Cambodia’s GDP is to grow 5.5 percent for 2023 while inflationary is moderate

Cambodia’s Gross Domestic Product (GDP) is predicted to grow 5.5 percent this year and 6 percent next year, while inflationary pressure is anticipated to moderate, according to the Asian Development Bank.

The Asian Development Outlook (ADO) 2023 yesterday showed that the economy is estimated to grow on more robust tourism recovery and higher growth in the services sector.

The ADO pointed out that Cambodia’s tourism and agriculture are expected to grow 7.3 percent and 1.1 percent respectively this year. Next year, tourism growth is set to ease to 6.8 percent while agriculture is predicted to grow at 1.2 percent. However, the industry is forecasted to grow slower at 5.8 percent and 7.8 percent in 2023 and next year respectively after it rose 8.3 percent in 2022.

While launching the report at its Cambodia Resident Mission yesterday, ADB Country Director for Cambodia Jyotsana Varma said Cambodia’s economy continued to perform well in 2022, led by an ongoing tourism recovery despite a weaker global demand. “Cambodia’s economic outlook is positive with robust growth, shrinking current account deficit and moderate inflation in 2023,” she said.

“Risks to the outlook include weaker growth in the United States and Europe, higher level of private debt, less-than-expected growth of tourist arrivals and foreign direct investment from China, high energy prices, and extreme weather events affecting agriculture productivity,” Varma said.

Cambodia’s industrial output is expected to grow by 5.8 percent this year before accelerating to 7.8 percent in 2024, while the growth in construction is expected to remain low. “Agriculture is forecast to grow, boosted by crop production for export,” said the report, adding that tourism recovery will remain the driver of service growth this year.

“Yet industry continues to benefit from new trade agreements and policy reform that includes a new investment law to create a one-stop service organisation for investors,” the report pointed out, adding that China is Cambodia’s largest tourist market that has led stronger tourism growth.

The government is expected to pursue an expansionary fiscal policy to support growth. According to the report the fiscal budget for general government operations plans a deficit of $1.6 billion, equal to 5 percent of GDP in 2023, with revenue budgeted at 21.6 percent of GDP and expenditure at 26.6 percent and the planned deficit will be financed by $0.2 billion from government savings, $0.2 billion from sovereign bond issues, and $1.2 billion borrowing from overseas.

“Cambodia remains at a low risk of debt distress,” the report pointed out, adding that the public external debt is projected to rise to a manageable 34.7 percent of GDP in 2023 and 34.5 in 2024, while the $200 million in sovereign bonds for issuance in 2023 will provide the government with an alternative financing source and more instruments for managing monetary policy, while offering more investment options to institutional investors.

Growth in merchandise exports is projected to slow to 7 percent in 2023, but recover to 9.5 percent in 2024, while tourism recovery, supported by the reopening of China, is expected to turn the service trade deficit into a surplus and merchandise imports are expected to fall by 1.5 percent this year before growing by 6.5 percent next year.

The gross international reserves is expected to be built up beyond $21.1 billion by the end of 2024, or cover for approximately 7 months of imports, according the report. “The current account deficit is expected to shrink further as tourism continues to recover and merchandise exports grow. This assumes that imbalance caused by the gold trade continues to wane. Monetary policy will continue to target price stability with the implicit goal of promoting greater use of the local currency and maintaining a stable exchange rate against dollar,” the report pointed out, adding that dollarisation—measured by the ratio of foreign currency deposits to the money supply—remained high at 83 percent at the end of 2022.

The inflation stood at 3 percent year on year at the end of January this year, affecting mainly prices of food, transportation and housing materials, according to the report. “Cambodia’s economic outlook also hinges on the country’s continuing efforts to scale up green investment to unlock long-term growth potential,” it says, adding that this is a policy challenge.

“Climate change is expected to increase the frequency and intensity of flooding and drought, raise average temperatures and sea levels, and worsen saline intrusion,” the report noted, adding that Cambodia is highly exposed to floods, scoring 9.5 out of 10 in the 2023 global risk index for humanitarian crises and disasters, and ranked 149th among 182 countries least ready to improve its climate resilience.

Source: Khmer Times

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