The World Bank has revised its economic projection for Cambodia to 5.4% in 2023 – a decrease of 0.1% from its 5.5% forecast in May. The adjustment is due to global and regional uncertainty stemming from the ongoing Russia-Ukraine war and geopolitical competition among superpowers.
The bank cited a positive outlook for the country, however, highlighting increases in infrastructure investment and benefits from regional trade agreements. The forecast was released in the bank’s semi-annual Cambodia Economic Update on November 22.
The report anticipates growth to pick up to 5.8% in 2024 and 6.1% in 2025.
According to the World Bank, despite significant investments in public infrastructure, the country’s limited transport and logistics capacity, along with an unreliable energy supply, continue to impose high costs on businesses and consumers.
In the short term, overlapping negative shocks from the pandemic, Russia’s invasion of Ukraine and high international interest rates are expected to continue constraining growth.
It said that tourism, a crucial sector for the country’s economy, is witnessing a gradual return of international tourists. However, revenue at major destinations remains significantly below pre-pandemic levels.
Investment in merchandise manufacturing, including the garment sector, and exports of finished goods have weakened due to reduced global demand. The downturn has led to a 5% reduction in manufacturing jobs, compelling authorities to extend financial support to workers who have been laid off.
“This year, a combination of external pressures and structural shortcomings are weighing on growth, despite an initial recovery in tourism and other services. If structural reforms accompany infrastructure investments and trade opportunities, growth should continue to accelerate in the medium to long term,” the bank stated.
Maryam Salim, World Bank country manager for Cambodia, emphasised the need for the private sector support to spur growth, alongside improvements in the public sector.
“To sustain economic growth, Cambodia needs to support the private sector as the engine of growth, and this can be achieved by prompt actions to improve public sector performance,” she said. “Maintaining financial stability is also a priority, and more efforts are needed to restore fiscal space.”
In late October, the International Monetary Fund (IMF) also downgraded Cambodia’s economic growth projection to 5.3% for 2023, a decrease from their 5.8% forecast in April. The group projected the economy to grow by 6.0% in 2024.
Davide Furceri, IMF’s mission chief to Cambodia, stated during a recent press conference that the downgrade is partially due to a sluggish real estate sector, particularly affected by a deceleration in major exporting partners such as the US, EU and China.
He noted that despite domestic and international challenges, the nation’s economy is steadily recovering from the pandemic.
Looking ahead, the World Bank believes economic growth could be further affected by weakening global demand or renewed oil and food price shocks. Domestically, rising household debt and domestic credit in the real estate sector remain risks.
A special focus section in the report outlines structural reforms that could help the Kingdom foster a more sustainable, productivity-led pattern of growth. These reforms include improving the business environment to boost productivity and competitiveness, upgrading infrastructure and connectivity and enhancing workforce skills.
The kingdom’s economy expanded by 5.2% in 2022, as per the World Bank.