–5 percent of GDP (Country Report No. 11/45, Box 1). - IMF stands ready to provide further TA in revenue administration and tax policy design. - Safeguarding fiscal space through monitoring contingent liabilities - Power generation expansion plan envisages completion of 35 projects under PPP by 2020 with total investment cost outside the government’s capital budget of US$5.4 billion, or about 50 percent of 2011 GDP. - Contracts covering about half of the investment plan have already been signed. - Government exposure via take-or-pay guarantees; size and complexity of projects make ex ante risk quantification difficult. - Progress noted: public debt strategy design and creation of high-level government committee on public debt management. - Staff suggestions to close framework gaps: - Set up a central PPP monitoring unit with “gateway powers” to evaluate all planned projects. - Promote greater transparency of contingent liabilities in the budget law. - Strengthen legal framework on competitive bidding and dispute resolution. - Using fiscal space effectively - Progress welcomed in cash management, budget classification, and technical preparations for FMIS. - Key challenges: capacity build-up, interdepartmental coordination, and adequate funding for FMIS. ### Monetary policy and de-dollarization steps - Developments - NBC’s influence on monetary conditions remains very limited; exchange rate vis-à-vis the U.S. dollar used as an effective nominal anchor. - Dollarization remained stubbornly high; ratio of official reserves to foreign currency deposits has steadily declined as credit growth accelerated and reserve requirements kept at post 2009 crisis lows. - Official reserves have risen as banks placed part of foreign currency returning to the system with the NBC. - Policy normalization recommendations - Gradually raise reserve requirements amid strong growth to strengthen perceptions of NBC’s commitment to price stability. - Reserve requirements on foreign currency deposits should be raised more than on riel deposits. - Support swift completion of technical preparations for securitizing central bank deposits to be used as collateral to facilitate creation of an interbank market. - Encourage NBC to publish more frequent data and analysis on monetary and credit developments. - Regular sharing of information with the National Treasury on government cash flows critical for enhanced liquidity monitoring. ### Financial deepening and stability - Developments - Higher minimum capital requirement for banks implemented; noncompliant banks being dealt with; NBC upgrading supervisory capacity. - Launch of a credit bureau in early 2012 to enable banks to better manage credit risks. - Launch of the Cambodian stock exchange in July 2011; transactions allowed to be settled in U.S. dollars for a transition period of three years. - Onsite inspections indicate stricter asset classification and provisioning will only gradually improve accuracy of FSIs. - Agreed way forward (FSAP guided) - Consider moratorium on bank licenses while supervisory capacity remains limited; authorities considering ways to impose a moratorium. - Develop a roadmap (with IMF TA) toward an effective wholesale foreign exchange market that is noncash based and open to banks and major nonbank financial institutions. - NBC could gradually step back from retail money changers to dealing more with banks and allow some exchange rate flexibility. - Set up working groups to prepare MoUs between NBC, MEF, and SECC; IMF TA offered to these groups. ### Building foundations for stronger growth - Structural context - Potential growth appears to be slowing after rising from the mid-1990s. - Textile sector accounts for about 80 percent of all exports. - Tourism is concentrated in Angkor Wat. - Recent FDI trends point to nascent diversification beyond garments. - Policy priorities - Remove impediments to investment, address infrastructure bottlenecks, implement Anti Corruption Law, and the government’s rice policy to promote rural development. - Budget prioritization to support critical infrastructure investment to crowd in private investment and reduce urban-rural imbalances. - Importance of timely, independent, and accurate economic statistics; authorities welcomed continued IMF TA in national accounts statistics. ### AML/CFT and anti-corruption - Enhancements to the AML/CFT framework can support the fight against corruption and improve investment climate. - Authorities plan to address strategic deficiencies identified by the Financial Action Task Force and the 2010 FSAP, including: - adequate criminalization of money laundering and terrorism financing offences; - strengthening the Financial Intelligence Unit’s resources. ### Drivers of potential growth and investment findings - Potential growth peaked at an estimated 8.7 percent during 2004–2005. - Assuming a sustained investment-to-GDP ratio of 20 percent (close to 2000–10 average) and the absence of further shocks, potential growth could reach 7.6 percent in the medium term. - If efforts succeed in bridging infrastructural gaps relative to peers, Cambodia could lift its investment-to-GDP ratio by about 5 percent, with an associated boost to potential output growth of over 1 percent. - Investment returns constrained by lack of adequate basic infrastructure such as cheap electricity and difficulties of doing business. - Investment in human capital remains a priority; public spending on education remains one of the lowest compared to peers. ### Staff appraisals (summarized) - Economic setting (paragraph 20) - Cambodia’s economy performed well in 2011; severe floods constitute a temporary setback. - Nonagricultural GDP growth likely reached the highest rate in four years. - Flood damage to agriculture could visibly dent overall growth depending on replanting and rice yields. - Inflation rose through most of 2011 and is expected to ease only gradually. - Real effective exchange rate broadly in line with fundamentals. - Outlook and risks (paragraph 21) - Favorable outlook for 2012, partly from return of agriculture to pre-flood trends. - Narrow economic base means exposure to global downside risks is high while policy buffers are limited due to dollarization and reduced fiscal space. - Medium-term growth prospects depend on reforms to improve business environment, upgrade infrastructure, and enhance public sector revenue and service delivery. - Fiscal policy (paragraph 22) - Any fiscal contingency plan should accelerate and reprioritize spending for existing high-impact social sector and infrastructure investment projects. - 2012 budget will help rebuild fiscal space by halving domestic financing. - Further revenue mobilization over the medium term is key. - Better monitoring of contingent liabilities critical to safeguard fiscal space. - Implementation of public financial management reforms will help ensure spending effectiveness. - Monetary and exchange rate policy (paragraph 23) - Keeping reserve requirements at post-crisis lows is inconsistent with strong recovery and could undermine perceptions about commitment to price stability. - With accelerating credit growth, inaction could contribute to macro-financial risks. - Better liquidity monitoring and creation of an interbank market are important to improve monetary operations and financial resilience. - Financial sector policy (paragraph 24) - Main challenge: build a deeper financial system while safeguarding stability. - A moratorium on bank licenses would provide time to build supervisory capacity and balance competition and bank health. - Formalizing coordinated supervision and crisis management is essential. - Upgrading foreign exchange market needs careful sequencing with international financial integration, stock market growth, and monetary policy framework development. - Investment recommendations (paragraph 25) - Focus on infrastructure bottlenecks and improving investment climate to alleviate rural-urban imbalances. - Strengthen AML/CFT framework and better and more timely economic statistics to reduce cost of doing business and facilitate informed decision making. ### Debt Sustainability Analysis (DSA) — baseline and scenarios - Baseline risk assessment - Risk of debt distress is low under the baseline macroeconomic outlook. - External debt burden indicators do not breach relevant indicative thresholds for a medium performer. - Key external public debt indicators (end-2010 and projections) - External PPG debt stock at end-2010: 28 percent of GDP (nominal) and 20 percent in NPV terms. - Projected 2011 (PV terms): debt stock as a share of GDP: 20 percent; as a share of exports of goods and nonfactor services: 39 percent; as a share of government revenues: 154 percent. - NPV of debt, as percent of GDP: End-2010 20 (Indicative Threshold 40). - NPV of debt, as percent of Exports: End-2010 40 (Indicative Threshold 150). - NPV of debt, as percent of Revenue: End-2010 149 (Indicative Threshold 250). - Debt service, as percent of Exports: End-2010 1 (Indicative Threshold 20). - Debt service, as percent of Revenue: End-2010 5 (Indicative Threshold 30). - Creditor breakdown at end-2010: Multilateral 49 percent of external total debt (14 percent of GDP); Bilateral 51 percent of external total debt (14 percent of GDP). - AsDB 27 percent, IDA 18 percent of external debt; China accounted for about 66 percent of total bilateral disbursements in 2010. - Cambodia remains in arrears to the Russian Federation and the United States; baseline assumes no restructuring and arrears continue to build up. - Macroeconomic assumptions (2011–31) - Overall growth in 2011: slightly below 6 percent. - GDP growth projected to reach 6½ percent in 2012. - Inflation projected to average 5.6 percent in 2011, gradually declining toward 3 percent in the medium term. - Potential growth rate upgraded to 7–8 percent in the medium and longer terms (conditional on reforms). - External current account deficit projected above 9 percent of GDP during 2011–13, trending toward 5 percent in the longer term. - FDI as a share of GDP expected to stabilize at around 6 percent. - Gross official reserves expected to rise from 4.3 months of next year’s imports in 2011 toward 5 months in the long run. - Overall fiscal deficit (excluding grants) expected to narrow from about 6 percent in 2011 to less