Cambodia's economy is projected to witness an upward swing in 2024 with an anticipated growth rate of 6.6%, pushing its gross domestic product (GDP) to approximately 142.96 trillion riel (roughly $34.52 billion), as per the Ministry of Economy and Finance.

The ministry released a summary of the draft 2024 Law on Financial Management on October 27, which stated the GDP per capita is predicted to touch $2,071, marking an increment from $1,917 in 2023.

According to the forecast, the positive growth trajectory is primarily driven by key economic sectors. It expects the industrial sector, buoyed by the anticipated revival of the garment sub-sector, to surge by around 8.5%, a leap from the 5% growth in 2023.

Non-garment manufacturing is expected to remain strong while the construction sector lags.

The service sector anticipates 6.9% growth in 2024, building on 2023’s 8.1%, driven by domestic recovery, especially in hotels and restaurants, benefiting related sectors like wholesale-retail and transport.

The agricultural sector foresees 1.1% growth in 2024, up from 0.9% in 2023, with crop and fisheries sub-sectors driving the uptrend, while livestock remains stable.

Lim Heng, vice-president of the Cambodia Chamber of Commerce (CCC), emphasised the government’s commitment in the coming year to uphold its achievements and foster sustainable national development.

He stressed the importance of sustaining the economic growth rate of 6.6% with a controlled inflation rate.

“Under the 2024 draft law’s macroeconomic framework, the ministry projects a positive 2024 global economic outlook, anticipating robust growth with reduced inflation. 2023 marked the post-pandemic era’s lowest global economic growth,” he said on October 29.

Hong Vanak, an economics researcher at the Royal Academy of Cambodia, noted that the government’s predictions hinge on growth indicators spanning trade, agriculture, industry, tourism and foreign investment.

“Trade surged in the initial nine months of 2023, notably under the RCEP [Regional Comprehensive Strategic Partnership], even with reduced exports to the US and Europe. The UK’s new preferential system, coupled with infrastructure developments like the new Siem Reap-Angkor International Airport [SAI], is poised to bolster next year’s economic growth,” he stated.

He noted that while the draft law anticipates Cambodia’s economy to recover, significant challenges, primarily from external influences, could impede the projected growth.

He said these external pressures include global geopolitical tensions, economic slowdowns, particularly among Cambodia’s trade partners, extended monetary policy adjustments in the US and the continued strength of the US dollar which could potentially restrict capital and trade inflows.

He pointed out that domestically, the nation grapples with structural issues including limited competition, slow economic diversification and a pronounced dependency on external markets.

Conflicting outlooks highlight challenges

Despite the ministry’s positive outlook, the International Monetary Fund (IMF) has downgraded Cambodia’s economic growth projection to 5.3% for this year, a dip from the 5.8% forecasted in April.

Davide Furceri, the IMF’s mission chief to Cambodia, stated during an October 31 press conference that the downgrade is partially due to a sluggish real estate sector, particularly caused by a deceleration in major exporting partners such as the US, EU and China.

The IMF held discussions with the government as part of the 2023 Article IV consultation held from October 18-31.

He highlighted that despite domestic and international challenges, the nation’s economy is on a steady path to recovery from the pandemic.

The growth rate accelerated to 5.2% in 2022, up from 3% the previous year, buoyed by strong manufacturing and a rebound in the services sector.

The IMF projected the economy to grow by 6.0% in 2024.

“The ongoing recovery in tourism and the surging exports of solar panels and electrical components are the main growth drivers,” Furceri said, adding, however, that garment exports remain weak, showing only modest signs of recovery in recent months while slower construction activity is also weighing on growth.

“After declining from last June’s peak, inflation rebounded to 3.8% in September, spurred by rising food and fuel prices,” he stated.

He forecasted that for the entirety of 2023, inflation is expected to average 2.3% and realign with its long-term average of about 3% by 2024, assuming there are no further shocks to commodity prices.

The World Bank’s early October forecast projected that the country’s economy would grow by 5.5% this year, with an increase to 6.1% expected in 2024.

Aaditya Mattoo, chief economist of the World Bank’s East Asia Pacific Region, underscored the prospective advantages of the Regional Comprehensive Economic Partnership (RCEP) for the country.

He pointed out that the trade agreement could improve market access predictability and stimulate policy reforms, potentially increasing trade and investment flows.

He believes this would aid Cambodia’s efforts to diversify its economy, which is currently heavily reliant on the garment industry.

“I’m pleased to see Cambodia venturing into the electronics sector,” he said.

“However, Cambodia must strengthen its fundamentals, particularly in skills and connectivity. These are areas that can be reformed domestically without the need for trade agreements,” he added.

Furceri of the IMF noted that the current account deficit shrank in 2022 and is projected to decrease further, primarily because of robust growth in non-garment exports, tourism and remittances.

He anticipates that international reserves will maintain their stability, though the fiscal deficit is set to widen to 3.6% this year, largely due to increased one-time expenditures.

The deficit is expected to decrease to 2% by 2024 and stabilise at around 2.5% over the medium term, as per the IMF.

Furceri noted this projection assumes the phasing out of temporary pandemic support measures and relief for the rising cost of living, alongside revenue enhancement from tax and customs administration reforms.

While the public debt-to-GDP ratio is set to rise moderately in the next decade, the risk of debt distress is considered low. However, the economy remains susceptible to shocks affecting exports and growth.

He said that credit growth slowed to 8.1% year-on-year in August, a significant reduction from the 23.5% seen in 2021.

Despite this deceleration, the IMF believes that Cambodia’s private credit-to-GDP ratio remains high for its stage of development, at approximately 160%.

He also noted that non-performing loans increased to 4.6% of total loans in August, a reflection of the easing of forbearance measures and possibly increasing stress in certain economic sectors.

“There is considerable uncertainty in the economic outlook, with risks skewed to the downside. These include weaker-than-expected demand from advanced economies and China, tighter US monetary policy, the risk of geoeconomic fragmentation and the high levels of domestic private debt,” he added.