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Cambodia: Staff Report for the 2015 Article IV Consultation

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
November 2015
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Context

1. Context. After a year-long political deadlock following the 2013 elections, the opposition joined the National Assembly in July 2014. Labor tensions eased following the 2014 minimum wage increase, which was negotiated between the government, factory owners and unions. Over the last two decades, Cambodia grew rapidly (on average 7.7 percent and sixth fastest in the world) and its integration with the global economy soared, substantially reducing poverty and inequality. It is poised to become a lower middle-income country next year. Looking ahead, further regional integration through the ASEAN Economic Community (AEC) and Cambodia’s strategic location close to fast-growing major economies can provide tailwinds as Asia rebalances, regional wages rise, and production networks further integrate. However, to capitalize on these opportunities and achieve sustainable and inclusive growth, wide-ranging reforms need to be undertaken and vulnerabilities addressed.

Cambodia Market Share

(In percent of world trade)

2. Past Fund advice. Policies are broadly in line with past Fund advice, but further reforms are needed to ensure macro-financial stability. The authorities are implementing the Revenue Mobilization Strategy (RMS), improving revenue collection, and strengthening public financial management. They introduced Negotiable Certificate Deposits (NCDs) to develop the interbank market and expanded reserve requirements to banks’ foreign borrowing to contain credit growth. They have agreed on a Memorandum of Understanding (MoU) to establish a crisis management framework. As explained in this report, going forward, continuing efforts are needed to contain macro-financial risks to preserve financial stability, continue fiscal consolidation to secure a strong fiscal buffer, and promote competitiveness and inclusiveness.

Developments, Outlook, and Risks

3. Growth. Despite recent moderation, economic activity remained strong driven by garments exports, real estate, and construction. GDP growth is estimated at 7 percent in 2014. Notwithstanding labor tensions, appreciation of the real effective exchange rate (REER) following U.S. dollar strengthening, and growing competition from other low-cost producers, garment exports grew by 10.5 percent (y/y) in 2014, supported by preferential access to the EU. In 2015, while garment exports and tourism growth are projected to moderate in line with weaker EU growth and further REER appreciation, robust real estate and construction activity, as well the reduction in oil prices, are projected to support growth.1 Overall, growth is projected to remain steady at 7 percent in 2015 and rise modestly to 7.2 percent in 2016. Maintaining robust and sustainable growth over the medium term requires continued improvements in the business climate, infrastructure, and human capital.

Output Gap and Core CPI

(In percent)

Credit-to-GDP Gap, 2004-14

(In percent)

4. Inflation and output gap. While inflation decelerated strongly in the last few months of 2014 due to the sharp oil price decline and REER appreciation, average headline inflation in 2014 was 3.9 percent, about 1 percent higher than in 2013. The modest positive output gap (estimated at 0.7 percent) would have led to higher inflation in 2014 had external disinflationary pressures not been so strong.2 Strong disinflation continued in the first half of 2015, with inflation falling to 1 percent in May. For the rest of the year, inflation is projected to rise gradually to around 2 percent by end-2015, reflecting the recovery in food prices and stabilization of global energy prices.

5. Credit developments. Rapid credit growth, which accelerated to 31 percent (y/y) by end-2014 (and remained on average around 33 percent in 2015 Q2), is posing an increasing risk. The credit-to-GDP ratio has doubled in three years to over 50 percent, exceeding the median emerging market (EM) and double the low-income country (LIC) levels. The speed of financial deepening has been striking, with credit growing much more rapidly than in peer Asian economies during their take-off. The loan-to-deposit (LTD) ratio breached 100 in February 2015.3 This reflects both supply and demand factors: accommodative monetary policy, new foreign bank entry, and buoyant domestic activity. Real estate-related lending grew by 53 percent (y/y) on average in 2015 Q2, while real estate prices rose on average 10–20 percent y/y in 2014. Credit growth is projected to be around 30–34 percent in 2015–16, and the credit-to-GDP gap is expected to exceed 10 percent by early 2017.4 Cambodia’s GDP growth has been one of the most credit-intensive, however, it has not been accompanied by an increase in private investment.

Credit Intensity and Domestic Private Investment

(2011-13 average)

Sources: Data from Cambodian authorities; and IMF staff caluclation.

