World Bank: Challenges facing the Kingdom

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Condos constructions in front of Australia Embassy in Cambodia. Hean Rangsey

Cambodia’s economy currently faces challenges including credit growth in the construction and real estate sectors, rising indebtedness and the possible withdrawal of the EU’s Everything But Arms (EBA) agreement, said the World Bank Group’s latest forecast report on the Asia-Pacific economies.

The report, released on Thursday, said total outstanding loans from banks and microfinance institutions in Cambodia exceed 100 per cent of gross domestic product, as the potential withdrawal of EBA and a sharp slow-down in the Chinese economy look set to dampen the Kingdom’s growth prospects.

 

“Strengthening oversight capacity and crisis preparedness in the financial sector is an important first step.

“The large foreign inflows that Cambodia has experienced over the past several years may not be sustained, especially in a context of increased global uncertainty and a slowdown in China,” it said.

The World Bank said the Kingdom must improve its external competitiveness to maintain moderate growth.

“It is an imperative to improve the country’s external competitiveness through increased productivity in the presence of rising minimum wages,” the report said.

The government recently introduced measures to facilitate trade by lowering logistics costs and support businesses by reducing the number of public holidays.

World Bank Lead Economist for East Asia and the Pacific Andrew Mason told reporters via a video press conference on Thursday that the bank is closely monitoring the Cambodian economy, with specific attention given to the potential effects of EBA withdrawal.

 

“I think 40 per cent of Cambodia’s exports go to the EU under the EBA agreement, so withdrawal will have a significant short-term impact on our exports there,” he said.

World Bank senior economist for Cambodia Sodeth Ly told reporters after the video conference that the Kingdom stands to benefit from Sino-US trade war tensions.

“As a result of Sino-US trade war tensions, first of all, we see new factories coming to Cambodia. Secondly, we have seen a growing number of factories producing travel goods in response to the US’ inclusion of Cambodia in its Generalised System of Preferences,” he said.

China is still the leading source of foreign direct investment in Cambodia, reaching $3.594 billion last year, Minister of Commerce Pan Sorasak has previously said.

The Cambodian economy is projected to grow at seven per cent this year, the World Bank said.