IMF Executive Board Concludes 2018 Article IV Consultation with Cambodia
IMF News, December 17, 2018
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- Published: December 17, 2018
Growth and inflation
- Real GDP is projected to grow at 7¼ percent in 2018 due to strong external demand and expansionary fiscal policies.
- Strong economic performance is described as broad-based, with garment exports, tourism and the construction sectors growing at robust rates.
- Inflation is expected to remain low.
External accounts and reserves
- Higher imports are expected to contribute to a widening of the current account deficit to around 10 percent of GDP in 2018.
- Gross international reserves are expected to increase to around US$9.6 billion (around 5 months of prospective imports) at end-2018.
- Table 1 highlights selected balance of payments and external metrics (2013–2019):
- Exports, f.o.b. (millions of dollars): 2013: 7,044; 2014: 8,170; 2015: 9,336; 2016: 10,273; 2017: 11,224; 2018: 12,710; 2019: 14,234.
- Imports, f.o.b. (millions of dollars): 2013: -10,680; 2014: -12,022; 2015: -13,285; 2016: -14,119; 2017: -15,502; 2018: -17,920; 2019: -19,962.
- Current account (millions of dollars): 2013: -1,274; 2014: -1,414; 2015: -1,567; 2016: -1,687; 2017: -1,782; 2018: -2,452; 2019: -2,617.
- Current account (percent of GDP): 2013: -8.4; 2014: -8.5; 2015: -8.7; 2016: -8.0; 2017: -10.1; 2018: -9.9.
- Gross official reserves (millions of dollars): 2013: 3,642; 2014: 4,391; 2015: 5,093; 2016: 6,731; 2017: 8,758; 2018: 9,605; 2019: 10,294.
- Gross official reserves (months of prospective imports): 2013: 3.1; 2014: 3.4; 2015: 4.4; 2016: 5.0; 2017: 4.9; 2018: 5.0.
Financial sector and credit
- Bank credit is expected to grow by around 20 percent in 2018, with MFI credit expanding at an even higher rate.
- Resulting credit-to-GDP gap is conservatively estimated at close to 10 percentage points.
- Directors welcomed policy efforts to safeguard financial sector stability but noted elevated vulnerabilities and the need for additional targeted macroprudential measures.
- Priority macroprudential and regulatory recommendations from Directors:
- Raise risk weights for real-estate lending.
- Introduce a crisis management framework with a deposit insurance scheme.
- Continue upgrading regulation and supervision.
- Strengthen monitoring and regulation of the real-estate sector, including phased increases in property taxes.
- Address gaps in the AML/CFT regime and comply with FATF international standards.
Fiscal performance and public finances
- Fiscal performance in 2017 was considerably stronger than anticipated with tax revenues growing 26 percent in nominal terms, partly due to one-off factors.
- The fiscal stance has turned expansionary in 2018: both current and capital expenditure are expected to increase, while tax revenue is expected to remain broadly stable as a share of GDP.
- Factors affecting revenue: VAT exemptions and import tariff reductions for fuel and basic foods.
- As a result, the deficit is expected to widen to 2.2 percent of GDP in 2018, resulting in lower government deposits.
- Table 1 public finance highlights (in percent of GDP unless otherwise indicated):
- Revenue: 2013: 18.7; 2014: 20.1; 2015: 19.6; 2016: 20.8; 2017: 22.1; 2018: 22.0; 2019: 21.9.
- Domestic revenue: 2013: 17.5; 2014: 17.7; 2015: 18.4; 2016: 20.2; 2017: 20.4; 2018: 20.7.
- Of which: Tax revenue: 2013: 12.9; 2014: 15.5; 2015: 15.6; 2016: 15.8; 2017: 16.9; 2018: 17.0; 2019: 17.2.
- Expenditure: 2013: 21.4; 2014: 21.7; 2015: 20.9; 2016: 24.2; 2017: 24.0; 2018: 24.0.
- Net lending (+)/borrowing(-): 2013: -2.6; 2014: -1.6; 2015: -1.3; 2016: -1.4; 2017: -1.1; 2018: -2.2; 2019: -2.1.
- Net lending (+)/borrowing(-) excluding grants: 2013: -6.8; 2014: -4.2; 2015: -3.3; 2016: -3.9; 2017: -3.0; 2018: -3.8.
- Nominal GDP (in millions of U.S. dollars): 2013: 15,228; 2014: 16,702; 2015: 18,083; 2016: 20,043; 2017: 22,147; 2018: 24,171; 2019: 26,324.
Executive Board assessment and policy recommendations
- Overall view:
- Directors welcomed Cambodia’s continued robust growth performance, low inflation, and progress in poverty reduction.
- Directors encouraged the authorities to take advantage of the current strong environment to intensify policies and structural reforms to enhance resilience, safeguard fiscal sustainability and financial stability, address governance vulnerabilities, and support inclusive growth.
- Revenue and spending policy:
- Directors welcomed authorities’ plans to restrain current spending and raise revenues.
- Supported the new Revenue Mobilization Strategy, which should focus on increasing revenues by modernizing revenue administration and reforming tax policies to improve efficiency and equity.
- Recommended re-orienting public spending composition toward priority infrastructure investment, and health and education spending.
- Public wage increases should better balance pay incentives and fiscal sustainability.
- Institutionalizing the Medium-Term Fiscal Framework would help safeguard infrastructure and development spending over the medium term.
- Debt, contingent liabilities, and PPPs:
- Cambodia remains at low risk of debt distress; Directors recommended close monitoring of risks from contingent liabilities, including from PPPs.
- Strengthening the institutional framework for PPPs and fostering debt discipline were highlighted to maintain debt sustainability.
- Financial stability and macroprudential policy:
- Additional targeted macroprudential measures are needed given elevated vulnerabilities.
- Priority measures include raising risk weights for real-estate lending, introducing a crisis management framework with deposit insurance, and continuing upgrades to regulation and supervision.
- Addressing real-estate sector risks warrants broad response including strengthened monitoring, regulation, and phased increases in property taxes.
- Structural reforms and governance:
- Steadfast implementation of structural reforms is essential to boost productivity, promote stronger growth, and make progress on the Sustainable Development Goals.
- Priority reform areas: increasing competitiveness and diversification; improving the business environment; reducing energy costs; enhancing transportation links; addressing skills gaps; and enhancing social protection policies.
- Directors noted progress on governance but stressed further governance and anti-corruption efforts, including improving fiscal governance, the regulatory environment, and strengthening the rule of law.
IMF Communications Department — Press Release No. 18/480; Executive Board discussion concluded November 28, 2018.
Content in this bundle
- 1. Growth Drivers