IMF Executive Board Concludes 2021 Article IV Consultation with Cambodia
December 9, 2021
Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Cambodia.
COVID-19 has hit the Cambodian economy with a collapse in external demand in 2020 and community spread of the virus in 2021. The government rapidly redirected resources to healthcare and to support livelihoods, including a new system of cash transfers to vulnerable households. But despite extensive government support, the economy has suffered. Growth is estimated to have contracted by 3.1 percent in 2020 after growth of nearly 7 percent in previous years.
Although activity showed signs of picking up toward the end of 2020, the rapid spread of the virus from February this year has set the economy back again. The public finances have been stressed, but public debt risks remain low overall. However, as in many other countries, the crisis has strained the ability of households and firms to service loans. Banks’ loan portfolios were already concentrated in real estate; as the crisis has run, loans to tourism, transport, and trade sectors have come under stress.
A slow recovery is projected. Staff projects growth of 2.2 percent in 2021, increasing gradually to pre-crisis rates of 6½ percent after a few years. Future growth depends heavily on the course of the pandemic. Faster containment of the virus in Cambodia and other countries will facilitate resumption of tourism; slower progress would damage growth further. These risks appear skewed to the downside at this stage. The stress on loans raises the risk of potentially inadequate provisioning and weak capital buffers. Cambodia is particularly vulnerable to climate change, as indicated by recent droughts and floods.
Executive Board Assessment [2]
The authorities have responded quickly to the crisis with measures to contain the spread of the virus and support livelihoods. The vaccination program is a notable success, and the government has taken steps to further boost healthcare. A new system of cash transfers was rolled out, targeting poor households, while several support measures have been directed to firms. The NBC responded with liquidity measures early in the crisis. Without these responses, the effect of the pandemic would likely have been worse.
Nonetheless, the economy has been badly affected, and the recovery is gradual. Community spread of the virus in 2021 set back the recovery. The outlook remains highly uncertain, and there are still risks that it could be weaker than expected. Given this uncertainty, policies should remain supportive in the near term, and be more finely targeted as the economy recovers.
For fiscal policy, healthcare and social assistance remain the immediate priorities. Over time, support measures such as tax and fee exemptions and credit support, can be recalibrated to ensure maximum value for money. The extensive range of measures necessitates attention to safeguards. A broader tax base and development of a sovereign bond market would allow fiscal policy to be more countercyclical in future, while a well-defined medium-term fiscal framework would help to help to ensure confidence in the public finances over the medium term.
Loan restructurings have surged. Losses on restructured loans could weaken capital positions and potentially undermine the ability of the financial sector to finance the recovery. Results from bank stress tests and the extra reporting will allow the NBC to implement a carefully calibrated sequence of steps to gradually return to standard prudential requirements. Reforms should continue to close supervisory gaps and bolster the financial safety net, and the authorities should press to address deficiencies in the AML/CFT regime.
Addressing structural challenges will help the recovery and build a more resilient economy. Several factors hold back growth potential and make the economy vulnerable to shocks, including the lack of diversification and the low value added in exports, high labor informality, and perceptions of governance weaknesses and corruption. Increased public spending on infrastructure and education as recovery allows would improve fundamentals, and investment in climate change adaptation measures is increasingly important.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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Table 1. Cambodia: Selected Economic Indicators, 2017–22 |
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Per capita GDP (2019, US$) : 1,713 |
Life expectancy (2019, years) : 75.5 |
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Population (2019, million) : 15.6 |
Literacy rate (2019, percent) : 87.7 |
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Poverty rate (2012, percent) : 17.7 |
Gini (2012) : 29 |
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2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
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Est. |
Proj. |
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Output and prices (annual percent change) |
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GDP in constant prices |
7.0 |
7.5 |
7.1 |
-3.1 |
2.2 |
5.1 |
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Inflation (end-year) |
2.2 |
1.6 |
3.1 |
2.9 |
3.2 |
3.0 |
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(Annual average) |
2.9 |
2.4 |
2.0 |
2.9 |
2.8 |
3.0 |
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Saving and investment balance (in percent of GDP) |
