IMF Staff Completes 2024 Article IV Mission to Cambodia

IMF News, September 30, 2024

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Cambodia’s economic growth has strengthened but remains uneven across sectors.
Real GDP growth is estimated at 5 percent in 2023 and projected to grow by 5½ percent in 2024.
Sector performance:
- Garment and agricultural exports are strong.
- Tourism is recovering.
- Real estate and construction are undergoing a correction after rapid prior growth.
Inflation:
- Averaged 1.6 percent (y/y) in the first half of 2024, down from 2.1 percent in 2023.
- Projected to reach around 1.5 percent for the full year 2024 and converge towards the long-term trend of 3 percent.
External sector:
- Current account expected to swing back to a deficit of around 1¾ percent of GDP in 2024.
- International reserves improved and coverage remains broadly adequate.
Financial sector:
- Credit growth has sharply slowed.
- NPLs rose to 6 percent of total loans in 2024Q1, reflecting emerging vulnerabilities following the temporary roll-back of COVID-19 forbearance measures.
Fiscal position:
- Fiscal deficit in 2023 is estimated at 2.8 percent of GDP.
- Fiscal deficit projected at around 3 percent of GDP in 2024 and to decline gradually over the medium term.
- Public debt to GDP is projected to increase moderately during the next decade; the risk of debt distress remains low.

Downside risks:
- Weaker-than-projected demand from advanced economies and China.
- Geoeconomic fragmentation.
- High domestic private debt and rising NPLs in tourism and real estate sectors.
Upside risk:
- Continued loosening of global financial conditions could support the recovery.

Rebuild fiscal buffers diminished by the pandemic while supporting a durable and inclusive recovery.
In case of adverse shocks, react with priority spending measures aligned with development goals and well-targeted social protection for the vulnerable.
Strengthen revenues to create space for growth-enhancing spending on education, health, and infrastructure.
Review and rationalize tax exemptions and incentives to reduce tax base erosion.
Other revenue-strengthening measures:
- Implement the personal income tax.
- Improve tax compliance and administration efficiency.
Improve targeting of social assistance programs and strengthen public investment management.
As Cambodia approaches graduation from least developed country status, priorities include strengthening policy frameworks, public financial management practices, fiscal transparency and governance, and development of the domestic government bond market.

Resume monetary policy normalization at a pace calibrated to the economic recovery and banking sector liquidity conditions.
Continue modernizing monetary policy and FX operations to enhance transmission and support de-dollarization.
Priorities to improve monetary operations and markets:
- Promote an active KHR interbank market.
- Develop a liquidity forecasting framework.
- Further strengthen market determination of exchange rates.
- Improve operational efficiency of monetary policy.
Financial sector stability measures:
- Phase out forbearance measures to alleviate capital misallocation and address risks of debt overhang.
- Ensure proper reporting of loans subject to forbearance.
- Foster preservation of banks’ liquidity and capital buffers.
- Monitor provision of credit by real estate developers to homebuyers and subject such activity to stringent prudential requirements.
- Intensify supervision efforts in the current environment.
- In the medium term, implement a comprehensive macroprudential policy strategy, and establish a crisis resolution framework and deposit insurance scheme.

Diversify growth drivers and improve productivity through structural reforms.
Enhance skills and education to reap the demographic dividend, foster technology adoption, and facilitate transition to climate-resilient, higher-productivity industries.
Promote quality investment in higher-value-added activities and capture more value chain in agriculture.
Improve financial inclusion, advance digitalization, and enhance climate change resilience for inclusive and sustainable development.
Strengthen institutions, governance, and public service delivery quality and transparency:
- Approve the law on Whistleblower Protection, the draft law on Transparency, and the draft law on Access to Information.
- Strengthen the National Audit Authority’s independence and resources.
- Improve the asset declaration regime and inter-agency cooperation.
Address data limitations and improve macroeconomic data quality; the IMF will continue to provide technical assistance to improve statistics and other capacity development areas.

IMF team led by Kenichiro Kashiwase visited Cambodia during September 17-30 for the 2024 Article IV consultation.
The IMF team held discussions with senior officials of the Royal Government of Cambodia, the National Bank of Cambodia, other public agencies, and a wide range of stakeholders, including representatives of the business and banking sectors, and development partners.

Press Release No. 24/349 — IMF Communications Department; September 30, 2024.