than 4 percent in 2016, then to 2½ percent by 2031. - Revenue (excluding grants) expected to rise to over 14 percent of GDP by 2016 from about 12 percent in 2011, and to 16½ percent of GDP over the long term. - Public expenditure expected to remain mostly around 18 percent through the medium term, and kept below 19 percent up to 2031. - Main DSA findings and stress tests - PV of debt-to-GDP ratio declines from 20 percent in 2011 to about 14 percent in 2031 (indicative threshold: 40 percent). - PV of debt-to-exports ratio declines from 39 percent in 2011 to 27 percent in 2031 (indicative threshold: 150 percent). - PV of debt-to-revenue ratio declines from 154 percent in 2011 to 80 percent in 2031 (indicative threshold: 250 percent). - Standard stress tests do not reveal serious vulnerabilities overall, but a one-time 30 percent depreciation and an export shock push the NPV of debt-to-revenue ratio to 212 and 219 percent respectively. - Country-specific alternative scenario: increased bilateral external borrowing (2011–21) - Doubling of external borrowing from the baseline over 2011–21: additional borrowing of US$880 million during 2011–21. - Terms: 60 percent at 2 percent interest rate with grace period/maturities of 7 and 20 years; 20 percent at 1 percent interest rate with grace period/maturities of 12 and 40 years; remaining loans from multilateral agencies. - No growth dividends assumed. - Results: total debt stock rising to 38 percent of GDP (NPV of debt-to-GDP at 29 percent) over the medium term; indicative thresholds breached in several bound tests; debt distress rating would move from low to moderate. - Contingent liabilities: problems in 1 out of 10 BOT projects potentially adding 5 percent of GDP to debt stock; a banking crisis could add about 10 percent of GDP to public debt. - Policy implications and recommendations - Maintain prudent borrowing strategy and careful management of public debt to preserve low risk of debt distress under baseline. - Strengthen revenue efforts over the medium term. - Preserve concessionality of new borrowing and ensure transparent, objective assessment of investment projects. - Strengthen capacity to monitor and manage contingent liabilities from BOT projects and the financial sector. - Avoid excessive increases in external borrowing without clear growth dividends and robust project and fiscal management capacity. ### Macroeconomic performance and projections (selected figures) - Output and prices (annual percent change) - GDP in constant prices: 2008: 6.7; 2009: 0.1; 2010: 6.0; 2011: 5.8; 2012 (Proj.): 6.5 - (Excluding agriculture): 2008: 7.0; 2009: -1.8; 2010: 6.7; 2011: 7.6; 2012 (Proj.): 6.2 - Real agricultural output: 2008: 5.7; 2009: 5.4; 2010: 4.0; 2011: 1.2; 2012 (Proj.): 7.5 - GDP deflator: 2008: 12.3; 2009: 2.6; 2010: 3.1; 2011: 4.1; 2012 (Proj.): 3.8 - Inflation (end-year): 2008: 12.5; 2009: 5.3; 2010: 3.1; 2011: 6.1; 2012 (Proj.): 4.1 - Saving and investment (percent of GDP) - Gross national saving: 2008: 15.0; 2009: 12.5; 2010: 14.4; 2011: 13.5; 2012 (Proj.): 13.9 - Gross fixed investment: 2008: 19.5; 2009: 16.0; 2010: 18.5; 2011: 23.0; 2012 (Proj.): 24.0 - Public finance (percent of GDP) - Revenue: 2008: 15.9; 2009: 15.8; 2010: 17.0; 2011: 15.6; 2012 (Proj.): 15.6 - Expenditure: 2008: 15.7; 2009: 20.0; 2010: 20.0; 2011: 18.4; 2012 (Proj.): 18.7 - Net lending (+)/borrowing(-): 2008: 0.2; 2009: -4.2; 2010: -3.0; 2011: -2.8; 2012 (Proj.): -3.0 - Balance of payments and external sector (selected) - Exports, f.o.b. (millions of dollars): 2008: 3,493; 2009: 2,996; 2010: 3,884; 2011: 4,803; 2012 (Proj.): 5,251 - Exports (annual percent change): 2008: 7.6; 2009: -14.2; 2010: 29.7; 2011: 23.6; 2012 (Proj.): 9.3 - Imports, f.o.b. (millions of dollars): 2008: -5,076; 2009: -4,484; 2010: -5,515; 2011: -6,919; 2012 (Proj.): -7,463 - Imports (annual percent change): 2008: 12.4; 2009: -11.7; 2010: 23.0; 2011: 25.5; 2012 (Proj.): 7.9 - Current account (including official transfers, millions of dollars): 2008: -468; 2009: -360; 2010: -458; 2011: -1,216; 2012 (Proj.): -1,428 - Current account (in percent of GDP): 2008: -4.5; 2009: -3.5; 2010: -4.1; 2011: -9.5; 2012 (Proj.): -10.1 - Gross official reserves (millions of dollars): 2008: 2,164; 2009: 2,367; 2010: 2,653; 2011: 3,080; 2012 (Proj.): 3,449 - (In months of prospective imports): 2008: 4.8; 2009: 4.4; 2010: 4.0; 2011: 4.3; 2012 (Proj.): 4.4 - Medium-term macroeconomic framework (highlights, 2012–16) - GDP growth (percent change): 2012: 6.5; 2013: 6.4; 2014: 6.8; 2015: 7.4; 2016: 7.4 - Consumer prices (end-year): 2012: 4.1; 2013: 3.4; 2014: 3.0; 2015: 3.0; 2016: 3.0 - Current account balance (including transfers, percent of GDP): 2012: -10.1; 2013: -9.3; 2014: -6.8; 2015: -6.4; 2016: -5.7 - Public external debt (millions of U.S. dollars): 2008: 2,776; 2009: 2,946; 2010: 3,206; 2011: 3,611; 2012 (Proj.): 3,992 - Public external debt (in percent of GDP): 2008: 27.0; 2009: 28.5; 2010: 27.6; 2011: 28.1; 2012 (Proj.): 28.1 ### Financial sector indicators and FSAP recommendations (selected) - Monetary and liquidity - Broad money (in billions of riels): 2008: 11,859; 2009: 16,228; 2010: 17,235; 2011 (Dec.): 18,267; 2012 (Proj. Dec.): 18,888 - Foreign currency deposits (in millions of U.S. dollars): Dec. 2008: 2,273; Mar. 2009: 3,073; Jun. 2009: 3,286; Sep. 2009: 3,499; Dec. 2009: 3,639 - Credit to the private sector (in millions of U.S. dollars): 2008 Dec.: 2,424; 2009 Dec.: 2,538; 2010 Dec.: 2,663; 2011 Dec. (Proj.): 2,806 - Private sector credit (12-month percent change): 2008: 55.0; 2009: 6.5; 2010: 26.6; 2011: 33.0 - Broad money (12-month percent change): 2008: 4.8; 2009: 36.8; 2010: 20.0; 2011: 23.0 - FSAP recommendations (key items and status) - Improve data quality and collect additional credit-related information. Timeframe: Short-term. Status: In process. - Enforce existing regulations on liquid assets. Timeframe: Short-term. Status: In process. - Upgrade law to formalize delineation of responsibilities among supervisors and MoUs for information exchange. Timeframe: Short-term. Status: Initiated but not concluded. - Impose a moratorium on issuance of new bank licenses while supervisory capacity is inadequate. Timeframe: Short-term. Status: Being considered. - Launch of credit bureau in early 2012 to manage credit risks. Timeframe: Short-term. Status: Planned. - Introduce due process for dismissal of NBC Board members and Governor; reduce government representation on NBC Board. Timeframe: Medium- to Short-term. Status: Not Initiated. - Financial soundness indicators (selected series) - Regulatory capital to risk-weighted assets (sample series): 27.6; 32.4; 33.1; 34.2; 32.3; 31.5; 31.3; 31.5; 31.4; 31.2; 29.0; 27.5 - Nonperforming loans to total gross loans (sample series): 2.9; 4.3; 4.9; 5.7; 3.9; 4.1; 4.2; 4.2; 2.9; 2.9; 3.0; 3.0 - Liquid assets to total assets (sample series): 14.2; 15.4; 16.2; 19.8; 19.4; 16.1; 18.0; 17.6; 18.0; 17.9; 17.9; 19.0 ### Statistical and data issues - Data adequacy - Data provision broadly adequate for surveillance, but shortcomings hamper timely and comprehensive analysis. - IMF, UNDP, AsDB, World Bank, Japan, and Sweden have provided extensive TA. - National accounts and prices - NIS working with IMF to improve national accounts per SNA 1993 and to produce quarterly series beginning with June 2005. - GDP quality hampered by lack of comprehensive and reliable source data. - CPI introduced January 2009; geographic coverage limited to urban Phnom Penh; plans to expand coverage pending budgetary approval. - Authorities indicated need for PPI but no funds allocated. - Government finance and monetary statistics - Reforms to government accounting system and budgetary nomenclature began in 2007 based on GFSM 2001 with IMF TA; use and coverage of COA limited. - NBC compiles monetary statistics per the Monetary and Financial Statistics Manual and reports monthly to STA; NBC compiles monthly core FSIs and shares them irregularly. - External sector statistics - Customs data have coverage and valuation problems; enterprise transactions and FDI underreporting issues persist. - Gaps in external debt statistics and in official transfers; no data available for private external debts. - Data dissemination and reporting (selected) - Cambodia participates in the IMF’s General Data Dissemination System. - Selected observation dates and reporting frequencies for key indicators (as of December 2011) provided for Exchange Rates, Reserves, Broad Money, CPI, Government finance, External current account, Exports and imports, GDP, Gross external debt, and International Investment Position. ### Fund relations and institutional notes (selected) - Membership: Joined December 31, 1969. - Accepted Article VIII, Sections 2, 3, and 4 on January 1, 2002. - Quota: SDR Million 87.50; Percent Quota 100.00. - SDR net cumulative allocation: SDR Million 83.92; Holdings: 68.39. - Latest financial arrangements: ECF 1 (10/22/1999–03/05/2003), Amount Approved: 58.50; Amount Drawn: 58.50; earlier ECF 1 (05/06/1994–08/31/1997), Amount Approved: 84.00; Amount Drawn: 42.00. - MDRI: Amount forgiven: SDR 56.8 million (about US$82 million); NBC transferred full MDRI proceeds to MEF effective March 2006. - Safeguards assessment of NBC completed January 2010; recommendations made. - Exchange regime classified as stabilized; official exchange rate expressed in riels per U.S. dollar; rate adjusted to be within 1 percent of the market rate daily. - Article IV consultation on a 12-month cycle; last discussions held August 30–September 10, 2010; Executive Board concluded consultation on October 29, 2010. - FSAP mission: March 2010; assessment completed October 2010. - Technical Assistance focus: bank supervision, monetary operations, public financial management, customs administration, financial sector supervision, and macro-financial statistics. - Resident Representative: Mr. Faisal Ahmed appointed July 2011. *Source: CAMBODIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND (Selected sections and annexes).