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Gross national saving |
15.0 |
11.7 |
9.2 |
13.3 |
-1.4 |
8.3 |
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Government saving |
4.8 |
6.2 |
8.4 |
3.5 |
1.3 |
3.1 |
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Private saving |
10.1 |
5.5 |
0.8 |
9.8 |
-2.6 |
5.2 |
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Gross fixed investment |
22.9 |
23.4 |
24.2 |
25.5 |
25.5 |
25.0 |
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Government investment |
7.5 |
7.7 |
7.4 |
9.0 |
8.7 |
8.6 |
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Private investment |
15.4 |
15.7 |
16.8 |
16.5 |
16.8 |
16.4 |
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Money and credit (annual percent change, unless otherwise indicated) |
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Broad money |
23.3 |
26.6 |
18.2 |
15.3 |
13.3 |
17.4 |
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Private sector credit |
18.3 |
28.1 |
28.0 |
17.2 |
10.1 |
13.6 |
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Velocity of money 1/ |
1.1 |
1.0 |
0.9 |
0.8 |
0.7 |
0.6 |
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Public finance (in percent of GDP) |
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Revenue |
21.6 |
23.7 |
26.8 |
24.5 |
23.4 |
23.6 |
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Domestic revenue |
19.7 |
21.6 |
24.8 |
22.5 |
21.5 |
22.1 |
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Of which : Tax revenue |
16.9 |
18.6 |
21.7 |
20.2 |
19.5 |
20.0 |
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Grants |
1.9 |
2.1 |
2.0 |
2.0 |
1.9 |
1.5 |
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Expenditure |
22.4 |
23.0 |
23.8 |
28.0 |
29.0 |
27.7 |
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Expense |
14.8 |
15.3 |
16.4 |
19.0 |
20.3 |
19.1 |
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Net acquisition of nonfinancial assets |
7.5 |
7.7 |
7.4 |
9.0 |
8.7 |
8.6 |
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Net lending (+)/borrowing(-) |
-0.8 |
0.7 |
3.0 |
-3.5 |
-5.6 |
-4.1 |
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Net lending (+)/borrowing(-) excluding grants |
-2.7 |
-1.5 |
1.0 |
-5.5 |
-7.5 |
-5.6 |
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Net acquisition of financial assets |
3.2 |
3.5 |
8.8 |
0.6 |
-2.4 |
-1.4 |
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Net incurrence of liabilities 2/ |
4.0 |
2.8 |
5.8 |
4.1 |
3.2 |
2.7 |
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Balance of payments (in millions of dollars, unless otherwise indicated) |
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Exports, f.o.b. |
11,229 |
12,973 |
14,998 |
17,407 |
17,465 |
18,987 |
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(Annual percent change) |
9.3 |
15.5 |
15.6 |
16.1 |
0.3 |
8.7 |
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Imports, f.o.b. |
-15,504 |
-18,813 |
-22,251 |
-20,974 |
-24,221 |
-23,760 |
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(Annual percent change) |
9.8 |
21.3 |
18.3 |
-5.7 |
15.5 |
-1.9 |
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Current account (including official transfers) |
-1,756 |
-2,895 |
-4,067 |
-3,057 |
-7,038 |
-4,689 |
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(In percent of GDP) |
-7.9 |
-11.8 |
-15.0 |
-12.1 |
-26.9 |
-16.7 |
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Gross official reserves 3/ |
12,200 |
14,628 |
18,763 |
21,334 |
20,541 |
21,814 |
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(In months of prospective imports) |
6.7 |
6.9 |
9.8 |
9.6 |
9.4 |
9.1 |
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External debt (in millions of dollars, unless otherwise indicated) |
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Public external debt |
6,669 |
7,021 |
7,597 |
8,810 |
9,376 |
10,137 |
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(In percent of GDP) |
30.0 |
28.4 |
28.2 |
35.2 |
36.0 |
36.4 |
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Public debt service |
211 |
266 |
309 |
359 |
377 |
420 |
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(In percent of exports of goods and services) |
1.3 |
1.4 |
1.5 |
1.9 |
2.0 |
2.0 |
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Memorandum items: |
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Nominal GDP (in billions of Riels) |
89,831 |
99,544 |
110,014 |
103,512 |
108,786 |
117,679 |
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(In millions of U.S. dollars) |
22,208 |
24,599 |
27,088 |
25,192 |
26,187 |
28,020 |
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Exchange rate (Riels per dollar; period average) |
4,045 |
4,047 |
4,061 |
4,109 |
4,154 |
4,200 |
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Sources: Cambodian authorities; and IMF staff estimates and projections. |
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1/ Ratio of nominal GDP to the average stock of broad money. |
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2/ Includes statistical discrepancy. |
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3/ Includes unrestricted foreign currency deposits held at the National Bank of Cambodia; starting in 2009, includes the new Special Drawing Right (SDR) allocations made by the IMF of SDR 68.4 million; starting 2016, RMB holdings are considered part of reserves following inclusion of RMB in the SDR basket. |
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