IMF Executive Board Concludes 2023 Article IV Consultation with Cambodia

IMF News, January 31, 2024

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IMF Executive Board Concludes 2023 Article IV Consultation with Cambodia

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Bibliographic details

• Published: January 31, 2024

Macroeconomic outlook and recent performance

• Cambodia achieved GDP growth of 5.2 percent in 2022 and is projected to grow by 5.3 percent in 2023.
• Projected GDP growth for 2024–2028:
  • 2024: 6.0
  • 2025: 6.4
  • 2026: 6.5
  • 2027: 6.2
  • 2028: 6.3
• Sectoral drivers and developments:
  • Manufacturing added over 3 percent to real GDP in the recovery.
  • Non-garment goods exports expanded, with electronics exports (particularly solar panels) showing resilience and helping offset a decline in garment exports.
  • Services rebounded strongly; tourism is recovering and was boosted by the 2023 South-East Asia Games.
  • Agriculture faced challenges from weather and rising costs.
• Inflation dynamics:
  • Inflation was volatile, declined from a peak in June last year, and rebounded to 3.9% in October due to higher food and fuel prices.
• Monetary and financial conditions:
  • The central bank gradually unwound pandemic-era support measures, including increasing reserve requirements for foreign currencies.
  • Broad money annual percent change: 15.3 (2020), 8.2 (2021), 11.0 (2022), 12.3 (2023), 12.8 (2024), 8.3 (2025).
  • Private sector credit annual percent change: 17.2 (2020), 23.6 (2021), 13.0 (2022).
  • Velocity of money 1/: 0.8 (2020), 0.7 (2021), 0.6 (2022).
• External sector:
  • Exports, f.o.b. (in millions of dollars): 18,470 (2020), 19,527 (2021), 23,179 (2022), 23,387 (2023), 25,229 (2024), 27,361 (2025), 29,686 (2026), 32,209 (2027), 34,944 (2028).
  • Imports, f.o.b. (in millions of dollars): -20,993 (2020), -30,726 (2021), -32,005 (2022), -27,360 (2023), -30,760 (2024), -33,226 (2025), -36,004 (2026), -39,075 (2027), -42,468 (2028).
  • Current account (including official transfers) (in millions of dollars): -870 (2020), -11,179 (2021), -7,535 (2022), -647 (2023), -1,954 (2024), -2,141 (2025), -2,312 (2026), -2,521 (2027), -2,860 (2028).
  • Gross official reserves 3/ (in millions of dollars): 21,334 (2020), 21,119 (2021), 17,805 (2022), 20,869 (2023), 23,348 (2024), 25,881 (2025), 28,534 (2026), 31,478 (2027), 34,583 (2028).
  • Gross official reserves (in months of prospective imports): 7.8 (2020), 7.3 (2021), 7.4 (2022).

Fiscal developments and projections

• Fiscal performance:
  • Fiscal positions improved in 2022 due to stronger-than-expected revenue performance.
  • The fiscal deficit is expected to widen in 2023 because of:
  • Extended targeted social supports to households and firms affected by COVID-19 and the cost-of-living crisis.
  • Increased spending associated with the 2023 South-East Asia Games and the General Election.
  • Finalization of incomplete infrastructure projects from 2022.
  • From 2024, the deficit is projected to narrow as temporary support measures (including cash transfers) are scaled back while retaining targeted fiscal support through social protection system reform.
• Public finance aggregates (in percent of GDP):
  • Revenue: 21.6 (2020), 23.0 (2021), 23.2 (2022), 23.3 (2023), 23.4 (2024), 23.5 (2025).
  • Domestic revenue: 22.0 (2020), 20.0 (2021), 22.2 (2022), 21.7 (2023), 21.9 (2024), 22.1 (2025).
  • Of which: Tax revenue: 19.7 (2020), 18.0 (2021), 18.9 (2022), 19.1 (2023), 19.2 (2024), 19.3 (2025), 19.4 (2026), 19.6 (2027).
  • Grants: 1.9 (2020), 1.6 (2021), 1.8 (2022), 1.3 (2023), 1.2 (2024).
  • Expenditure: 27.3 (2020), 28.6 (2021), 26.6 (2022), 25.2 (2023), 26.0 (2024), 26.3 (2025), 26.1 (2026).
  • Expense: 17.1 (2020), 17.6 (2021), 17.5 (2022).
  • Net lending (+)/borrowing(-): -3.4 (2020), -7.1 (2021), -1.0 (2022), -3.6 (2023), -2.0 (2024), -2.7 (2025), -2.9 (2026), -2.6 (2027).
  • Net lending (+)/borrowing(-) excluding grants: -5.3 (2020), -8.6 (2021), -4.9 (2022), -3.3 (2023), -4.0 (2024), -4.2 (2025), -3.8 (2026).
  • Net incurrence of liabilities 2/: 4.0 (2020), 3.4 (2021), 3.2 (2022), 2.8 (2023), 2.7 (2024).
  • Total public debt (in percent of GDP): 34.4 (2020), 35.9 (2021), 34.8 (2022), 35.8 (2023), 36.3 (2024), 36.5 (2025), 36.4 (2026), 36.8 (2027).