* ### 1. Selected Economic Indicators, 2008–12 _______________________________________________________ 20 ### 1. Selected Economic Indicators, 2008–12 ### Outlook and Risks - Growth - Staff estimate overall growth at 5¾ percent in 2011. - Nonagricultural growth is estimated at 7½ percent in 2011. - Recent severe floods reportedly destroyed 10 percent of the wet season harvest and could shave 1 percentage point off growth. - In 2012, overall GDP growth could reach 6½ percent, supported by: - return of agricultural output to pre-flood trends; - ongoing recovery in the real estate sector; - robust garment exports due to improved cost competitiveness and privileged access to key advanced economies. - Garment exports rose more than 30 percent in 2011; exports to the European Union were up more than 60 percent from 2010. - Rice exports through September tripled under the new rice policy (first three quarters of 2011). - Inflation and credit - Headline inflation peaked at 6.7 percent in September 2011. - Strong credit growth is estimated to exceed 30 percent (y/y) in 2011. - Inflation is expected to level off and would average about 4½ percent in 2012. - External position and stability - The current account deficit (including official transfers) is projected at about 9½ percent of GDP in 2011–12. - Gross official reserves rose to US$3 billion in November 2011 (an increase of nearly US$300 million since the beginning of the year), equivalent to about 4¼ months of prospective imports. - The riel has remained close to its post-2008 average in real effective terms and is judged broadly in line with fundamentals. - Under the baseline scenario, growth is expected to return to its potential of about 7½ percent over the medium term. - Cambodia’s current account deficit (including official transfers) would gradually fall to about 5¾ percent of GDP by 2016. - Risks and spillovers - Cambodia is highly sensitive to economic activity in the U.S. and Europe, which account for 70 percent of its garment exports (60 percent of total exports) and the bulk of high-end tourist arrivals. - Garment manufacturing and tourism together are forecast to contribute 3 percentage points, or more than one-third, to growth in 2012. - On average, a 1 percentage point decline of growth in the United States and Europe would result in about a 1¼ percentage point drop of growth in Cambodia. - Financial spillovers likely limited given Cambodia’s underdeveloped financial system and low degree of financial integration: BIS data show claims of euro area banks on Cambodian residents amount to less than 0.8 percent of Cambodia’s GDP (compared with an average exposure of about 5½ percent of GDP for Asian economies). - The ratio of foreign currency deposits to total deposits is 95 percent as of October 2011, constraining the effectiveness of monetary policy. - A 10 percent increase in rice prices would push Cambodia’s inflation up by 2 percentage points. - Medium-term projection contingent on reforms to improve the business environment, upgrade physical infrastructure, and enhance public sector revenue and service delivery. ### Key Issues for the Consultation — Creating And Safeguarding Fiscal Space - Fiscal developments - The deficit (excluding grants) rose to over 8 percent of GDP in 2009. - In 2010, domestic financing was halved to 1 percent of GDP. - In 2011, progress in strengthening the fiscal position has been more difficult: - revenue-to-GDP ratio stayed broadly at its 2010 level; full year revenue expected to fall about ¼ percent of GDP short of the budget; - government redirected about CR200 billion from existing capital spending plans for reconstruction after floods; - the supplementary 2011 budget called for additional spending of about CR250 billion; - government deficit (excluding grants) expected to exceed 6 percent of GDP, ½ percent of GDP higher than implied by the initial budget; - need for domestic financing will remain sizable (about 1 percent of GDP). - Government deposits in the banking system fell from about 8 percent of GDP in 2008 to 4 percent of GDP in 2011. - Discussion priorities - (i) Fiscal space available to address near-term downside risks and the budget for 2012. - (ii) Need to rebuild fiscal space over the medium term through revenue measures and enhanced monitoring of contingent liabilities. - (iii) Improvements under the public financial management reform program (PFMRP) to support development needs and inclusive growth. - Fiscal space constraints and policy implications - The government deposit buffer is a key anchor for stability in the absence of a government securities market and limited lender-of-last-resort capacity. - Given limited fiscal space, any fiscal contingency plan should focus on effectiveness of spending, accelerating high-impact social priority and infrastructure outlays, and maximizing synergies with flood reconstruction of rural infrastructure. - High degree of dollarization limits countercyclical use of exchange and interest rates; fiscal policy remains the main tool for macroeconomic stabilization. ### Box 1 — How Much Fiscal Space Does Cambodia Have? - Context and approach - Fiscal stimulus in 2009 substantially reduced fiscal space; government deposits dropped from about 8 percent of GDP in 2008 to 4 percent of GDP in 2011. - Assessment considers a downside scenario replicating low real GDP and export growth of 2009–10 in 2012–13, producing a revenue shortfall similar to 2009. - Estimated revenue shortfalls range between 0.5 to 1.3 percent of GDP depending on filtering methods. - A revenue shortfall of 1.3 percent of GDP is used in the illustrative downside exercise. - Scenarios analyzed - Option A: Government boosts discretionary spending by 1 percent of GDP in the year of the shock (2012); thereafter consolidation is as gradual as after 2009, with the increase in domestic financing removed only in 2015. - Option B: No discretionary spending stimulus, with only revenue-side automatic stabilizers at work. - Main conclusions - With a growth contraction comparable to 2009, automatic revenue stabilizers mean that a stimulus of more than 1 percent of GDP should be ruled out. - Both options A and B lead to the government deposit-to-GDP ratio sliding to less than two standard deviations of past domestic financing needs in 2012, assuming a revenue shortfall in 2012 of 1.3 percent of GDP. - A gradual withdrawal of stimulus under Option A will exhaust government deposits by 2014. - Downside risks would significantly worsen external debt sustainability with debt (in NPV terms) rising above 250 percent of revenue. - Such deterioration would likely coincide with a tightening of concessional funding supply from advanced economies, increasing the need to protect the government deposit buffer. - Quantitative illustration (as presented) - A revenue shortfall is assumed at 1.3 percent of GDP for the downside exercise. - Government deposit trajectories under Option A and Option B are compared to domestic financing thresholds defined by one and two standard deviations (1995–2010). ### 2012 Budget and Policy Responses - Budget stance and targets - Authorities commit to keeping the ratio of current spending to GDP below 11½ percent of GDP and unchanged from 2011. - Revenue administration enhancements planned to yield about ½ percent of GDP. - As a result of consolidation measures, domestic financing and the drain on government deposits will be substantially reduced, and the fiscal deficit (excluding grants) would be reduced to about 5¾ percent of GDP. - Contingency measures if revenue falls short - Consider unwinding cuts in petroleum import duties made in early 2011 to offset higher global fuel prices. - Consider raising “sin taxes.” - Speed up collection of tax arrears. *Source: CAMBODIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND (Selected sections on outlook, risks, and fiscal policy).* ### 9. Rebuilding fiscal space through ### 9. Rebuilding fiscal space through ### Revenue measures - Staff recommended a medium-term consolidation path to avoid undue external and inflation pressures, and to rebuild domestic and external fiscal buffers, enabling Cambodia to bolster its low risk-of-debt distress rating and strengthen its ability to absorb future shocks (Joint IMF/World Bank Debt Sustainability Analysis 2011). - Objectives under this path: - Reduction in the deficit (excluding grants) to slightly under 4 percent of GDP in 2016. - Replenishment of government deposits in the banking system. - Reduction of public external debt to the pre-crisis level of 27 percent of GDP by 2016. - Primary instrument: increase in the ratio of tax revenue to GDP (on average by about ½ percent of GDP per year), consistent with commitments under the public financial management reform program. - Key assessment and estimates: - Improving the productivity of Cambodia’s tax system was viewed as key. - Staff estimate that the gap to potential revenue that could be closed by strengthened tax administration amounts to about 3–5 percent of GDP (Country Report No. 11/45, Box 1). - Implementation caveats and measures: - Strong and continued efforts required by revenue collecting agencies, including enforcement of measures adopted since the previous consultation to enhance taxpayer compliance and education, and improve governance within agencies. - Trade liberalization commitments will create additional pressures to generate revenue from domestic taxes. - Consideration may need to be given to strengthen direct taxation and enhance buoyancy including by reducing incentives. - Offer of support: - The IMF stands ready to provide further TA both in the areas of revenue administration and tax policy design. ### Safeguarding fiscal space through enhanced monitoring of contingent liabilities - Risk context: - Rapidly growing contingent liabilities, if not managed carefully, could set back efforts at creating fiscal space. - Power generation expansion plan: - Envisages completion of 35 projects under public-private partnerships (PPP) by 2020 with a total investment cost outside the government’s capital budget of US$5.4 billion, or about 50 percent of 2011 GDP. - Contracts covering about half of the investment plan have already been signed. - Risk drivers and concerns: - Government exposure via take-or-pay guarantees; size and complexity of projects make ex ante risk quantification difficult. - Contingent liabilities could severely curtail fiscal room for maneuver, particularly in the event of adverse economic shocks when contingent liabilities are more likely to be triggered (Joint IMF/World Bank Debt Sustainability Analysis 2011). - Agreed