Growth Soars but Development Status Challenges Remain: ADB

A general view shows building and property developments in Phnom Penh on February 5, 2020. Photo by AFP / TANG CHHIN Sothy

PHNOM PENH – Economic growth will soar to 5.8 percent this year and 6.0 percent in 2025 but Cambodia faces immediate challenges as it prepares to graduate from Least Developed Countries status, the Asian  Development Bank  (ADB) says.

ADB Cambodia Resident Mission economist Sophie Nguyen said the country needs strategic planning for a smooth transition.

The country was initially set to graduate from this status in 2027  but will see the graduation in 2029 as it needs five more years to prepare for the transition and the benefits that will be lost along the way.

Nguyen said Cambodia could lose or face a cut in official development assistance and preferential trade treatment along with an impact on garments, footwear and travel goods.

The World Trade Organization predicts that graduation could result in a 6.0 percent decrease in exports by least developed countries, she said.

However, graduation comes with benefits such as more foreign investment attraction, economic diversification, better risk perception, creditworthiness and institutional capacity building.

“Cambodia must start preparing for a smooth transition,” she said. This included free trade agreement expansion and exploring the generalized system of preference plus.

Cambodia should also strengthen human capital and climate-resilient infrastructure while providing a favorable environment for micro, small and medium-sized enterprises,  Nguyen said.

Cambodia is one of 46 countries in the category and has fulfilled two of the three criteria required for graduation.

It met the criteria for the first time in 2021 and will be assessed again in 2024. This could pave the way for the country to graduate from the status.

Tourism Up but Construction and Real Estate Slow

ADB said in Outlook  on April 11 that economic recovery is anticipated to persist this year and next, driven by robust tourism recovery and manufacturing growth.

However, construction growth is expected to be modest due to China's prolonged property sector downturn, with real estate recovery expected to be gradual and constrained by reduced investment from China.

Despite global economic challenges, Cambodia’s economy performed well in 2023, said ADB country director for Cambodia Jyotsana Varma.

“We expect growth to be robust in 2024-2025, with the garments, footwear, and travel goods sector poised for a significant upturn building on the positive momentum during the last quarter of 2023,” she said.

(From left to right) Sophie Nguyen, ADB’s country economist, ADB country director Jyotsana Varmar, and senior economic official Poullang Doung is seen during report launch. Photo: ADB

Poullang Doung, a senior economic officer at ADB’s Cambodia Resident Mission,  said the economic recovery is expected to accelerate while agriculture, construction and real estate will grow moderately.

“Inflation decelerated in 2023 in line with global energy prices and should remain low amid stabilizing global fuel prices,” he said.

However, the outlook is subject to downside risks, such as potential slower growth in the major economies, the high level of private debt, a renewed rise in global energy prices and extreme weather events.

“With external public debt forecast at 36.3 percent of GDP in 2024 and 37.3 percent in 2025, the risk of public debt distress remains low,” the outlook says.

Public debt held by the government was $11.24 billion, according to the Public Debt Statistical Bulletin released by the Ministry of Economy and Finance.

The government plans to gradually consolidate fiscal reserves from 2024, but potential global economic slowdowns, rising private debt, fluctuating energy prices, and climate vulnerabilities could impact the outlook, Varma said.

“These challenges add layers of complexity to Cambodia’s economic narrative but the country is moving ahead with cautious optimism,” she said.

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