IMF Mission Concludes the 2011 Article IV Consultation Discussions with Cambodia

Press Release No. 11/447
December 7, 2011

An International Monetary Fund (IMF) mission from Washington, D.C., headed by Olaf Unteroberdoerster, visited Cambodia from November 28 to December 8, to conduct the annual Article IV consultation discussions.1 During the visit, the mission assessed macroeconomic developments, held policy discussions with ministers and senior officials of the Royal Government of Cambodia, and met a large group of stakeholders, including academic and business communities, NGOs, and development partners.

At the conclusion of the visit, Mr. Unteroberdoerster issued the following statement:“Buoyant garments exports, increasing tourist arrivals, and a gradually-improving real estate sector have supported a broadening recovery. Agriculture, though strong in the first three quarters—with rice exports through September tripling—suffered from the recent floods, which are expected to exert only a transient setback. Nonagriculture GDP growth in 2011 is forecast to exceed 7½ percent, the highest rate in four years. Assuming agriculture will return to pre-flood trends, overall GDP growth is forecast to reach 7¼ percent in 2012 and move toward a stronger medium-term potential growth of 7–8 percent.

“Inflationary pressures increased in 2011, driven by higher food and fuel prices and reinforced by strong credit growth at over 32 percent in October. Headline inflation is expected to average 5.7 percent in 2011 and remain at 5 percent in 2012 despite a moderation in global commodity prices.

“The current account deficit (including official transfers) is projected to increase to 9 percent of GDP in 2011, but remains fully financed through foreign direct investment and official loans. Gross official reserves rose to over US$3 billion in October, equivalent to 4.2 months of prospective imports.

“The elevated uncertainty in advanced economies exposes Cambodia’s concentrated export base to downside risks. Any immediate financial spillovers, however, would likely be limited and mostly indirect. However, a largely reduced fiscal space from the previous crisis and the need to preserve financial stability limit the scope to cushion such shocks. On the other hand, upside potential could stem from better-than-expected returns on investments in the power sector and rural infrastructure areas against the backdrop of positive spillovers from Asia’s economic rebalancing.

“Against this background, discussions focused on the appropriate fiscal and financial sector risk management strategies in the face of heightened global uncertainty and ways to strengthen foundations for high and stable growth over the medium term.

“On fiscal policy, revenue performance needs to be further strengthened to support Cambodia’s development needs and inclusive growth. During January–October 2011, the revenue-to-GDP ratio stayed broadly at its 2010 level, with full year revenue forecast to fall about ¼ percent of GDP short of the budget. The team welcomed the government’s continued commitment to expenditure restraints in the 2012 budget. However, significant revenue enhancement is warranted to substantially reduce domestic financing and the drain on government deposits, a critical policy buffer to weather adverse shocks. Continued progress along the government’s public financial management reform program will be critical to secure gains from enhanced revenue administration and improve the effectiveness of social priority spending. The mission commended the government’s emphasis on improving debt management and developing a debt strategy that takes into account and would promote a more transparent management of contingent liabilities.

“On monetary policy, the mission discussed the need for normalizing monetary conditions, consistent with a robust economic expansion, and guarding against macro-financial risks. In the event of a renewed negative shock, the pace and timing of monetary normalization can be subject to recalibration. The government’s plan to develop an interbank market would help improve liquidity management and the monetary transmission mechanism needed for a rapidly evolving financial system. Furthermore, the introduction of a credit bureau will contribute to better risk management by banks and improve the credit culture. The mission welcomed the National Bank of Cambodia’s focus on safeguarding the health of the banking system and urged continued implementation of the 2010 IMF/World Bank Financial Sector Assessment Program recommendations, including continued strengthening of capacity, a more forward-looking and comprehensive bank supervision, and strict enforcement of prudential regulations. Striking an appropriate balance between competition and stable growth of the banking system will also be important.

“Cambodia is structurally poised to benefit from Asia’s economic rebalancing, for example through both push and pull factors in attracting foreign investors. To ensure such a transition, as evidenced by growing and broad-based foreign investor interests, and to encourage inclusive and equitable growth, the mission commended the government’s timely focus on agriculture and rural infrastructure, and emphasized the need for steadfast improvement in governance, delivery of priority social sector services such as education and health, and the business environment and infrastructure. In this context, improving the coverage, quality, and timely dissemination of key economic statistics, a need increasingly voiced by investors, will serve not only to enhance policy credibility and investor confidence, but also to better monitor and manage macroeconomic and financial risks as experienced by many emerging market economies.”




1 Under the Article IV consultation, IMF staff undertake annual surveillance and analysis of economic developments and policies of member countries for discussion by the Executive Board. The last Article IV consultation discussion with Cambodia took place in September 2010.



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