institutional responses and gaps to close: - Progress noted in designing a public debt strategy and creation of a high-level government committee on public debt management. - Staff suggested building on new institutional arrangements to enhance monitoring of PPP risks and close current framework gaps, including: - Setting up a central PPP monitoring unit to evaluate all planned projects with “gateway powers” to ensure only sound projects and procurement options are chosen consistent with the public investment strategy. - Promoting greater transparency of contingent liabilities in the budget law. - Strengthening the legal framework with respect to competitive bidding and dispute resolution mechanisms. ### Using fiscal space effectively - Broad agreement that further progress under the government’s public financial management reform program (PFMRP) is important to ensure that greater fiscal space is used effectively. - Progress welcomed in: - Cash management. - Budget classification. - Technical preparations for the government’s financial management information system (FMIS). - Key challenges ahead: - Commensurate capacity build-up. - Interdepartmental coordination. - Provision of adequate funding for the FMIS. ### Taking Basic Steps Toward Greater Monetary Independence - Developments: - The NBC’s influence on monetary conditions remains very limited. - In the absence of a formal monetary framework, market-based instruments and an interbank market, the NBC continues to use the exchange rate vis-à-vis the U.S. dollar as an effective nominal anchor and has sporadically intervened over the past year, mainly to smooth seasonal demand and supply fluctuations. - Official reserves have risen as banks have placed part of foreign currency returning to the system with the NBC. - Dollarization has remained stubbornly high; the ratio of official reserves to foreign currency deposits has steadily declined as credit growth accelerated and the NBC kept reserve requirements at their post 2009 crisis lows. - Policy normalization discussion: - Staff argued for steps to normalize monetary conditions consistent with robust economic expansion. - Recommendation to gradually raise reserve requirements amid strong growth to strengthen perceptions of NBC’s commitment to price stability. - Reserve requirements on foreign currency deposits should be raised more than on riel deposits consistent with the long-term objective of promoting the use of the local currency. - Authorities preferred to move more cautiously but set up an interministerial working group in 2011 to monitor inflation developments. - In the event of an adverse global shock, there is scope to recalibrate the pace and timing of monetary normalization. - Enhancing the monetary framework: - Support for swift completion of technical preparations of securitizing central bank deposits to be used as collateral; such securities could facilitate creation of an interbank market and allow banks to better manage riel and dollar liquidity. - Encouragement for the NBC to publish more frequent and up-to-date data and analysis on monetary and credit developments on its website. - Regular sharing of information with the National Treasury on government cash flows is critical for enhanced liquidity monitoring. - Progress in these areas would reduce uncertainty and create space for carefully sequenced steps to enhance Cambodia’s monetary framework consistent with the national strategy of strengthening the free flow of the riel. ### Managing Financial Deepening - Developments: - Cambodia’s financial system is rapidly changing, reinforcing old and creating new challenges to safeguarding financial stability. - Progress on high-priority 2010 FSAP recommendations is uneven. - A higher minimum capital requirement for banks was implemented; noncompliant banks are being dealt with; NBC has continued to upgrade supervisory capacity. - Launch of a credit bureau in early 2012 will enable banks to better manage credit risks. - Work on key elements of a crisis management framework remains to be initiated; agreements on delineation of responsibilities among supervisors are pending. - Launch of the Cambodian stock exchange in July 2011 increases need for coordination; transactions are allowed to be settled in U.S. dollars for a transition period of three years. - Onsite inspections indicate that stricter asset classification and provisioning will only gradually improve the accuracy of standard financial soundness indicators, which may still substantially underestimate credit and solvency risks. - Agreed way forward (guided by FSAP recommendations): - Moratorium on bank licenses: - 2010 FSAP recommended a moratorium while supervisory capacity remains limited. - Rapid influx of new banks has continued, leading staff to describe Cambodia as “overbanked.” - Authorities saw merit in the assessment and are considering ways to impose a moratorium consistent with commitment to a sound banking system and stable growth. - Developing a foreign exchange market: - Current market is thin, cash-based, dominated by money-changers; even small stock market transactions could cause disruptive imbalances. - Transitory settlement in U.S. dollars addresses short-term concerns while preserving de-dollarization objectives. - Need for a roadmap (supported by IMF TA) toward an effective wholesale foreign exchange market that is noncash based and open to banks and major nonbank financial institutions. - NBC could gradually step back from retail money changers to dealing more with banks and allow some exchange rate flexibility to aid market clearing. - Making supervision forward-looking and comprehensive: - Progress welcomed on prompt corrective action framework. - Concern about lack of MoUs between NBC, MEF, and SECC on shared responsibilities and procedures for information exchange and bank resolution. - Authorities agreed to set up working groups with representatives from all supervisory agencies to jointly prepare MoUs; IMF TA offered to these groups. ### Building Foundations for Stronger Growth - Developments: - After rising for about 10 years from the mid-1990s, Cambodia’s potential growth appears to be slowing, suggesting early productivity gains and marginal returns to investment are diminishing. - Cambodia’s economic base remains narrow: - Textile sector dominates manufacturing and accounts for about 80 percent of all exports. - Tourism is the second largest source of foreign exchange earnings and remains concentrated in a single destination, Angkor Wat. - Cambodia ranks low on important determinants of private investment, but is geographically close to fast-growing markets and could benefit from economic rebalancing in Asia and integration into regional supply chains. - Recent FDI trends and anecdotal evidence point to nascent diversification beyond the garment sector. - Policy discussion and priorities: - Focus on removing impediments to investment. - Recent initiatives to improve the business environment and address infrastructure bottlenecks could lift investment rates and diversify the investor base. - Importance of implementing specific measures such as the Anti Corruption Law and the government’s rice policy to promote rural development. - Authorities emphasized budget prioritization in support of critical infrastructure investment to crowd in private investment and reduce urban-rural imbalances, promoting more inclusive growth in line with the Millennium Development Goals. - Staff emphasized importance of timely, independent, and accurate economic statistics for improving the investment climate; authorities welcomed continued IMF TA in national accounts statistics. *Source: 2011 ARTICLE IV REPORT CAMBODIA, INTERNATIONAL MONETARY FUND* ### 19. AML/CFT. There was broad ### _cr1246 - 19. AML/CFT. There was broad ### AML/CFT enhancements and anti-corruption - There was broad agreement that enhancements to the AML/CFT framework can also support the broader fight against corruption and hence improve Cambodia’s investment climate. - The team welcomed the authorities’ plans to address strategic deficiencies identified by the Financial Action Task Force and the 2010 FSAP, including: - the adequate criminalization of money laundering and terrorism financing offences, and - the strengthening of the Financial Intelligence Unit’s resources. ### Drivers of growth (high-level findings from Figure 4 and Box 3) - Potential growth appears to be settling after rising steadily until 2005. - Investment continues to fall short of the regional average. - Cambodia’s business environment remains very challenging for investors while infrastructure gaps are huge, even compared with other LIC’s in the region. - In addition to infrastructure, public investment in education is low. - Access to finance is also a potential constraint, but Cambodia has been catching up fast. ### Key statistics and estimated impacts (preserve source figures and phrasing) - Potential growth peaked at an estimated 8.7 percent during 2004–2005. - Assuming a sustained investment-to-GDP ratio of 20 percent (close to 2000–10 average) and the absence of further shocks to productivity or labor supply, potential growth could reach 7.6 percent in the medium term. - If efforts succeed in bridging infrastructural gaps relative to peers, Cambodia could lift its investment-to-GDP ratio by about 5 percent, with an associated boost to potential output growth of over 1 percent. - Contributions to potential growth chart components (as presented): Total factor productivity growth; Labor growth; Capital accumulation. ### Box 3 — Investment as a driver of potential growth: findings - Cambodia’s near double-digit growth prior to the global financial crisis resulted from expansion of international trade, sustained investment and improvements in productivity. - Investment returns in Cambodia are constrained by a lack of adequate basic infrastructure such as cheap electricity, and difficulties of doing business more generally. - Investment relative to GDP in Cambodia remains one of the lowest among low-income countries. - Low investment can inhibit economic diversification away from Cambodia’s currently narrow export base, and hinder overall manufacturing productivity. - The government is addressing many gaps; substantial investments in hydropower and coal-fired plants should