## The Cambodian Economy: Outlook, Risks and Reforms

_IMF News, June 7, 2017_

## Source details

**Canonical URL:** [The Cambodian Economy: Outlook, Risks and Reforms](https://www.imf.org/en/news/articles/2017/06/06/sp060717-the-cambodian-economy-outlook-risks-and-reforms)

## Other formats

- [Markdown version](/en/news/articles/2017/06/06/sp060717-the-cambodian-economy-outlook-risks-and-reforms/index.md)
- [Structured JSON version](/en/news/articles/2017/06/06/sp060717-the-cambodian-economy-outlook-risks-and-reforms/index.json)
- [Bundle manifest](/en/news/articles/2017/06/06/sp060717-the-cambodian-economy-outlook-risks-and-reforms/bundle-manifest.json)

## Bibliographic details
- Published: June 7, 2017

---

### Introduction
- Speaker: IMF Deputy Managing Director Mitsuhiro Furusawa at Royal University of Law and Economics, Phnom Penh, Cambodia, June 7, 2017.
- Cambodia has made “profoundly impressive economic and social progress” since the end of tyranny and genocide.
- Demographics: “65 percent of the population is 30 years of age or younger.”
- Poverty reduction: from “50 percent of the population in 2005 to 13.5 percent in 2014.”
- World Bank classification: Cambodia is a “lower-middle income economy, and no longer low income.”
- Short-term growth projection: “real GDP will expand about 7 percent this year” driven by garment exports and real estate and construction activity.
- Medium-term concern: “growth likely will decline (to about 6.25 percent a year), if the economy does not become more diversified.”

### The Global Economic Setting
- IMF global growth projections: “3.5 percent” in 2017 and “3.6 percent” in 2018; last year’s growth was “3.4 percent.”
- Asia growth projections: “5.5 percent” in 2017 and “5.4 percent” in 2018.
- Country outlook revisions: “China at 6.6 percent; Japan at 1.2 percent.”
- Implication: As a highly open economy with a young population, Cambodia “will benefit from the better global and regional prospects.”

### Challenges to Cambodia’s Growth
- Structural concentration: growth has been built on “a few industries, especially low value-added clothing.”
- Competitive pressure: global garment industry relocates to lowest-cost countries; Cambodia’s advantage can erode as wages rise.
- Key identified challenges:
  - Infrastructure: “high energy costs, insufficient supply of electricity, and shortcomings in its transportation network.”
  - Business environment: Cambodia “ranks low among the Southeast Asian countries in terms of ease of doing business and in competitiveness”; “cost of doing business also is high because of sometimes burdensome government procedures.”
  - Governance: “Good governance is essential” to compete and move up the development ladder.
- Industrial policy response: Government launched an “Industrial Development Policy” aiming to “upgrade Cambodia’s industrial structure from labor intensive production to one driven by skills by 2025.”
- Financial sector vulnerabilities:
  - Rapid credit growth with large exposure to the real estate sector.
  - Over-reliance on foreign borrowing.
  - Rapid expansion of microfinance institutions.
  - Dollarization “limits the policy options to respond to the situation.”
- Risk framing: These vulnerabilities “may appear to pose less risk at this moment of strong growth, but they can become more critical if circumstances change.”

### Implications for Cambodians
- Human capital and inclusion:
  - Many Cambodians “live just above the poverty line.”
  - Education and health standards “need more progress”; schools must provide “up-to-date training” to compete globally.
- Financial inclusion statistics and issues:
  - “Only 13 percent of your countrymen have bank accounts.”
  - Most small businesses “do not have access to financial services.”
  - Small and medium-sized enterprises face “high transaction costs, limited services, and poor financial literacy.”
- Policy and institutional measures:
  - National Bank of Cambodia has launched programs to promote financial literacy.
  - Financial inclusion plus financial development can “increase growth and strengthen a country’s resilience.”
  - Stability condition: inclusion must be accompanied by “appropriate regulation and supervision” to avoid “too much risk-taking and too much lending.”

### Challenge for Young People
- Opportunities for the next generation: diversification, financial inclusion, labor force skill upgrades, and stronger government regulation.
- Fintech potential:
  - For Cambodia, Fintech often means “mobile banking.”
  - Existing mobile account use for remittances and payments is growing.
  - Market potential indicators: “around 7 million internet users and 20 million mobile subscriptions.”
  - Possible fintech expansions: “online lending and accounting services.”
- Call to action: young people can be “reformers and innovators” who generate ideas and businesses; “Silicon Valley or Bangalore do not have a monopoly on innovation.”

### Conclusion
- Balanced outlook: speaker is “not naive about the obstacles” but is “an optimist.”
- Required responses: reforms to “stimulate diversification and improved governance,” and business solutions to “create good jobs.”
- Final appeal: “What is required is the commitment that your generation can bring.” Speaker looks forward “to returning to Cambodia to see the economic progress” and witnessing future contributions.

*Speech by IMF Deputy Managing Director Mitsuhiro Furusawa, Royal University of Law and Economics, Phnom Penh, Cambodia, June 7, 2017.*

---


## References

- [Mitsuhiro Furusawa](http://www.imf.org/external/np/omd/bios/mf.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Cambodia and the IMF](http://www.imf.org/external/country/KHM/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/06/06/sp060717-the-cambodian-economy-outlook-risks-and-reforms_