Cambodia's high growth trajectory is expected to continue positively, while the real growth is projected to reach 6.9 percent this year, according to World Bank.
Growth in Cambodia is expected to pick up slightly, while Lao PDR will likely see stable growth, said the World Bank in its East Asia and Pacific Economic Update released today.
According to the report, Cambodia's economy continues to grow robustly, albeit at a modestly declining trend. Real growth is estimated to have eased slightly to 6.8 percent in 2017. Following substantial moderation, textile and apparel exports rebounded. The tourism and agriculture sectors continued their recovery. Growth is projected to remain strong, expanding at 6.9 percent in 2018. Downside risks to the outlook include erosion of export competitiveness due to rapidly rising real wages, risks associated with prolonged construction boom, and potential election-related uncertainty.
Private consumption has eased, subduing inflation. Slower domestic credit growth contained private consumption which in turn dampened import growth. As a result, inflation declined to 2.2 percent at the end of 2017, compared with 3.9 percent in 2016. Following the introduction of an 18 percent interest rate cap in April 2017, credit growth decelerated. Credit to the construction and real estate sector, however, accelerated again during the second half of 2017, growing at 37.1 percent in November 2017, up from 28.4 percent in May 2017, as appetite for construction and real estate investment revived.
Thanks to continued solid export growth and softer import demand, the current account deficit narrowed. The moderation in domestic demand resulted in a slow-down in imports growth. The current account deficit slightly declined to 9.8 percent of GDP, compared to 10.2 percent of GDP in 2016, and was entirely financed by FDI inflows. Improved confidence boosted bank deposits, largely in U.S. dollars, which grew at 23.3 percent y/y in December 2017. Gross foreign reserves further accumulated, reaching US$8.7 billion or 6 months of imports in 2017. The Cambodian Riel (CR) which is pegged to the U.S. dollar remained stable at CR 4,010 per U.S. dollar at the end of February 2018.
The authorities' decision to boost wages of civil servants increased spending, but its effect on fiscal deficit was neutralised by strong revenue collection. Public sector wages continued to increase in 2018, and are expected to reach 8.4 percent of GDP. However, exceptionally strong revenue collection in 2017, stemming largely from increased tax compliance, helped contain the deficit. The fiscal deficit (excluding grants) is estimated to have narrowed to 2.7 percent of GDP in 2017, compared to 3.6 percent in 2016. Cambodia's debt distress level remained low as per the 2017 WB/IMF Debt Sustainability Analysis.
Source: Agency Kampuchea Press