materially lower electricity costs. - A concerted effort by the government to improve the quality of basic infrastructure holds the key to sustaining high potential growth. - Investment in human capital should continue to receive a high priority; public spending on education in Cambodia remains one of the lowest compared to peers. ### Staff appraisal — Economic setting (paragraph 20) - Cambodia’s economy performed well in 2011; recent severe floods constitute only a temporary setback to building stronger foundations for growth. - Buoyant garment exports, a strong tourism sector, and an emerging recovery of the battered real estate sector meant that nonagricultural GDP growth likely reached the highest rate in four years. - Flood damage to agriculture could visibly dent overall growth depending on replanting efforts and the impact on rice yields. - On the back of strong economic activity, higher global food and fuel prices, and reinforced by strong credit growth, inflation rose through most of 2011 and is expected to ease only gradually. - The real effective exchange rate appears to remain broadly in line with economic fundamentals. ### Staff appraisal — Outlook and risks (paragraph 21) - Growth dynamics point to a favorable outlook for 2012, in part boosted by the return of agriculture to pre-flood trends. - Cambodia’s narrow economic base means exposure to global downside risks is high while policy buffers are limited, mainly owing to: - the high degree of dollarization and - largely reduced fiscal space after the 2009 global recession. - Medium-term growth prospects critically depend on ongoing reforms to: - improve the business environment, - upgrade physical infrastructure, and - enhance public sector revenue and service delivery to provide for Cambodia’s vast development needs while safeguarding fiscal sustainability. ### Staff appraisal — Fiscal policy (paragraph 22) - With significantly less fiscal space to counter a potential severe global downturn than in 2009, any fiscal contingency plan would need to focus on accelerating and reprioritizing spending for existing high-impact social sector and infrastructure investment projects. - The 2012 budget will help rebuild fiscal space by halving domestic financing. - Further revenue mobilization over the medium term is key to strengthening policy buffers and providing adequate resources for development. - Better monitoring of sizable and growing contingent liabilities will be critical to safeguard fiscal space. - Steadfast implementation of ongoing public financial management reforms will help to ensure spending effectiveness. ### Staff appraisal — Monetary and exchange rate policy (paragraph 23) - Keeping reserve requirements, the NBC’s main policy tool, at post-crisis lows is inconsistent with Cambodia’s strong recovery and could undermine perceptions about the authorities’ commitment to price stability. - With credit growth accelerating, inaction could also contribute to macro-financial risks. - There is scope to recalibrate the pace and timing of monetary normalization in the event of an adverse global economic shock. - Better liquidity monitoring and the creation of an interbank market are important to: - improve monetary operations consistent with Cambodia’s longer-term development strategy, and - help increase financial system resilience at the current juncture. ### Staff appraisal — Financial sector policy (paragraph 24) - Main challenge: building a deeper financial system while safeguarding financial stability. - A moratorium on bank licenses would provide a critical window to: - build adequate supervisory capacity and - improve the balance between the degree of competition and health of banks. - Formalizing coordinated supervision and crisis management between relevant government agencies is essential to reduce systemic risks and limit potential fiscal costs. - Upgrading Cambodia’s shallow foreign exchange market will need to be carefully sequenced with: - Cambodia’s international financial integration, - the growth of the stock market, and - the development of the overall monetary policy framework. ### Staff appraisal — Investment recommendations (paragraph 25) - The authorities’ medium-term structural policies appropriately focus on infrastructure bottlenecks and improving the investment climate, which would also help alleviate rural-urban imbalances. - Further strengthening the AML/CFT framework and better and more timely economic statistics will help improve Cambodia’s competitiveness by: - reducing the cost of doing business and - facilitating informed decision making. *Source: 2011 ARTICLE IV REPORT CAMBODIA (extracted content).* ### 26. It is recommended that the next ### _cr1246 - 26. It is recommended that the next ### Article IV timing recommendation - It is recommended that the next Article IV consultation take place on the standard 12-month cycle. ### Macroeconomic performance and projections (selected) - Output and prices (annual percent change) - GDP in constant prices: 2008: 6.7; 2009: 0.1; 2010: 6.0; 2011: 5.8; 2012 (Proj.): 6.5 - (Excluding agriculture): 2008: 7.0; 2009: -1.8; 2010: 6.7; 2011: 7.6; 2012 (Proj.): 6.2 - Real agricultural output: 2008: 5.7; 2009: 5.4; 2010: 4.0; 2011: 1.2; 2012 (Proj.): 7.5 - GDP deflator: 2008: 12.3; 2009: 2.6; 2010: 3.1; 2011: 4.1; 2012 (Proj.): 3.8 - Inflation (end-year): 2008: 12.5; 2009: 5.3; 2010: 3.1; 2011: 6.1; 2012 (Proj.): 4.1 - Saving and investment (in percent of GDP) - Gross national saving: 2008: 15.0; 2009: 12.5; 2010: 14.4; 2011: 13.5; 2012 (Proj.): 13.9 - Gross fixed investment: 2008: 19.5; 2009: 16.0; 2010: 18.5; 2011: 23.0; 2012 (Proj.): 24.0 - Public finance (in percent of GDP) - Revenue: 2008: 15.9; 2009: 15.8; 2010: 17.0; 2011: 15.6; 2012 (Proj.): 15.6 - Expenditure: 2008: 15.7; 2009: 20.0; 2010: 20.0; 2011: 18.4; 2012 (Proj.): 18.7 - Net lending (+)/borrowing(-): 2008: 0.2; 2009: -4.2; 2010: -3.0; 2011: -2.8; 2012 (Proj.): -3.0 ### Balance of payments and external sector (selected) - Exports, f.o.b. (millions of dollars): 2008: 3,493; 2009: 2,996; 2010: 3,884; 2011: 4,803; 2012 (Proj.): 5,251 - Exports (annual percent change): 2008: 7.6; 2009: -14.2; 2010: 29.7; 2011: 23.6; 2012 (Proj.): 9.3 - Imports, f.o.b. (millions of dollars): 2008: -5,076; 2009: -4,484; 2010: -5,515; 2011: -6,919; 2012 (Proj.): -7,463 - Imports (annual percent change): 2008: 12.4; 2009: -11.7; 2010: 23.0; 2011: 25.5; 2012 (Proj.): 7.9 - Current account (including official transfers, millions of dollars): 2008: -468; 2009: -360; 2010: -458; 2011: -1,216; 2012 (Proj.): -1,428 - Current account (in percent of GDP): 2008: -4.5; 2009: -3.5; 2010: -4.1; 2011: -9.5; 2012 (Proj.): -10.1 - Gross official reserves (millions of dollars): 2008: 2,164; 2009: 2,367; 2010: 2,653; 2011: 3,080; 2012 (Proj.): 3,449 - (In months of prospective imports): 2008: 4.8; 2009: 4.4; 2010: 4.0; 2011: 4.3; 2012 (Proj.): 4.4 ### Medium-term macroeconomic framework (2008–16) — highlights - GDP growth (percent change): 2012: 6.5; 2013: 6.4; 2014: 6.8; 2015: 7.4; 2016: 7.4 - Consumer prices (end-year): 2012: 4.1; 2013: 3.4; 2014: 3.0; 2015: 3.0; 2016: 3.0 - Current account balance (including transfers, percent of GDP): 2012: -10.1; 2013: -9.3; 2014: -6.8; 2015: -6.4; 2016: -5.7 - Public external debt (in millions of U.S. dollars): 2008: 2,776; 2009: 2,946; 2010: 3,206; 2011: 3,611; 2012 (Proj.): 3,992 - Public external debt (in percent of GDP): 2008: 27.0; 2009: 28.5; 2010: 27.6; 2011: 28.1; 2012 (Proj.): 28.1 ### Fiscal accounts and budgets (selected) - General government (GFSM 1986 and GFSM 2001 presentations) — central government indicators (in billion riels and percent of GDP) - Total revenue (central government, in billion riels): sample entries include 2008: 5,188; 2009: 5,030; 2010: 4,897; 2011 (Est.): 5,686; 2012 (Budget): 4,567 - Tax revenue (central government, in billion riels): sample entries include 2008: 4,494; 2009: 4,177; 2010: 4,228; 2011 (Est.): 4,763; 2012 (Budget): 3,830 - Total expenditure (in billion riels): sample entries include 2008: 6,751; 2009: 7,422; 2010: 8,805; 2011 (Est.): 8,366; 2012 (Budget): 7,726 - Overall balance (in billion riels): 2008: -1,288; 2009: -2,239; 2010: -3,627; 2011: -2,529; 2012 (Proj.): -2,927 - Memorandum (percent of GDP) - Total revenue: 2008: 12.7; 2009: 12.0; 2010: 12.0; 2011: 12.4; 2012 (Proj.): 10.2 - Total expenditure and net lending: 2008: 16.1; 2009: 17.2; 2010: 20.4; 2011: 17.8; 2012 (Proj.): 16.4 ### Monetary sector and liquidity - Monetary aggregates (selected) - Broad money (in billions of riels): 2008: 11,859; 2009: 16,228; 2010: 17,235; 2011 (Dec.): 18,267; 2012 (Proj. Dec.): 18,888 - Foreign currency deposits (in millions of U.S. dollars): Dec. 2008: 2,273; Mar. 2009: 3,073; Jun. 2009: 3,286; Sep. 2009: 3,499; Dec. 2009: 3,639 - Credit to the private sector (in millions of U.S. dollars): 2008 Dec.: 2,424; 2009 Dec.: 2,538; 2010 Dec.: 2,663; 2011 Dec. (Proj.): 2,806 - Growth rates (12-month percent change) - Private sector credit: 2008: 55.0; 2009: 6.5; 2010: 26.6; 2011: 33.0 - Broad money (12-month percent change): 2008: 4.8; 2009: 36.8; 2010: 20.0; 2011: 23.0 ### Financial Sector Assessment Program (FSAP) recommendations — key items and status (Table 7) - General stability and supervision - Improve the quality of data and collect additional credit-related information. Timeframe: Short-term. Status: In process. - Ensure banks retain appropriate liquid assets and enforce existing regulations. Timeframe: Short-term. Status: In process. - Upgrade law to formalize delineation of responsibilities among supervisors (NBC, MEF, SECC) and MOUs for information exchange. Timeframe: Short-term. Status: Initiated but not concluded. - Upgrade staff numbers and capacity in banking, insurance, securities, and payment system supervision; develop training programs. Timeframe: Medium-term. Status: In process. - Develop and implement a strategic plan to address conflicts and overlaps in the financial sector legal and regulatory framework. Timeframe: Medium-term. Status: Not Initiated. - Banking supervision - Develop supervisory strategy for banks that cannot meet the new capital requirement. Timeframe: Short-term. Status: Done. - Conduct comprehensive upgrades to the legal framework. Timeframe: Short-term. Status: Not Initiated. - Reprioritize staff to facilitate