IMF Executive Board Concludes 2022 Article IV Consultation with Cambodia
IMF News, December 19, 2022
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- Published: December 19, 2022
Overview
- Press Release No. 22/439, dated December 18, 2022, by IMF Communications Department.
- The Executive Board concluded the Article IV consultation with Cambodia.
- Cambodian GDP growth rebounded in the second half of 2021, driven mainly by exports of goods.
- Recent shocks: developments in China; slowdown in consumer demand in advanced countries (the US and Europe are significant markets for Cambodian manufactures); and tighter global financial conditions (mainly via external demand, but also funding costs for some financial institutions).
- Domestic pressures: inflation surged following significant increases in fuel and fertilizer costs; export orders for the second half of the year have weakened; and the real estate market is slowing.
Outlook and Risks
- Growth projections:
- Real GDP growth is forecast to be 5 percent in 2022.
- Real GDP growth is forecast to be nearly 5½ percent in 2023.
- Drivers and dampeners:
- Supported by the continued recovery of tourism and ongoing policy support.
- Damped by external pressures and the impact of rising prices on real disposal income.
- Inflation:
- Inflation is expected to peak in 2022, be lower in 2023, and decline further thereafter, assuming it remains mostly confined to imported goods.
- Uncertainty and risk tilt:
- Uncertainty around the outlook is particularly high, and risks are tilted to the downside.
- Most pressing risks: rising private debt; conditions in key large economies; and inflation.
Fiscal and Public Debt
- Recent fiscal performance:
- Fiscal deficit of just over 7 percent of GDP in 2021 due to spending pressures and lower-than-expected tax revenue.
- Deficit expected to narrow to just over 4 percent of GDP in 2022 with a strong bounce-back in revenues.
- Deficit expected to widen somewhat in 2023, and decrease further thereafter.
- Public debt and debt-carrying capacity:
- Public debt-carrying capacity remains vulnerable to further shocks to exports and growth.
- Risks of external and overall debt distress remain low, so long as public debt is constrained in the future and the increase in private debt is not associated with an increase in contingent liabilities of the sovereign.
- Policy guidance:
- Directors supported the authorities’ current fiscal plans to provide insurance against downside risks to aggregate demand while maintaining steady reduction in fiscal deficits over the medium term.
- Given wide external imbalances and strong credit growth, fiscal support should be well targeted.
- Social protection measures should continue to protect the poor against the effects of inflation, coupled with offsetting cuts elsewhere.
- Encouraged efforts to enhance spending efficiency and strengthen revenue mobilization, including by broadening the tax base and rationalizing exemptions.
- Recommended a debt anchor in nominal terms, combined with an overall deficit ceiling, as a credible framework, particularly as Cambodia seeks to develop a market for sovereign debt.
- Noted that the recent issuance of the first domestic government bond is a welcome development.
Monetary Policy and Financial Sector
- Monetary stance:
- Directors encouraged the National Bank of Cambodia to rein in credit growth by gradually restoring monetary conditions to pre-crisis levels.
- Saw merit in normalizing prudential conditions to pre-pandemic settings with heightened supervision and readiness to raise provisioning requirements.
- Financial sector reforms:
- Underscored the importance of implementing corporate insolvency, debt and bank restructuring, and deposit protection frameworks.
- Emphasized the need to address financial sector risks and corruption vulnerabilities.
- Private credit and broad money (from Table 1):
- Broad money annual percent change: 18.2 (2019), 15.3 (2020), 16.3 (2021), 18.5 (2022), 12.6 (2023).
- Private sector credit annual percent change: 28.0 (2019), 17.2 (2020), 23.4 (2021), 18.0 (2022), 15.0 (2023).
Structural and Governance Policies
- Structural priorities:
- Complementary structural policies are important to support strong, inclusive growth.
- Encouraged continued efforts to strengthen governance frameworks and build on progress in implementing anti-corruption action plans.
- Emphasized the need for structural measures to boost productivity to raise living standards and to durably restore external balances, given the pegged nominal exchange rate.
- Underscored the importance of improving data quality through capacity development.
- Encouraged authorities to build on recent efforts to strengthen climate adaptation and mitigation.
Executive Board Assessment (summing up)
- Directors welcomed Cambodia’s strong economic recovery from the pandemic supported by the country’s strong economic buffers and robust crisis response.
