AMRO: Cambodia To Grow Strongly with Moderate Inflation in Short Term

The ASEAN+3 Macroeconomic Research Office (AMRO) said Cambodia's economic growth is expected to remain stable in 2017 and inflation will pick up due to increases in fuel and food prices.

Based on its Annual Consultation Visit to the country from June 21 to 28, 2017, AMRO said Cambodia's economic is expected to grow strongly at 6.9 percent this year, while the inflation rate is around 4 percent.

Dr. Seung Hyun Hong, AMRO Lead Specialist said despite sustained growth in the garment, construction, and tourism sectors, headwinds to growth emanate from rising labour cost and ongoing adjustments in the real estate sector.

According to the report, to mitigate the adverse effect of labour cost increases on competitiveness, further efforts are needed in several areas, such as enhancing labour quality, improving trade facilitation, and reducing logistics and electricity costs. As manufacturing industry started to show early signs of diversification, broadening economic base is essential for long-term sustained growth.

Monetary policy constrained by dollarisation, a comprehensive framework of prudential policies should be adopted to manage risks in the financial system and enhance financial stability. A forward-looking approach with regular bank stress-testing and interconnectedness analysis is strongly encouraged to continue and enhance further.

Improving public sector capacity and rebalancing budget allocation towards more capital investment are crucial to enhance growth prospect. In the face of rising labor cost and relatively large infrastructure gap, fiscal policy needs to be more supportive of much-needed infrastructure investment and structural reforms to enhance productivity and support growth.

Successful implementation of Revenue Mobilisation Strategy (RMS) led to continued strong tax revenue collection and contributed to a declining trend of fiscal deficit for the past few years. Fiscal policy has been prudent as reflected in the sizable current surpluses and the annual cap on borrowing, and this will help to build fiscal space to support economic growth in coming years.

Over the medium term, alternative sources of financing should be developed in order to align investment spending with the authorities' own priorities. This could be done through the development of domestic capital market and continuing partnership with the private sector.

Source: Agency Kampuchea Press