forward-looking, risk-based supervision. Timeframe: Short-term. Status: In preparation. - Impose a moratorium on issuance of new bank licenses while supervisory capacity is inadequate. Timeframe: Short-term. Status: Being considered. - Non-bank financial sector and access to finance - Revise capital regulations for insurance market risk coverage. Timeframe: Short-term. Status: Done. - Enhance powers for intervention, corrective measures and enforcement. Timeframe: Short-term. Status: In preparation. - Conduct a readiness study prior to the launch of the stock exchange. Timeframe: Short-term. Status: In preparation. - Enhance supervisory practices for microfinance deposit-taking institutions; impose moratorium as long as supervisory capacity is inadequate. Timeframe: Medium-term. Status: Not Initiated. - Crisis management and transparency - Revise PCA framework with additional triggers for asset quality, liquidity, and earlier intervention based on the solvency ratio. Timeframe: Medium-term. Status: In process. - Introduce regulation allowing banks to use fixed deposits at the NBC and government securities as eligible collateral for interbank and NBC repos. Timeframe: Short term. Status: Not Implemented. - Develop a crisis management framework. Timeframe: Medium-term. Status: In preparation. - Introduce due process for dismissal of NBC Board members and Governor; reduce government representation on NBC Board and reflect practice of two Deputy Governors. Timeframe: Medium- to Short-term. Status: Not Initiated. - AML/CFT and corporate governance - Draft/implement banking regulations on internal audit, controls, risk management, and compliance functions. Timeframe: Short-term. Status: In preparation. - Introduce rules for AML/CFT risk assessments and risk profiling of financial institutions. Timeframe: Short-term. Status: Not Initiated. ### Financial soundness indicators (FSIs) — selected (Table 8) - Capital-based FSIs (percent) - Regulatory capital to risk-weighted assets (sample series): 27.6; 32.4; 33.1; 34.2; 32.3; 31.5; 31.3; 31.5; 31.4; 31.2; 29.0; 27.5 - Regulatory tier 1 capital to risk-weighted assets (sample series): 27.7; 32.8; 37.2; 34.8; 33.0; 32.6; 32.7; 33.3; 32.6; 32.1; 29.5; 27.7 - Nonperforming loans net of provisions to capital (sample series): 5.9; 7.9; 7.7; 9.1; 4.7; 4.8; 5.0; 5.3; 3.4; 3.6; 4.2; 4.7 - Asset-based FSIs (percent) - Nonperforming loans to total gross loans (sample series): 2.9; 4.3; 4.9; 5.7; 3.9; 4.1; 4.2; 4.2; 2.9; 2.9; 3.0; 3.0 - Liquid assets to total assets (sample series): 14.2; 15.4; 16.2; 19.8; 19.4; 16.1; 18.0; 17.6; 18.0; 17.9; 17.9; 19.0 - Income- and expense-based FSIs (percent) - Interest margin to gross income (sample series): 48.3; 67.0; 66.4; 64.1; 60.8; 68.9; 67.8; 67.9; 62.2; 67.7; 64.9; 63.3 - Noninterest expenses to gross income (sample series): 64.2; 65.4; 66.9; 65.4; 64.2; 65.3; 62.9; 61.2; 63.2; 56.8; 57.5; 55.8 ### Social and development indicators (Millennium Development Goals, Table 9) — selected - Percentage share of income or consumption held by poorest 20 percent: 8.5; ...; 6; ...; 11.0 (series entries as reported) - Poverty headcount ratio at $1.25 per day (PPP, percent of population): ...49...40...26...19.5 (series entries as reported) - Net primary enrollment (percent of relevant age group): 67...87 90...90 89 95...100 (series entries as reported) - GNI per capita, Atlas method (current U.S. dollars): ..280 280 450 500 560 640 650...... (series entries as reported) - Life expectancy at birth, total (years): 50......58 59 59 60 62...... (series entries as reported) ### Debt Sustainability Analysis — summary findings and recommendations - Cambodia upgraded to a “medium performer” in the World Bank’s CPIA and now faces a low risk of debt distress (down from moderate last year). - Under the baseline scenario, external debt burden indicators do not breach the relevant indicative thresholds for a medium performer in the LIC DSF. - The debt level is sensitive to shocks as indicated in standard bound tests. - Under an alternative scenario with higher borrowing over the medium and long term, Cambodia may lose its low debt distress rating. - Rapid growth of infrastructure projects outside the budget and the banking system creates contingent liabilities that reduce the country’s capacity to absorb additional risk. - Key policy prescriptions: - Adopt a prudent borrowing strategy. - Pursue continued fiscal consolidation over the medium term. - Improve debt and contingent liability management. - Incorporate these measures into the authorities’ upcoming debt strategy document. *Source: Cambodian authorities; and IMF staff estimates and projections.* ### 1. Cambodia’s DSA indicates that the ### _cr1246 - 1. Cambodia’s DSA indicates that the ### Risk assessment and baseline outlook - The risk of debt distress is low under the baseline macroeconomic outlook (Box 1), including assumptions on growth and fiscal consolidation. - External debt burden indicators do not breach the relevant indicative thresholds under the baseline. - These thresholds are higher than in the 2010 DSA, given Cambodia’s recent upgrade as a medium performer based on the World Bank’s CPIA measure of institutional capacity. ### Key external public debt indicators (end-2010 and projections) - At end-2010: - External public and publicly guaranteed (PPG) debt stock: 28 percent of GDP (nominal terms) and 20 percent in net present value (NPV) terms. - Projected for 2011 (PV terms): debt stock as a share of GDP: 20 percent; as a share of exports of goods and nonfactor services: 39 percent; as a share of government revenues: 154 percent. - Cambodia: External Public Debt Indicators at end-2010 (indicative thresholds vs. end-2010) - NPV of debt, as a percent of GDP: Indicative Threshold 40 — End-2010 20 - NPV of debt, as a percent of Exports: Indicative Threshold 150 — End-2010 40 - NPV of debt, as a percent of Revenue: Indicative Threshold 250 — End-2010 149 - Debt service, as a percent of Exports: Indicative Threshold 20 — End-2010 1 - Debt service, as a percent of Revenue: Indicative Threshold 30 — End-2010 5 - Stock composition at end-2010: - Total external PPG debt: 100 percent (28 percent of GDP) - Multilateral: 49 percent of external total debt (14 percent of GDP) - Bilateral: 51 percent of external total debt (14 percent of GDP) - Non-rescheduled debt with the U.S. and Russian Federation: 24 percent of external total debt (7 percent of GDP) - Creditor breakdown and arrears: - Around half of Cambodia’s external debt is held by multilateral creditors: AsDB 27 percent, IDA 18 percent. - China accounted for about 66 percent of total bilateral disbursements in 2010. - Cambodia remains in arrears to the Russian Federation and the United States; baseline assumes no restructuring and arrears continue to build up throughout the projection period. ### Macroeconomic assumptions underlying the DSA (2011–31) — summary (Box 1) - Growth and inflation: - Overall growth in 2011: slightly below 6 percent. - GDP growth projected to reach 6½ percent in 2012. - Inflation projected to average 5.6 percent in 2011, gradually declining toward 3 percent in the medium term. - Potential growth rate upgraded to 7–8 percent in the medium and longer terms (conditional on reforms). - External sector and reserves: - External current account deficit (including official transfers) projected above 9 percent of GDP during 2011–13, trending toward 5 percent of GDP in the longer term. - FDI as a share of GDP expected to stabilize at around 6 percent. - Gross official reserves expected to rise from 4.3 months of next year’s imports in 2011 toward 5 months in the long run. - Fiscal consolidation: - Overall fiscal deficit (excluding grants) expected to narrow from about 6 percent in 2011 to less than 4 percent in 2016, then to 2½ percent by 2031. - Revenue (excluding grants) expected to rise to over 14 percent of GDP by 2016 from about 12 percent in 2011, and to 16½ percent of GDP over the long term. - Public expenditure expected to remain mostly around 18 percent through the medium term, and kept below 19 percent up to 2031. ### Main DSA findings and stress tests - Baseline projections (20-year horizon): - PV of debt-to-GDP ratio: declines from 20 percent in 2011 to about 14 percent in 2031 (indicative threshold: 40 percent). - PV of debt-to-exports ratio: declines from 39 percent in 2011 to 27 percent in 2031 (indicative threshold: 150 percent). - PV of debt-to-revenue ratio: declines from 154 percent in 2011 to 80 percent in 2031 (indicative threshold: 250 percent). - Debt service-to-exports and debt service-to-revenue ratios remain well below indicative thresholds throughout due to concessionality of previous debts. - Standard stress tests: - Do not reveal serious vulnerabilities overall. - A one-time 30 percent depreciation and an export shock push the NPV of debt-to-revenue ratio to 212 and 219 percent respectively, underscoring the need for improved revenue performance. ### Country-specific alternative scenario: increased bilateral external borrowing (2011–21) - Scenario assumptions: - Doubling of external borrowing from the baseline over 2011–21: additional borrowing of US$880 million during 2011–21 (about double the amount envisaged under the baseline). - Terms assumed comparable to bilateral loans from emerging donors: 60 percent at 2 percent interest rate with grace period and maturity of 7 and 20 years; another 20 percent at 1 percent interest rate with a grace period and maturity of 12 and 40 years; remaining loans assumed from multilateral agencies. - No “growth dividends” assumed from the additional borrowing. - Main results under the higher borrowing scenario: - Significant accumulation of external debt: total debt stock rising to 38 percent of GDP (NPV of debt-to-GDP at 29 percent) over the medium term. - Indicative thresholds breached in several bound tests for a prolonged period; debt distress rating would move from low to moderate. - Contingent liabilities risks: - Problems in only 1 out of 10 BOT projects potentially leading to total loss of investment costs would add an additional 5 percent of GDP to the debt stock. - A banking crisis could add about 10 percent of GDP to public debt (based on international experience; median direct fiscal cost of banking crises in EMs is 11.5 percent of GDP). - If