- Directors agreed that the growth outlook is broadly favorable, notwithstanding downside risks from slower external demand and rising domestic vulnerabilities including elevated levels of private debt.
- Policy recommendations highlighted:
- Calibrate fiscal policy to help support vulnerable households without compromising price stability.
- Address financial sector risks and corruption vulnerabilities.
- Rein in credit growth and restore monetary conditions to pre-crisis levels.
- Normalize prudential conditions and be ready to raise provisioning requirements.
- Implement corporate insolvency, debt and bank restructuring, and deposit protection frameworks.
- Target fiscal support carefully; use social protection measures with offsetting cuts elsewhere.
- Enhance spending efficiency; strengthen revenue mobilization; broaden the tax base; rationalize exemptions.
- Adopt a nominal debt anchor combined with an overall deficit ceiling.
- Continue governance and anti-corruption reforms, productivity-boosting structural measures, data-quality improvements, and climate resilience efforts.
Key Statistics (Table 1 highlights)
- Per capita GDP (2021, US$): 1,648
- Life expectancy (2019, years): 75.5
- Population (2021, million): 16.3
- Literacy rate (2019, percent): 87.7
- Output and prices (annual percent change, GDP in constant prices):
- 2019: 7.1
- 2020: -3.1
- 2021: 3.0
- 2022 Est.: 5.0
- 2023 Proj.: 5.4
- Inflation (end-year):
- 2019: 3.1
- 2020: 2.9
- 2021: 3.7
- 2022 Est.: 5.8
- 2023 Proj.: 3.5
- Saving and investment balance (in percent of GDP), Gross national saving:
- 2019: 9.2
- 2020: 16.4
- 2021: -22.0
- 2022 Est.: -5.0
- 2023 Proj.: 10.9
- Public finance (in percent of GDP), Revenue:
- 2019: 26.8
- 2020: 23.9
- 2021: 21.6
- 2022 Est.: 22.1
- 2023 Proj.: 22.0
- Net lending (+)/borrowing(-):
- 2019: -3.4
- 2020: -7.1
- 2021: -4.1
- 2022 Est.: (not shown)
- 2023 Proj.: (not shown)
- Net lending (+)/borrowing(-) excluding grants:
- 2019: 1.0
- 2020: -5.3
- 2021: -8.6
- 2022 Est.: -4.8
- 2023 Proj.: -5.8
- Balance of payments (exports, f.o.b., in millions of dollars):
- 2019: 14,998
- 2020: 18,470
- 2021: 19,469
- 2022 Est.: 22,062
- 2023 Proj.: 24,061
- Annual percent change in exports: 2019: 15.6; 2020: 23.2; 2021: 13.3; 2022 Est.: 9.1; 2023 Proj.: (not shown)
- Current account (including official transfers, in millions of dollars):
- 2019: -4,067
- 2020: -2,182
- 2021: -12,624
- 2022 Est.: -8,587
- 2023 Proj.: -4,318
- In percent of GDP: 2019: -15.0; 2020: -8.5; 2021: -47.5; 2022 Est.: -30.0; 2023 Proj.: -14.1
- Gross official reserves (in millions of dollars):
- 2019: 18,763
- 2020: 21,334
- 2021: 20,941
- 2022 Est.: 20,747
- 2023 Proj.: 22,304
- In months of prospective imports: 2019: 9.8; 2020: 7.8; 2021: 8.0; 2022 Est.: 8.1; 2023 Proj.: (not shown)
- Public external debt (in millions of dollars):
- 2019: 7,596
- 2020: 8,810
- 2021: 9,493
- 2022 Est.: 10,284
- 2023 Proj.: 11,086
- Public external debt as percent of GDP: 2019: 28.2; 2020: 34.4; 2021: 35.9; 2022 Est.: 36.1; 2023 Proj.: 36.3
- Memorandum items:
- Nominal GDP (in billions of Riels): 2019: 110,014; 2020: 105,892; 2021: 110,506; 2022 Est.: 120,315; 2023 Proj.: 130,477
- Nominal GDP (in millions of U.S. dollars): 2019: 27,087; 2020: 25,771; 2021: 26,601; 2022 Est.: 28,647; 2023 Proj.: 30,729
- Exchange rate (Riels per dollar; period average): 2019: 4,062; 2020: 4,109; 2021: 4,154
Source: IMF Communications Department, December 18, 2022.