1/ Include Bangladesh, Myanmar, Mongolia, Sri Lanka, and Vietnam.

2/ Include India, Indonesia, Malaysia, Philippines, and Thailand.

Credit Growth in Similar GDP per Capita (PPP) Levels

(Five-year average)

6. External stability. The current account deficit (CAD) is estimated at around 12 percent of GDP in 2014, and largely financed by FDI and official loans. Moderating garment exports and tourism growth were offset by lower power projects-related imports. The CAD is projected to narrow to around 11 percent in 2015, primarily due to the fall in oil prices. The CAD is forecast to decline to 6.3 percent of GDP by 2020, as major power projects are completed and exports grow with some product diversification amid AEC integration. Gross official reserves increased to US$4.7 billion by end-August 2015, nearly 4 months of prospective imports. Even though reserves appear adequate according to traditional metrics, in light of high dollarization and financial fragilities, analysis customized to dollarized economies suggests that there are benefits to building additional reserves (Box 1). As of August 2015, the REER appreciated by 8 percent compared to a year ago and is estimated to be broadly aligned with fundamentals. While exchange rate targeting has supported price stability by providing a credible nominal anchor, further strengthening of the U.S. dollar, as well as higher wage pressures, may weigh on Cambodia’s competitiveness.

Current Account Deficit and Financing Flows, 2010–16

(In percent of GDP)

1/ Current account balance excluding official transfers.

Box 1.Cambodia: External Sector Assessment1

The external position is relatively strong with the current account deficit predominantly financed by stable FDI and official inflows. The REER is estimated to be broadly in line with fundamentals. In view of high dollarization and financial fragilities, staff assesses that there is room to build additional reserves to increase resilience.

BOP Developments. The overall balance of payments (BOP) has averaged an annual surplus of 2.5 percent of GDP from 2004 to 2014. A widening current account deficit since 2011 corresponds to large FDI inflows to finance the construction of large power generation projects. Developments with the capital and financial account were dominated by the increase in direct investment from an average of 6½ percent of GDP for 2008–10 to 11¼ percent for 2011–13. While the surge in direct investment may not be maintained, imports would likely drop in line with the completion of the power projects.

Exchange Rate Assessment
MacroeconomicEquilibrium
BalanceREER approach
Underlying currenct account balance (CA)−9.9
Current account norm−7.0
Required improvements in CA2.9
Implied over(+)/under(-) valuation6.72.0
Source: IMF staff estimates.1/ NFA norm of -86 percent of GDP.
Source: IMF staff estimates.1/ NFA norm of -86 percent of GDP.

Exchange Rate Assessment. The results of the Fund’s pilot External Balance Assessment (EBA-lite) exercise indicate a 6 percent overvaluation in the REER, which means that 6 percent depreciation would be necessary to close the gap between the underlying current account and the level consistent with fundamentals and desirable policies. The equilibrium REER approach indicates an overvaluation of 2 percent, following a 10 percent appreciation during 2010–14. These results have to be interpreted with caution given weak data, rapid structural change, and a high degree of dollarization. Taken together, the REER is assessed to be broadly in line with fundamentals. Nevertheless, in view of continued REER appreciation, efforts to improve the business climate should be accelerated to boost competitiveness (see section C for discussion of policy recommendations).

Cambodia: Equilibrium Real Effective Exchange Rate

Sources: IMF staff estimates.

Reserve Adequacy. Reserve coverage, in terms of FX deposits, has been declining. Measured against several traditional metrics, such as import reserve coverage, reserves as a percentage of broad money, Cambodia’s gross international reserves (at 4 months of imports at end-2014) could be considered adequate, particularly given the long-term nature of most of Cambodia’s external debt. Reserves are 10 percent higher than the 150 percent threshold of the IMF’s EM ARA metric, which uses a customized risk-weighted approach and reflects the relative risk levels of different potential sources of balance of payments pressures.2 However, these metrics do not take account of high dollarization and financial fragilities when assessing reserve adequacy. Thus, staff customized the Jeanne and Ranciere (2006) model to incorporate these features.3 The results suggest that current reserve coverage might not be adequate. According to this model, the optimal level of reserves ranges from 27 to 30 percent of GDP, which is equivalent to additional reserves of US$200 to US$500 million. Moreover, the high level of foreign currency deposits, at more than 1½ times of gross official reserves, seriously limits the central bank’s lender of last resort capacity, and is lower than regional comparators. Therefore, a higher level of reserves—than that suggested by the traditional reserve adequacy metrics—may be warranted.