revenue-to-GDP ratio stagnates, higher fiscal deficits would push public debt close to the sustainability threshold. ### Public debt sustainability and scenarios - Public debt dynamics: - Public debt closely tracks external debt dynamics given predominance of external debt. - Cambodia does not have, and is not expected to have in the foreseeable future, a market for domestic government debt securities. - Projections: - Nominal public debt stock: increase modestly to 29 percent of GDP (21 percent of GDP in NPV terms) by end-2011, then gradually decline after 2012 under baseline. - PV of public debt-to-GDP ratio and public debt service-to-revenue ratio decline to 14 percent and 64 percent respectively in the long term under baseline. - Adverse scenarios: - Permanent growth shock: public debt (as a share of GDP) continues to rise to over 35 percent of GDP (in PV terms). - If primary balance remains unchanged at 2011 level, PV of public debt-to-GDP continues to rise to 28 percent increase by 2025 and then declines gradually. ### Debt management and institutional developments - Authorities’ actions and capacity building: - Authorities near finalizing a formal debt strategy; creation of a high-level (seven-member) government committee on public debt management chaired by the Minister of Economy and Finance and co-chaired by the Governor of the National Bank of Cambodia. - Debt strategy considers alternative borrowing plans and assesses associated risks. - Debt unit at the MEF building capacity with TA from the AsDB to analyze contingent liabilities from BOT projects and the financial sector. - Authorities acknowledge need for comprehensive debt management, transparent and objective management of investment projects, and maintaining concessionality of new borrowing. - Debt strategy expected to be published in early 2012. ### Views of the authorities - Broad agreement with the DSA. - Authorities underscored: - Government borrowing would be undertaken only for investment in a few critical sectors (e.g., power, roads, ports, irrigation). - They will strengthen capacity to assess budgetary, debt, and growth implications of investment projects. - Support for suggestions to strengthen monitoring of BOT projects to minimize fiscal risks. - Concurred that elevated borrowing in the alternative scenario would lead to losing the low distress rating. ### Policy implications and recommendations - Maintain prudent borrowing strategy and careful management of public debt to preserve low risk of debt distress under baseline. - Strengthen revenue efforts over the medium term given Cambodia’s low domestic revenue base. - Preserve concessionality of new borrowing and ensure transparent, objective assessment of investment projects. - Strengthen capacity to monitor and manage contingent liabilities from BOT projects and the financial sector. - Avoid excessive increases in external borrowing without clear growth dividends and robust project and fiscal management capacity. *Source: IMF staff Debt Sustainability Analysis for Cambodia (2011 Article IV Report).* ### 14. The staffs encourage the authorities to ### _cr1246 - 14. The staffs encourage the authorities to ### Policy guidance: strengthen debt management capacity - The staffs encourage the authorities to build on recent steps and move forward as quickly as possible to strengthen debt management capacity. - Recommended actions: - Continue work to develop and implement a comprehensive debt management strategy. - Closely monitor contingent liabilities from BOT projects and the financial sector. ### Debt sustainability findings — external debt (selected indicators and projections) - Present value (PV) of external debt (selected sequence from table): 19.5, 20.2, 20.4, 20.2, 20.6, 20.3, 19.9, 18.1, 14.3. - PV of external debt (in percent of exports) (selected sequence): 39.5, 39.2, 39.9, 39.2, 39.2, 38.1, 36.9, 33.5, 26.7. - PV of PPG external debt (in percent of government revenues) (selected sequence): 149.0, 154.0, 151.1, 145.2, 142.0, 137.2, 131.2, 110.0, 79.7. - Debt service-to-exports ratio (in percent) (selected sequence): 1.2, 1.5, 1.4, 1.2, 1.2, 1.4, 1.6, 1.6, 2.0, 1.7, 1.7. - PPG debt service-to-revenue ratio (in percent) (selected sequence): 4.3, 5.3, 5.3, 4.8, 4.7, 5.1, 5.7, 5.9, 7.0, 5.7, 5.2. ### Debt sustainability findings — public sector debt (selected indicators and projections) - Public sector debt (percent of GDP) (selected sequence): 27.8, 29.2, 28.2, 28.7, 28.6, 28.3, 28.6, 28.1, 27.5, 24.5, 18.5. - PV of public sector debt-to-revenue ratio (in percent) (selected sequence): 111.6, 126.7, 126.9, 123.5, 122.3, 119.3, 115.2, 99.5, 74.3. - PV of public sector debt-to-revenue and grants ratio (in percent) (selected sequence): 153.7, 158.3, 154.8, 148.6, 144.9, 139.8, 133.5, 111.2, 80.1. - Debt service-to-revenue and grants ratio (in percent) (selected sequence): 4.1, 3.3, 3.9, 3.8, 3.9, 3.9, 4.5, 4.8, 6.0, 5.5, 5.5. - Gross financing need (in percent of GDP) (selected sequence): 1.0, 5.1, 3.5, 3.6, 3.5, 2.7, 3.1, 2.5, 2.5, 2.3, 2.5. ### Stress tests and sensitivity analyses (high-level results) - Stress scenarios reported include: historical averages, less favorable loan terms, permanent shocks to growth, one-time depreciation shocks, export shocks, shocks to nondebt creating flows, and combined shocks using one-half standard deviation. - Examples of sensitivity outcomes (present value of debt-to-GDP and to-exports ratios under shocks): - Present value of debt-to-GDP ratio (baseline and selected shocks, percent): Baseline 20; A2 (less favorable loan terms) up to 23; B5 (combination) up to 28; B6 (one-time 30 percent nominal depreciation) up to 29 (table footnotes specify scenario correspondences). - Present value of debt-to-exports ratio (baseline and selected shocks, percent): Baseline 39; A2 up to 43; B5 up to 56; B2 (export shock) up to 72 (selected entries from sensitivity tables). ### Macroeconomic and financing assumptions used in projections (selected values) - Key macro assumptions (selected entries): - Real GDP growth (in percent): 6.7, 0.1, 6.0, 8.1, 3.6, 5.8, 6.5, 6.4, 6.8, 7.4, 7.4, 6.7, 7.6, 7.8, 7.7. - GDP deflator in U.S. dollar terms (change in percent): 12.3, 0.5, 2.0, 3.7, 3.8, 7.6, 4.0, 3.1, 2.9, 2.7, 2.8, 3.9, 2.4, 2.5, 2.5. - Effective interest rate (percent) (selected sequence): 0.8, 1.1, 1.1, 1.1, 0.1, 1.1, 1.1, 1.2, 1.3, 1.4, 1.5, 1.3, 1.5, 1.6, 1.5. - Growth of exports of G&S (U.S. dollar terms, in percent) (selected sequence): 7.3, -10.0, 22.8, 12.4, 12.6, 18.9, 9.6, 11.2, 11.8, 12.1, 11.9, 12.6. - Growth of imports of G&S (U.S. dollar terms, in percent) (selected sequence): 12.1, -9.8, 20.3, 11.6, 10.7, 23.8, 8.0, 9.7, 7.3, 11.3, 11.2, 11.9. - Grant element / grant-equivalent financing (selected sequences): - Grant element of new public sector borrowing (in percent) (selected entries): 25.5, 27.5, 30.8, 27.3, 28.7, 28.7, 28.1, 27.0, 22.6, 26.0. - Grant-equivalent financing (in percent of GDP) (selected sequence): 4.1, 3.8, 3.6, 3.6, 3.3, 3.2, 2.6, 1.7, 2.3. - Grant-equivalent financing (in percent of external financing) (selected sequence): 62.0, 63.9, 67.5, 60.3, 63.6, 62.7, 59.4, 58.8, 59.1. ### Quantified vulnerabilities and monitoring priorities - Vulnerabilities arise in scenarios with: - Weaker growth (permanent shock to growth increases PV debt ratios in many stress tests). - Adverse export shocks (notably large increases in PV debt-to-exports ratios under export value shocks). - One-time exchange rate depreciations (increase in PV and debt-service ratios in bound tests). - Monitoring priorities implied by the analysis: - Track evolution of PV of external and public debt relative to GDP, exports, and government revenues. - Monitor debt service ratios, especially PPG debt service-to-revenue ratios which reach values such as 7.0 (selected projection entries). - Pay attention to composition and terms of new public borrowing (scenarios A2 assume less favorable terms and show materially higher ratios). *Sources: Cambodian authorities; and staff estimates and projections.* ### ANNEX I. CAMBODIA: FUND RELATIONS ### ANNEX I. CAMBODIA: FUND RELATIONS ### Membership Status - Joined December 31, 1969. - Accepted the obligations under Article VIII, Sections 2, 3, and 4 on January 1, 2002. ### General Resources Account - Quota: SDR Million 87.50; Percent Quota 100.00. - Fund holdings of currency: 87.50; 100.00. ### SDR Department - Net cumulative allocation: SDR Million 83.92; Percent Allocation 100.00. - Holdings: 68.39; 81.50. ### Outstanding Purchases and Loans - SDR Million: None. ### Latest Financial Arrangements - Type: ECF 1; Date: 10/22/1999–03/05/2003; Amount Approved: 58.50; Amount Drawn: 58.50. - Type: ECF 1; Date: 05/06/1994–08/31/1997; Amount Approved: 84.00; Amount Drawn: 42.00. - Note: 1 Extended Credit Facility (ECF); formerly PRGF. ### Projected Payments to the Fund - Based on existing use of resources and present holdings of SDRs. - Charges/Interest by year (in millions of SDRs): 2012: 0.02; 2013: 0.02; 2014: 0.02; 2015: 0.02; 2016: 0.02. - Total by year (in millions of SDRs): 2012: 0.02; 2013: 0.02; 2014: 0.02; 2015: 0.02; 2016: 0.02. - Principal: (no amounts listed). ### Multilateral Debt Relief Initiative (MDRI) - IMF Executive Board approved relief on 100 percent of debt incurred by Cambodia to the IMF before January 1, 2005. - Amount forgiven: SDR 56.8 million (about US$82 million). - Authorities intend to spend the resources over a number of years, initially on rural irrigation projects. - National Bank of Cambodia (NBC) transferred the full MDRI proceeds to the Ministry of Economy and Finance effective March 2006. ### Safeguards Assessment - A voluntary safeguards assessment of the NBC was completed in January 2010 at the request of the authorities; it updated a voluntary assessment completed in March 2004. - Findings: NBC had taken steps to strengthen aspects of its safeguards framework, although important measures proposed in 2004 are still outstanding or in progress. - Additional observation: Some new risks have emerged in the area of external audit. - Outcome: The assessment made appropriate recommendations. ### Exchange Rate Arrangement and Payments System - Cambodia’s exchange regime is classified as stabilized. - Official exchange rate is expressed in riels per U.S. dollar; applies to all official external