Risks and vulnerabilities

• Near-term downside risks:
  • Weaker-than-expected growth in the U.S. (accounting for over 40 percent of Cambodia's exports) and China.
  • U.S. monetary tightening and tighter global financial conditions.
  • High levels of private debt domestically.
• Medium-term and structural risks:
  • Geopolitical tensions and trade policy uncertainties, including trade fragmentation.
  • Structural decline in growth from China.
  • Commodity price fluctuations and climate events.
• Debt and external vulnerabilities:
  • Public external debt (in millions of dollars): 8,810 (2020), 9,505 (2021), 9,971 (2022), 10,926 (2023), 11,805 (2024), 12,727 (2025), 13,627 (2026), 14,701 (2027), 15,937 (2028).
  • Public debt service (in millions of dollars): 365 (2020), 397 (2021), 427 (2022), 413 (2023), 430 (2024), 446 (2025), 461 (2026), 482 (2027), 503 (2028).
  • Public debt service (in percent of exports of goods and services): 2.0 (2020), 1.7 (2021), 1.5 (2022), 1.4 (2023).
  • The risk of debt distress remains low, though vulnerabilities arise from shocks to exports and growth.

Executive Board assessment and policy recommendations

• Overall assessment:
  • The economy is continuing to recover from the pandemic, driven by expansion of non-garment goods exports and a rebound in tourism; garment exports remain weak.
  • The compositional shift in tourist arrivals yields less income per tourist compared to the pre-pandemic era.
• Fiscal policy recommendations:
  • Fiscal policy in 2023 was appropriately expansionary; fiscal consolidation should begin as recovery progresses.
  • The fiscal stance should return to neutral in 2024 as pandemic-related spending needs subside.
  • Over the medium term, strengthen the tax base and tax and customs administration to safeguard revenues, given revenue erosion from tax incentives and an already low revenue-to-GDP ratio.
  • Improve evaluation and execution of public investments to ensure spending supports economic development.
• Monetary and financial sector recommendations:
  • Continue normalizing monetary policy toward the pre-pandemic setting.
  • Phasing out of pandemic-related forbearance measures and the increase of USD reserve requirement are welcome.
  • Ensure NPLs are adequately provisioned for.
  • Allow credit growth to recalibrate after recent rapid expansion, reflecting normalization of financial conditions and high private sector indebtedness.
  • Continue improving the supervisory framework and data gathering and analysis.
  • Strengthen legal and operational frameworks for corporate insolvency and bank resolution.
• Structural and governance reforms:
  • Substantial reforms needed to sustain medium-term improvements in living standards:
  • Improve both quality and quantity of human capital to adapt as comparative advantage in labor cost diminishes.
  • Invest in key infrastructure: transportation, energy, logistics, and telecommunication to support diversification and scale.
  • Governance and anti-corruption reforms to attract broader FDI and sustain high growth:
  • Strengthen frameworks on asset declarations, whistleblower protection, and access to information.
  • Allocate adequate resources and authorities to oversight and investigative bodies to reduce the cost of doing business and improve attractiveness for tourists and investors.

Key economy-wide statistics and memoranda

• Nominal GDP (in billions of Riels): 105,892 (2020), 110,506 (2021), 121,030 (2022), 131,086 (2023), 142,221 (2024), 155,128 (2025), 169,582 (2026), 184,812 (2027), 201,549 (2028).
• Nominal GDP (in millions of U.S. dollars): 25,771 (2020), 26,601 (2021), 28,818 (2022), 30,872 (2023), 33,130 (2024), 35,744 (2025), 38,649 (2026), 41,662 (2027), 44,941 (2028).

Executive Board of the International Monetary Fund press release, January 31, 2024.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Cambodia and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
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• https://www.imf.org/en/home