Reserve Adequacy (2014)

Sources: IMF staff calculations.

1 Prepared by Allan Dizioli.2 For a comprehensive description of methodology and applications for LICs and EMs see “Assessing Reserve Adequacy, Specific Proposals,” IMF 2015.3 Jeanne, Olivier, and Romain Ranciere (2006), “The Optimal Level of International Reserves in Emerging Market Countries: Formulas and Applications,” IMF Working Paper 06/229 (Washington: International Monetary Fund).

7. Risks, spillovers, and policy response. The outlook is broadly positive but subject to substantial downside risks.

  • Domestic risks. The main risk reflects the rising financial sector vulnerabilities from rapid credit growth. Other domestic risks include fiscal pressures and erosion of competitiveness from wage increases potentially outstripping revenues and productivity improvements. The uncertainty related to wage policy and labor disputes could disrupt garment production and weigh on investor sentiment.

  • External risks stem from a stronger U.S. dollar and/or a protracted growth slowdown in Europe constraining garments exports, amid stiff competition from other low-cost producers and wage pressures. Weaker-than-expected growth in China would also have spillovers through the FDI, banking and tourism channels (Risk Assessment Matrix and Box 2). If financial market stress re-emerges across the Euro area due to the Greece crisis, it would affect Cambodia through the FDI, trade, tourism, and banking channels via its impact on its Asian neighbors. Specifically, funding costs for Cambodian banks and microfinance institutions (MFIs), which rely increasingly on external funding, would increase leading to liquidity pressures and a credit crunch.

  • Policy response. The room for policies to support growth in the face of large external shocks is limited, in view of high dollarization and a lack of monetary control, as well as insufficient fiscal space over the medium term. Efforts to build policy buffers and resilience should be stepped up preemptively. Should downside risks materialize in the near term and prove not to be short-lived (e.g., prolonged slowdown in the EU), efforts to diversify the economy should be expedited. Given the indexation of wages to the U.S. dollar and dollarized balance sheets, exchange rate flexibility may not provide a boost to the CA balance in the near term. In case of limited financial instability, liquidity buffers should be utilized. However, in the event of severe financial stress, a more comprehensive approach will be required, underscoring the importance of preemptively strengthening the crisis management framework.

Wage and Changes in Global Market Share: labor-intensive

8. Authorities’ views. There was broad agreement between staff and the authorities on the macroeconomic outlook and risks. The authorities have a similar assessment of the impact of recent oil price developments on the current account, and project a slowdown in exports for this year. They showed concerns regarding spillovers from Greece and EU growth on garment exports. They also noted risks related to the expected US interest rate hike. On the external sector assessment, while agreeing with staff on the medium-term assessment, authorities were more optimistic about the prospects for FDI this year.

Box 2.Cambodia: Analysis of External Spillovers into Cambodia1

Given its high degree of openness, Cambodia is particularly vulnerable to spillover effects from its major partners.2 Cambodia receives large inflows of external income (official transfers, grants and FDI) that amounted to 22 percent of GDP in 2014. It is strategically located near some of the fastest growing economies in the world, and has close links through FDI, trade, tourism and banking channels. China, United States, Hong Kong SAR, the EU, and Thailand together correspond to almost half of all the external transfers received, over 65 percent of all trade, and about a quarter of all tourist arrivals in the country.

A long-run structural macro-econometric model was developed to evaluate the nature and strength of linkages with top trading partners, and to quantify inward spillovers of external shocks. Using quarterly data between 1996Q1 and 2013Q1 on core macroeconomic variables, we estimated a VARX* model.3 Two long-run relationships were identified: 1) an augmented output equation, which postulates a relationship between domestic output, partners’ GDP, the REER and external income; 2) an equation linking partner and domestic inflation rates.