transactions conducted by the central government and state enterprises, and is used for accounting purposes by the NBC. - Determination: rate is determined by the foreign exchange market, with the official rate adjusted to be within 1 percent of the market rate on a daily basis. - Cambodia maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions. - Cambodia accepted the obligations of Article VIII, Sections 2, 3, and 4 on January 1, 2002. ### Article IV Consultation - Cambodia is on the standard 12-month Article IV consultation cycle. - Last Article IV consultation discussions were held in Phnom Penh during August 30–September 10, 2010. - The Executive Board discussed the staff report (IMF Country Report 11/45) and concluded the consultation on October 29, 2010. ### Financial Sector Assessment Program (FSAP) - Joint IMF-World Bank FSAP mission took place in March 2010; assessment completed in October 2010. ### Technical Assistance - Current focus: bank supervision, monetary operations, public financial management, customs administration, financial sector supervision, and macro-financial statistics. - Delivery modalities: resident advisor at the NBC, peripatetic experts, and short-term visits from headquarters. ### Resident Representative - New IMF Resident Representative in Phnom Penh (Mr. Faisal Ahmed) appointed in July 2011. - From July 2010 to June 2011, the IMF’s Resident Representative for Indonesia (Mr. Milan Zavadjil) also assumed responsibilities for the Cambodian IMF office. *Source: ANNEX I. CAMBODIA: FUND RELATIONS (As of December 31, 2011).* ### ANNEX IV. CAMBODIA: STATISTICAL ISSUES ### ANNEX IV. CAMBODIA: STATISTICAL ISSUES ### Assessment of Data Adequacy for Surveillance - General - Data provision is broadly adequate for surveillance. - Extensive TA provided by the IMF, UNDP, AsDB, World Bank, and bilateral partners (Japan and Sweden) has led to substantial capacity improvements in compiling and reporting macroeconomic statistics. - Cambodia is participating in STA's Project on the Implementation of the System of National Accounts and International Comparison Program, funded by the government of Japan; the project will provide TA to build statistical capacity and improve national accounts and price statistics. - Shortcomings in macroeconomic data still hamper timely and comprehensive analysis. - National accounts - Major improvements implemented in recent years, but weaknesses remain in quality and timeliness. - NIS, with IMF assistance, is working to improve national accounts in accordance with the System of National Accounts 1993, expand scope of annual aggregates, and produce a quarterly national accounts series beginning with June 2005. - GDP quality hampered by lack of comprehensive and reliable source data on a production and expenditure basis, partly due to resource constraints and data collection techniques. - Authorities published the 2009 and 2010 national accounts; a TA mission in November 2011 noted inconsistencies in the 2009 data that should be addressed. - November 2011 mission assessed methodologies and supported development of quarterly national accounts estimates; follow-up TA missions within the three-year STA project will focus on improving accuracy of annual and quarterly GDP and expanding scope. - Price statistics - CPI compilation suffers from insufficient coverage; a CPI series was introduced starting in January 2009. - Geographic coverage of CPI limited to urban households in Phnom Penh. - Statistics Sweden is providing assistance with the household budget survey and intermittently with the CPI. - An STA TA mission visited Phnom Penh in August/September 2011 to assist with updating/improving the CPI. - Pending approval of additional budgetary resources, the updated CPI is planned to include expanded geographic coverage. - Authorities indicated a need for assistance to develop a PPI, but no funds have been allocated to support compilation of an ongoing PPI. - Government finance statistics (GFS) - Ministry of Finance and Economy began reforms to government accounting system and budgetary nomenclature in 2007, based on GFSM 2001, with IMF TA. - Several STA missions assisted with GFS compilation procedures within the GFSM 2001 framework. - IMF TA in April 2008 assisted with establishing a bridge between the government’s new chart of accounts (COA) and the GFSM 2001 classifications so accounting records can be used as source data for GFS. - Use and coverage of the COA has been limited and not fully integrated into activities such as disbursement of external loans and grants, the government’s budget reserve fund, and capital expenditures. - Monetary and financial statistics - NBC compiles balance sheet and survey for the central bank and other depository institutions in accordance with the IMF’s Monetary and Financial Statistics Manual. - Since August 2005, NBC has reported monthly monetary and financial statistics to STA using the Standardized Report Forms. - NBC received TA during the FSAP on compilation of financial soundness indicators (FSIs). - NBC now compiles monthly core FSIs and shares them with IMF staff irregularly. - Nonreliability and inconsistency of data reported by banks pose a challenge to interpretation of FSIs. - External sector statistics - Despite recent improvements, more work is needed to improve balance of payments statistics. - Customs data have substantial coverage and valuation problems: use of reference prices, limited recording of nondutiable imports, underreporting of re-exports, and weaknesses in customs controls. - Enterprise transactions (payments for imported services, income payments, portfolio investment abroad) are excluded or underreported. - FDI, believed to be large, relies excessively on approvals; gaps exist regarding large build-operate-transfer projects in the energy sector. - Gaps in external debt statistics: stock of public and publicly guaranteed debt by maturity, bilateral donor disbursements, and external debt service. - Gaps exist in official transfers (e.g., grants) and in external statistics; no data are available for private external debts. ### Data Standards and Quality - Cambodia participates in the IMF’s General Data Dissemination System. - No data ROSC are available. ### Cambodia: Table of Common Indicators Required for Surveillance (As of December 2011) - Exchange Rates - Date of latest Observation: 12/23/ 2011 - Date Received: 12/30/ 2011 - Frequency of Data: D - Frequency of Reporting: D - Frequency of Publication: W - International Reserve Assets and Reserve Liabilities of the Monetary Authorities - Date of latest Observation: 11/ 2011 - Date Received: 12/2011 - Frequency of Data: Biweekly - Frequency of Reporting: Biweekly, 4 week lag - Frequency of Publication: N/A - Reserve/Base Money - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week delay - Frequency of Publication: M - Broad Money - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week delay - Frequency of Publication: M - Central Bank Balance Sheet - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week delay - Frequency of Publication: M - Consolidated Balance Sheet of the Banking System - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week delay - Frequency of Publication: M - Interest Rates - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week lag - Frequency of Publication: M - Consumer Price Index - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 2–4 week lag - Frequency of Publication: M - Revenue, Expenditure, Balance and Composition of Financing — General - Date of latest Observation: 10/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week lag - Frequency of Publication: M - Revenue, Expenditure, Balance and Composition of Financing — Central - Date of latest Observation: 10/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 week lag - Frequency of Publication: M - Stocks of Central Government and Central Government-Guaranteed Debt - Date of latest Observation: 2010 - Date Received: 09/2011 - Frequency of Data: A - Frequency of Reporting: A, 6 month lag - Frequency of Publication: A - External Current Account Balance - Date of latest Observation: 06/2011 - Date Received: 09/2011 - Frequency of Data: Q - Frequency of Reporting: Q, 3 month lag - Frequency of Publication: Q - Exports and Imports of Goods and Services - Date of latest Observation: 06/2011 - Date Received: 09/2011 - Frequency of Data: Q - Frequency of Reporting: Q, 3 month lag - Frequency of Publication: Q - GDP/GNP - Date of latest Observation: 2010 - Date Received: 09/2011 - Frequency of Data: A - Frequency of Reporting: A, 6 month lag - Frequency of Publication: A - Gross External Debt - Date of latest Observation: 11/2011 - Date Received: 12/2011 - Frequency of Data: M - Frequency of Reporting: M, 4–6 month lag - Frequency of Publication: A - International Investment Position - Date of latest Observation: 06/2011 - Date Received: 09/2011 - Frequency of Data: Q - Frequency of Reporting: Q, 3 month lag - Frequency of Publication: Q - Notes and definitions provided in table footnotes: - 1 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I), and Not Available (N/A). - 2 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. - 3 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds. - 4 Foreign, domestic bank, and domestic nonbank financing. - 5 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. - 6 Including currency and maturity composition. - 7 Includes external gross financial asset and liability positions vis-à-vis nonresidents. ### Cambodia: Main websites of data (ANNEX V) - National Bank of Cambodia (www.nbc.org.kh) - Exchange rates - Consumer Price Index - Interest rates - Monetary Survey - Credit granted by deposit money banks and nonbank financial institutions - Balance of payments - Exports and imports - Visitor arrivals - Ministry of Economic and Finance (www.mef.gov.kh) - Government budget - Fiscal revenue, expenditure, and financing - Investment - Employment - National Institute of Statistics (www.nis.gov.kh) - Consumer Price Index - National accounts - Population census - Labor force survey - Socioeconomic survey - Household survey *Source: ANNEX IV. CAMBODIA: STATISTICAL ISSUES (December 2011), _cr1246 - ANNEX IV. CAMBODIA: STATISTICAL ISSUES_* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1246.pdf_