Press Release: IMF Concludes 2013 Article IV Mission to Cambodia

IMF News, November 15, 2013

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Canonical URL: Press Release: IMF Concludes 2013 Article IV Mission to Cambodia

Press Release No. 13/451
Mission dates: November 4 -15, 2013
IMF team leader: Ms. Meral Karasulu
Purpose: 2013 Article IV consultations—assessment of macroeconomic developments and policy discussions with ministers and senior officials of the Royal Government of Cambodia; meetings with stakeholders including academic and business community, civil society, and development partners.

GDP growth projected at 7 percent in 2013 due to recent floods and a temporary slowdown during the election period.
Growth projected to pick up to 7¼ percent next year as global recovery continues.
Inflation expected to be around 3-4 percent in 2013-14 supported by stable food and fuel prices.
Current account deficit fully financed by foreign direct investment (FDI) and official loans; projected to narrow over the medium term as exports grow and completion of large power projects slows import growth.
Gross official reserves: US$3.7 billion in September, about 3½ months of prospective imports.
Fiscal balance, excluding grants, is projected to improve further by about a half percentage point of GDP in 2013.

Downside risks:
- Prospective exit from unconventional monetary policy in the U.S. may have significant spillovers to the region, affecting Cambodia’s FDI, tourism, and bank flows from abroad.
- Slow European growth posing downside risks to garment exports.
- Domestic risks: extreme weather conditions, labor market instabilities, and rapid credit growth, particularly to the real estate and construction sector.
Upside factors:
- Improving power and rural infrastructure.
- More diversified FDI.
- Renewed reform momentum after the elections.

Top fiscal priority: Rebuilding government deposits while maintaining an adequate level of capital and social spending.
Recommended policy focus:
- Safeguard the momentum of fiscal consolidation while addressing development needs.
- Continue implementing the Revenue Mobilization Strategy and Public Financial Management Reform Programs to finance development without jeopardizing fiscal sustainability.
- Increase fiscal buffers to mitigate adverse impacts of potential shocks.
- Reduce large wage gaps in the civil service as part of broader civil service reform to improve efficiency, productivity, quality, and governance of public services.
- Improve capacity to manage contingent liabilities to safeguard fiscal space.

Emphasis on preserving macro-financial stability in a fast changing financial landscape by anticipating market developments to manage macro-financial risks.
Recommendations:
- Further improvement in the supervision of liquidity risks to increase resilience of the banking sector to potential funding pressures.
- Strengthen supervisory capacity and enforce micro-prudential regulations.
- Better monitoring of bank flows from abroad to improve monetary control over credit growth.
- Closely monitor a buoyant real estate market to avoid potential overheating in the sector.
- Improve coordination of surveillance among key supervisory agencies to ensure stability of a rapidly evolving financial system and readiness to respond to potential shocks.
Operational note: Launch of negotiable certificate of deposits by the National Bank of Cambodia (NBC) paves the way toward market-based monetary policy operations to better manage liquidity in the financial system.

Policy focus: Promote competitiveness and improve human capital to diversify sources of growth and make it more inclusive.
Recommendations:
- Bolster early signs of diversifying FDI with better infrastructure and improved electricity supply.
- Continue improvements in the business climate, governance, and human capital, including education and training, to support private sector development.

IMF Communications Department — Press Release concluding the 2013 Article IV mission to Cambodia (November 15, 2013).