The empirical results highlight the vulnerability of the Cambodian economy to external shocks. A negative shock of one percent to partner’s GDP growth results in significant output losses in Cambodia, corresponding to around 1.3 percent after one year. A 1 percent negative output shock in China and the United States is associated with an output loss of 0.5 percent in Cambodia after one year, and the same shock to the EU corresponds to an output decline of 0.3 percent. It causes a decline in inflation as the foreign output gap widens and causes REER depreciation.

Empirical results also show the limited impact of the exchange rate in Cambodia. As expected by high dollarization, the long-run exchange rate growth elasticity is relatively low. A one-percent REER depreciation leads to about 0.3 percent increase in output growth, and the impact on inflation is only 0.2 percent and is not significant.

The reduction in oil prices can boost growth in the near term. Following Kilian (2009), a structural VAR model was estimated to disentangle the impact of oil supply and demand shocks to real GDP in Cambodia.4 Using this estimation and the decomposition of the recent oil price shock in WEO (2015), the impact on Cambodia’s GDP is estimated to be 0.7 percent of GDP if the pass-through of international oil prices to domestic prices is unchanged.5

Finally, this model also shows that external transfers have substantially driven Cambodia’s growth in the past. Cambodia will face challenges after it graduates from low-income status and grants start to decline. In this context, structural reforms to increase potential growth will become even more important in the medium-term.

1 Prepared by Allan Dizioli.2 Cambodia’s exports and imports are equivalent to 113 percent of GDP.3 The model has the following variables: real GDP, inflation, real exchange rate, external transfers, real GDP of partners and partner’s CPI inflation. Annual data were linearly interpolated backward when quarterly observations were missing.4 Kilian, Lutz 2009, “Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market,” American Economic Review 2009, 99:3, 1053–1069.5 International Monetary Fund, 2015, World Economic Outlook, chapter 1. (Washington: International Monetary Fund).

Policy Discussions

Discussions focused on containing macro financial risks and preserving financial sector stability; continued fiscal consolidation to rebuild and secure fiscal buffers; and policies to promote competitiveness and inclusive growth.

A. Safeguarding Macro-Financial Stability and Fostering Market Development

9. Developments. Credit growth has been rapid, broad-based (across domestic and foreign banks as well as MFIs) and accompanied by a real estate boom. This has contributed to growing financial stability risks, rendering economic growth more vulnerable.5,6 Already-high dollarization has increased, with the ratio of foreign currency deposits to broad money rising from 79 percent in 2008 to 83 percent in 2014. The coverage of foreign currency deposits by foreign exchange reserves has steadily fallen, further limiting the NBC’s lender-of-last resort capacity. Rapid credit growth is increasingly being financed by foreign funding amid ample global liquidity (with the share of foreign funding in total FX funding doubling from 10 percent in 2008–11 to 20 percent by 2012–14). Micro-finance institutions (MFIs) are now playing a systemic role, with credit stock and flows from MFIs at 20 and 25 percent, respectively, of those in the banking system. On average, deposit-taking MFIs exhibit LTD ratios of more than 200 percent, and are predominantly funded through foreign borrowing.

Contribution to Credit growth

(In percent)

10. Past policy measures. Past monetary tightening (increase of reserve requirements (RR) by 50 basis points to 12½ percent in September 2012) did not dent credit growth momentum amid excess liquidity, strong deposit growth, reliance on foreign funding and the entry of new banks.7 In August 2013, in line with past recommendations, the NBC issued NCDs, both in U.S. dollars and Khmer riel (KHR), to help develop the interbank market. After a slow start, in recent months, the primary NCD market has gained momentum and is expected to support banks’ liquidity management and lay the groundwork for market-based monetary policy operations.8 The expansion of reserve requirements to banks’ foreign borrowing was instituted in March 2015, in line with previous Fund recommendations.

