Wirtschaftsanalysen
Cambodia

Cambodia

Population 15.7 million
GDP 1,607 US$
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 7.1 -3.1 2.2 5.7
Inflation (yearly average, %) 2.0 3.0 2.5 3.2
Budget balance (% GDP) 3.0 -3.4 -3.8 -3.7
Current account balance (% GDP) 15.0 -12.1 -21.3 -16.1
Public debt (% GDP) 28.6 34.2 37.0 38.5

(e): Estimate (f): Forecast

STRENGTHS

  • Vibrant textile industry
  • Dynamic (in normal times) tourism sector with strong potential
  • Offshore hydrocarbon reserves (oil and gas)
  • Financial support from bilateral and multilateral donors
  • Integrated in a regional network (ASEAN)
  • Young population (50% of the population under 22)

WEAKNESSES

  • High share of agriculture in employment and GDP makes the economy vulnerable to weather conditions
  • Underdeveloped electricity and transport networks
  • Lack of skilled workforce
  • Dependent on concessional financing due to weak fiscal resources (high informality)
  • Significant governance shortcomings, high levels of corruption
  • Poverty rate remains high, low levels of spending on health and education

RISK ASSESSMENT

Growth will accelerate thanks to a high vaccination rate

Despite surging external demand, the economy recovered modestly in 2021 due to a prolonged COVID-19 outbreak that slowed down the recovery in domestic demand. However, economic growth should gain momentum in 2022 as the country should have completed vaccinations (81% of the population had been fully vaccinated as of December 2021), and that the authorities have a rather “living with COVID” strategy. Cambodia is highly dependent on exports of goods and services (60% of GDP in 2019), especially on garments, travel goods and footwear (75% of total exports in total). Those components were hit by lockdowns, both domestic and overseas, and temporary factory closures to curb the pandemic in 2021. However, thanks to a fast vaccination drive and robust external demand from major trade partners (U.S., the EU and Japan), exports should rebound and be closer to pre-pandemic levels in 2022. Agriculture (20% of GDP) has been resilient despite COVID-19 outbreaks in 2021, and should continue to support exports. The Cambodia-China free trade agreement, ratified in September 2021, should boost trade and investment in this sector as China will grant duty-free status to 95% of agricultural imports from Cambodia. Tourism (18.7% of GDP in 2019) should recover gradually as Cambodia reopened its borders to fully vaccinated tourists in November 2021. However, it is unlikely to reach pre-pandemic levels as China, one of the major sources of inbound tourists (36% of the total), is pursuing a Zero COVID strategy and its borders should remain closed in 2022. Investment should slowly recover from the pandemic in 2022. Construction projects, accounting for a third of GDP, are driven by both FDI and the national budget, but high iron and steel prices might delay imports of those commodities and hence projects, as contractors would like to secure their profit margins. Domestic demand, primarily household consumption (70% of GDP) should recover alongside the economic revival. Remittances (5.6% of GDP in 2019) should increase to pre-COVID levels and support it as well. 

 

The current account deficit is set to remain high 

The public deficit should remain significant, with an 8.4% increase in expenditures, partially financed by higher tax revenues, as the recovery is set to gain momentum, and the Special Drawing Rights (SDR) allocated by the IMF in August 2021 (8% of GDP). These, changed into foreign currencies, will enable the country to sign more borrowings from China, Japan, France, Thailand and development banks. At this stage, Cambodia already relies heavily on China and Japan, which own 44% and 9% of its total debt, respectively. Despite increased multilateral and bilateral aid, debt is expected to rise to finance the deficit.

 

Private sector indebtedness (114% of GDP), especially for households, should remain high, including among low-income people using microfinance and informal lenders. Moreover, in the wake of the crisis, higher unemployment, a higher poverty rate, and lower activity in construction and real estate, which concentrate credit, have affected the stability of the financial sector. This could lead to payment defaults, as well as a decline in deposits, which are mainly in dollars.

 

The current account deficit should narrow but remain high. The recovery in exports is offset by higher commodity prices on the imports front. Having said this, the increase in largely unscathed remittances and FDI, external financial aid (ADB granted a USD 40 million loan in 2021 for instance) and project financing should cover the deficit. FX reserves remain adequate, standing at 6.1 months of imports (as of March 2021).

 

Pressure from the West draws Cambodia and China closer

Prime Minister Hun Sen, a former military commander of the Khmer Rouge, has led the country for 35 years. His Cambodian People's Party (CPP), a right-wing conservative party, has all the seats in the National Assembly. The government is facing increasing protests against corruption and arresting opponents. Corruption remains high and has not seen improvements in recent years. Discontent among the population was exacerbated by the severe enforcement of anti-pandemic measures and a decline in economic activity, which has led to higher unemployment and poverty. In response, the government stepped up its repression. This could have a serious impact on the country's social and political stability.

 
Relations with Western countries, the EU and the U.S., have worsened since the national elections in 2018, when repression of the opposition and local media drew international criticism. A year after the EU imposed trade sanctions on Cambodia due to human rights abuses – by which Cambodia lost preferential access to the EU market – Cambodia strengthened ties with China and relies on it to support the economy. On the investment side, Cambodia has already been relying massively on China, which accounts for 90% of FDI in Cambodia.

 

Last updated : February 2022

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