## IMF Staff Completes 2021 Article IV Mission to Cambodia

_IMF News, September 28, 2021_

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## Bibliographic details
- Published: September 28, 2021

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### Economic impact and near-term outlook
- COVID-19 caused a collapse in external demand in 2020 and community spread of the virus in 2021.
- Growth outcomes and projections:
  - Growth is estimated to have contracted by 3.1 percent in 2020.
  - Growth had been nearly 7 percent in previous years.
  - A recovery with extensive government support and improved external demand: growth of around 2 percent this year and 5 percent next year is expected. 
  - Staff projects growth of 2.2 percent in 2021, increasing gradually to pre-crisis rates of 6½ percent after a few years.
- Inflation:
  - Inflation is expected to remain contained.
  - With non-food and energy inflation subdued, overall inflation is projected to continue around 3 percent.

### Fiscal position and public finances
- Tax revenues have suffered with the downturn while demands on healthcare and social assistance have increased in 2021.
- Fiscal deficits and public debt:
  - Fiscal deficits are expected to widen to nearly 6 percent in 2021 (in the Government Finance Statistics Manual 2014 format).
  - Public debt is now 36 percent of GDP.
  - With growth and appropriate policies, deficits are expected to shrink, containing debt to around 40 percent of GDP over the medium term.
- Policy guidance for fiscal policy:
  - Continued restraint on other current spending and careful calibration of capital spending to ensure financing needs can be met by existing government savings and existing external financing sources.
  - Strong implementation of the authorities’ Revenue Mobilization Strategy to mitigate damage to tax revenues.
  - Tax and fee exemptions granted to support the economy should be explicitly time bound or contingent on economic recovery and should be costed.
  - Frame interventions within a well-defined medium-term fiscal framework—including a fiscal anchor, overall spending priorities, and financing strategy—to ensure confidence in public finances.

### External sector and reserves
- Current account:
  - The current account deficit is expected to widen in 2021, to around one quarter of GDP.
- Financial inflows and reserves:
  - Financial inflows—mainly in the form of Foreign Direct Investment—are expected to remain strong, and FX reserves sufficient.

### Financial sector and banking
- Banking system support during the crisis:
  - National Bank of Cambodia (NBC) introduced measures early in the crisis to improve liquidity in the banking system and issued guidance to banks to facilitate loan restructuring.
- Sector vulnerabilities and policy measures:
  - Risks from before the pandemic include concentration of banking sector assets in real estate.
  - As crises have strained the ability of households and firms to service loans, healthy banks are essential for a durable recovery.
  - Commendation of the NBC for enhancing reporting requirements to assist close monitoring of banks’ positions.
  - Recommendation for a carefully calibrated sequence of steps to gradually return to standard prudential requirements.
  - To strengthen the financial safety net, it is indispensable to implement bank resolution legislation and a deposit protection scheme.

### Structural reforms and long-term resilience
- Reform priorities to build resilience:
  - Encourage sectoral diversification.
  - Decrease informality and reduce red tape.
  - Increase adaptability to climate change.
  - Develop a domestic bond market to broaden financing options.
  - Strengthen anti-corruption and financial integrity: work of the Anti-Corruption Unit and Cambodia Financial Intelligence Unit (CAFIU) is crucial; more rapid progress to apply the recommendations of the Financial Action Task Force will help with access to a broader range of foreign financing options.
- Public investment priorities:
  - Demands for public spending will likely remain high for emergency measures and long-term development goals such as investment in human capital, infrastructure, and climate adaptation.
  - The government’s plans prioritize healthcare and social assistance.

### Risks and uncertainties
- Pandemic dependence:
  - Future growth depends heavily on the course of the pandemic.
  - Faster containment in Cambodia and other countries will facilitate resumption of tourism; slower progress would damage growth further.
  - Risks appear skewed to the downside at this stage.
- Other risks:
  - Pre-pandemic vulnerabilities including concentration of banking sector assets in real estate.
  - Past droughts and floods have demonstrated vulnerability to climate change.

### Mission, engagement, and IMF support
- Mission details:
  - An IMF team led by Alasdair Scott held virtual meetings with the Cambodia authorities on the 2021 Article IV consultation during September 13-27, 2021.
  - End-of-mission press release conveys preliminary findings; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
- IMF commitment:
  - The IMF stands ready to support the authorities’ reform efforts through policy advice and capacity development activities.
- Appreciation:
  - The IMF team held discussions with senior officials of the Royal Government of Cambodia, National Bank of Cambodia, and other public agencies, as well as a wide range of stakeholders, including representatives of the business and banking sectors, and development partners, and expresses deep appreciation for open and constructive discussions.

*IMF Staff Completes 2021 Article IV Mission to Cambodia — Press Release No. 21/276 (September 28, 2021).*

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## References

- [Cambodia and the IMF](http://www.imf.org/external/country/KHM/index.htm)
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_Source: https://www.imf.org/en/news/articles/2021/09/28/pr21276-imf-staff-completes-2021-article-iv-mission-to-cambodia_