11. Supervision and regulation. Although core financial soundness indicators (FSIs) appear healthy, there is a trend decline in capital. Supervisory capacity remains heavily stretched given rapid growth of the financial system and large number of banks and MFIs. The NBC has been working on shifting to risk-based supervision consistent with FSAP recommendations and is also revising the current Liquidity Ratio in line with recent Fund technical assistance (TA) and previous Article IV recommendations.9 To strengthen the crisis management framework, a Memorandum of Understanding (MoU) on establishing information sharing was signed with the MEF, the NBC and Securities Exchange Commission of Cambodia (SECC) in July 2014. The next step is to improve the quality of information, make progress on forming technical teams, and to provide robust resolution powers. While the NBC’s current focus on liquidity risk and broader crisis management seems appropriate, with growing financial stability risks, the NBC should accelerate efforts to implement other FSAP recommendations (Table 8). These include strengthening supervision and upgrading regulation of the non-bank financial sector.

Selected Financial Soundness Indicators (FSIs), 2011–14(In percent)
2011201220132014
Capital Adequacy
Regulatory capital to risk-weighted assets26.2325.0024.8421.49
Asset Quality
Nonperforming loans to total gross loans2.132.012.271.84
Earnings and Profitability
Return on equity 1/9.7410.258.809.89
Return on assets 1/1.761.721.781.82
Interest margin to gross income64.2766.6569.0369.70
Liquidity
Liquid assets to total assets16.1615.3717.8917.38
Liquid assets to short-term liabilities22.9621.2125.4624.55
Source: National Bank of Cambodia.

Annualized.

Source: National Bank of Cambodia.

Annualized.

12. Growing financial stability risks. The priority is to address growing financial stability risks by stabilizing and moderating the pace of credit growth to more reasonable levels, while closely monitoring the effect on growth. LTDs in banks have risen indicating a heavier reliance on noncore funding, with 20 banks having LTD ratios over 100 and 12 banks with LTD ratios over 200 percent. The rise in noncore liabilities reflects the increased reliance on short-term external borrowing, raising liquidity risks. In the event of a spike in global financial market volatility, a reversal of foreign funding could lead to tightening of domestic liquidity conditions, leading to potential liquidity stress and a credit crunch, with adverse spillovers to real economic activity. Furthermore, some MFIs are now larger than some mid-sized commercial banks, and competing with banks while being subject to looser regulation. Real estate developers are also reportedly offering loans to buyers and are financed by foreign funding, while not being subject to stringent regulatory and supervisory oversight. Credit is increasingly being channeled to the real estate sector, which is exhibiting pockets of vulnerability.

13. Policy recommendations. The following policy measures would mitigate financial stability risks and foster market development:

  • Monetary policy needs to be tightened in view of the positive output gap and rising financial stability concerns. Specifically, RR should be raised substantially to moderate the pace of credit growth and to curb aggregate demand.

  • Given the growing systemic relevance of large MFIs, and to prevent regulatory arbitrage, prudential regulations should be upgraded/tightened to match those of banks.10 Specifically, RR should also be expanded to include foreign funding of deposit-taking MFIs. Real estate developers, often providing supplier’s credit and increasingly funded by foreign flows, should be brought under strict regulatory and supervisory control.

  • To contain systemic risk, well-designed macroprudential tools should be introduced (Box 3). Fragility from high LTDs needs to be managed by a phased introduction (and tightening) of LTD limits. In order to enhance resilience and build buffers, imposing countercyclical capital requirements would be a good option. Given the growing exposure to real estate, higher capital requirements and risk weights linked to real estate, as well as sectoral concentration limits, are possible policy measures. Better monitoring of developments in the real estate sector is warranted, including by enhancing data collection on real estate sales and prices as well as construction activity. Limits on loan-to-value ratios could be imposed once sufficient progress is made on improving data availability.

  • Enhancing the prompt corrective action framework, as well as instituting a broader crisis management framework, should be expedited to mitigate vulnerabilities. Building on the MoU, the crisis management framework should provide a sound institutional arrangement with explicit inter-agency coordination mechanisms, including the exchange of information, and improve inadequate resolution powers.

  • In light of the rapid expansion of the banking system and the move to risk-based supervision, supervisory capacity remains stretched, especially in light of emerging risks. In view of this, the 2010 FSAP recommendation to impose a moratorium on offering new bank licenses remains valid. Also, in light of growing financial stability risks, the implementation of other FSAP recommendations should be expedited.

  • To continue improving liquidity management, the NBC could offer shorter-term liquidity absorption facilities as well as increasing the usage of NCDs by improving their attractiveness through better pricing (as outlined in recent Fund TA). The progress of interbank market development needs to be properly managed and monitored since it may further increase risk of contagion, especially for banks that rely on short-term borrowing. Progress on upgrading the liquidity ratio to cover only truly usable liquid assets should continue.

  • Policies to reduce high dollarization include: (i) ensuring macroeconomic stability through prudent fiscal, monetary, and structural policies; (ii) further developing the NBC’s ability to forecast and target short-term liquidity; (iii) introducing deposit insurance for local currency deposits; (iv) maintaining adequate international reserves; (v) market-based measures to promote the riel (e.g., lower-cost and convenient services for riel use, larger spread between foreign currency and riel RR).

  • The stable exchange rate against the U.S. dollar continues to serve as an important nominal anchor, given limited monetary control.11 Going forward, the development of money and foreign exchange markets is needed to promote de-dollarization and allow for the implementation of an effective monetary framework, including exchange rate flexibility to respond to external shocks.

Box 3.Cambodia: Supporting Macro-Financial Stability with Macroprudential Policies1

Well-designed macroprudential measures, along with risk-based supervision and enhanced micro-prudential policies are needed to moderate the ongoing risk buildup. Given the already-stretched supervisory capacity and limited data availability, measures should be well-tailored and implementation requirements need to be manageable.2

First, banks should be encouraged to be more reliant on internal sources of funding to reduce risks. Stable funding requirements, such as Loan to Deposit (LTD) ratio, ensure that banks hold stable liabilities to fund their assets. LTD ratio limits can also serve as a brake on excessive credit growth. Although there are no easy rules of thumb and large presence of foreign banks makes Cambodia unique among peers, the current LTD ratio in Cambodia far exceeds the level commonly observed in LICs and EMs (80 percent, IMF 2014). This highlights the need for tightening LTD ratios, especially for banks above a certain threshold.3 Tightening requires gradual phase-in to take into account adjustment costs for financial institutions.

Second, enhancing resilience of the banking system would help minimize impact of systemic risk. Imposing a countercyclical capital buffer (CCB) would be an option. Although most banks have considerably higher capital than global standards, a widening credit-to GDP gap combined with the fact that the credit-to-GDP ratio is high compared with peers indicates that the CCB would help mitigate vulnerabilities.4 The current practice that supervisors can advise banks to hold additional capital could help in the transition to the CCB.

Third, measures should be considered to limit banks’ growing exposure to the booming real estate market and to ensure sound underwriting standards. The NBC could increase the risk weights associated with real estate lending. Although price-based limits are preferable to quantitative limits to minimize distortions, sectoral concentration limits can be useful in reducing credit supply and building banks’ resilience by diversifying loan portfolios.5, 6 Other measures that could be considered, include sectoral loan-to-value (LTV) limits and debt to income ratio (DTI). These can address the demand for credit and complement capital tools especially when a real estate boom accompanies a broader credit boom. However, without official housing prices and real-estate-related data, the priority is to accelerate improvements in data availability and data quality for successful implementation.

1 Prepared by Mari Ishiguro.2 Although recommendations contained in this box focus on the banking system, the microfinance sector needs to be included in the application of macroprudential measures in order to mitigate systemic risk. Data collection on and basic oversight of microfinance institutions will be an important first step.3 Among 35 commercial banks, 21 banks have LTD ratio above 100 and 12 banks have LTD ratio above 200 percent.4 Minimum capital requirement in Cambodia is 15 percent but most banks hold around 20 percent.5 Cambodia had imposed a lending cap on the property sector to 15 percent of banks’ total loan portfolios in 2008.6 Regional countries experiences include: China put caps on overall credit growth for major banks. Hong Kong has introduced ceiling on the growth of mortgage lending set at 15 percent per annum in 1994 and banks’ exposure to property limited to 40 percent. Malaysia introduced a limit on property lending equal to 20 percent of a bank’s portfolio in 1997. Singapore has introduced caps on banks’ loan exposures to the property sector at 35 percent of total non-bank exposure in 2009.

14. Authorities’ views. The authorities broadly agreed with the thrust of staff’s recommendations, but were concerned about the growth implications. Specifically, the authorities noted that they would consider introducing macroprudential measures, but were concerned about the potential impact on growth, and viewed implementation capacity as a constraint. However, they were keen on identifying risks, improving data collection and creating a comprehensive risk assessment report.

B. Securing the Fiscal Buffer While Meeting Development Needs

15. Developments in 2014. The fiscal deficit narrowed in 2014 to 1.3 percent of GDP (from 2.1 percent in 2013, GFS 2001), supported by stronger revenues as well as higher-than-planned grants. Solid growth and improved tax and customs administration (particularly better auditing and enforcement) following the government’s adoption of the Revenue Mobilization Strategy (RMS) drove up tax revenues sharply (by around 2.2 percentage points of GDP to 13.9 percent in 2014).12 However, the spending mix deteriorated as current spending increased by 1.3 percent of GDP, mostly driven by a higher wage bill, while capital spending fell by 0.6 percent of GDP. The improvement in the fiscal balance resulted in the replenishment of government deposits to 7.1 percent of GDP.

16. 2015 Budget. The overall deficit is projected to widen to around 2 percent of GDP in 2015 (GFS 2001), imparting a modest positive fiscal impulse. The increase in the wage bill (0.7 percent of GDP) is expected to fully offset higher revenues. A smaller-than-budgeted (4.2 percent of GDP) deficit, however, would be more consistent with the economy’s cyclical position, and would boost government deposits further. Higher-than-expected revenues this year should be saved, and nonwage current expenditure contained.

17. Emerging fiscal pressures. In the near term, strong revenue efforts have temporarily eased fiscal pressures. However, pressures are expected to reemerge in the medium term as the wage bill is projected to continue rising due to electoral promises and an expected fall in official assistance with the attainment of LMIC status.13 These pressures are especially challenging as fiscal policy plays the main countercyclical role, given high dollarization and weak monetary control. Additionally, in the absence of government bond markets, deposits serve as the only financing buffer against shocks, including financial system fragilities.14 Therefore, consolidation is needed, even though the Debt Sustainability Analysis indicates a low risk of debt distress.

18. Wage increases. Cambodia’s public wage bill is among the highest compared to peers. The planned wage increase will lead to compression of growth-critical capital expenditure and other priority spending. Also, it will become challenging to maintain an adequate fiscal buffer. Moreover, if revenue performance falls short of expectations and/or GDP growth moderates more than projected, the fiscal buffer will deplete rapidly. Large public wage increases may also spillover to elevated wage demands in the private sector, hurting competitiveness.

Wage Spending

(In percent of GDP)

Box 4.Cambodia: Wage Increase and Fiscal Policy1

Regional comparisons show that Cambodia’s public wage bill is among the largest.2 The government wage bill has been steadily rising in recent years, from 4.4 percent of GDP in 2011 to 5.8 percent in 2014. Cambodia’s public wage bill, now estimated at around 45 percent of total current government spending and at 35 percent of domestic revenue after the recent increase, is already the second highest in the region and surpassed only by Lao P.D.R. The 2015 budget reflected a 21 percent increase in public sector wage bill (after an estimated 27 percent increase in 2014) and the government has planned to raise the minimum wage to 100 million Riel by 2018.

Wage Spending, 2014

(In percent)

If higher revenues from RMS implementation are used to finance rising public wages, capital spending will be squeezed. The Global Competitiveness Index shows that Cambodia has a large gap in infrastructure compared to neighboring countries. Crowding out growth-enhancing public investment, therefore, may lower growth potential. Thanks to the strong revenue performance in 2012–14, government deposits have been rebuilt and are estimated to rise temporarily to 8 percent of GDP in 2015. However, higher expenditure from promised wage hikes is expected to drag deposits down to around 4⅓ percent of GDP in the medium term, below the level of a comfortable fiscal buffer of 5½ percent of GDP.

Moreover, if revenue performance falls short of expectations and/or GDP growth moderates more than projected, the fiscal situation will deteriorate sharply. If the revenue-to-GDP ratio remains flat, rather than the targeted 0.5 percent of GDP increase, the fiscal deficit (excluding grants) will rise to 5.8 percent of GDP in 2018 while government deposits will decline by 2 percentage points of GDP. Another risk scenario in which an external demand shock reduces GDP growth by around 0.5 percent would result in tax revenues dropping by around 1 ppt to 12.2 percent of GDP and fiscal deficits increasing to around 7 percent of GDP by 2018.

Net Lending/Borrowing Excluding Grant

(in percent of GDP)

Wage policy formulation would benefit from a more systematic approach and should be accompanied with efficiency-improving civil service reform. Wage increases should be based on key indicators (e.g. availability of resources, cost of living, productivity, fiscal performance, and priority objectives). Wage increases should also be part of a broader civil service reform to improve productivity of the civil service, strengthen its capacity and accountability by rationalizing allocation and size.

1 Prepared by Yong Sarah Zhou.2 It is noteworthy that cross-country comparisons of wage expenditures are complicated by a variety of country specific conditions and ways of measuring wage costs.

19. Policy recommendations. To maintain adequate fiscal buffers while meeting development and infrastructure needs requires several policy actions:

  • Given the spending pressures from higher wages, a sustainable and systematic implementation of the RMS is key to achieving the government target of raising domestic revenues by on average ½ percent of GDP annually. Furthermore, efforts should also focus on advancing other key elements of the RMS, including reviewing excises and VAT thresholds, rationalizing tax incentives and enhancing the institutional framework.

  • Given Cambodia’s high public wages compared to peers, future increases should be formulated contingent on projected fiscal performance (including meeting revenue targets and maintaining an adequate fiscal buffer) and be accompanied by deeper, efficiency-enhancing civil-service reforms.

  • Social spending and capital expenditure, particularly on infrastructure, should be safeguarded to support diversification, boost competitiveness, and increase inclusiveness.

  • Continued progress in monitoring the risks from contingent liabilities via the PPP unit in the MEF would be important. Also, fiscal risks can be mitigated by adopting a ceiling on PPP guarantees and listing all contingent liabilities in the annual budget law to enhance fiscal transparency.

Revenue Productivity of Different taxes

(In percent of GDP)

Source: IMF, Fiscal Area Department revenue performance database.

Government Capital Expenditure Asian LICs

(In percent ot GDP)

Sources: Cambodian authorities; and IMF staff estimates.

1/Average of Bangladesh, Bhutan. Mongolia, and Nepal

20. Authorities’ views. The authorities broadly agreed with staff’s assessment. They remained strongly committed to implementing the RMS and also agreed on the need to rationalize investment incentives and review other tax policies in the RMS in the medium term. Wage pressures remained an important concern, and the authorities were aiming to achieve a compression ratio of about three and limit the wage bill to less than 50 percent of current spending.15 The authorities are continuing to work on improving monitoring contingent liabilities. The debt management committee has recently revised the debt policy framework, which now includes a ceiling on government guarantees at 4 percent of GDP and designates a contingency fund account for contingent liabilities related to enterprises in the power sector.

C. Promoting Competitiveness, Diversification, and Inclusion

21. Diversification. Cambodia’s growth performance has been impressive but has relied on a narrow base, rendering growth volatile.16 While there are emerging signs of diversification across sectors and export destinations, the economy remains largely undiversified.17 Cambodia has gained market share in labor-intensive products, such as garments, from China. Looking ahead, the ongoing transformation in China’s trade patterns and regional factory relocation could offer a unique opportunity to diversify Cambodia’s production and export base.18 However, in order to take advantage of these opportunities, structural bottlenecks need to be addressed. Cambodia’s rank has stalled in both the World Bank’s Doing Business Report (2015) and the World Economic Forum (WEF)’s the Global Competitiveness Report (2014–15), as a result of concerns regarding governance, access to finance, institutional efficiency, education and skills, and inadequate infrastructure.19,20,21

Change in Market Share in Major Low End Goods

(5 largest and smallest changes since 2010, ppts)

Sources: Comtrade, Staff Estimates

The Global Competitiveness Index

(Score range from 1-7 (better))

Source: World Economic Forum, Global Competitiveness Report 2014-15.

Garments Wages and Productivity

(Year-on-year percent change)

22. Competitiveness. Recent wage developments are weakening competitiveness. The comparative advantage from the large supply of low-skill labor allowed Cambodia to become one of the top recipients of FDI and exporters of garments in the world. However, recent trends suggest that average real wages are growing faster than in other countries and are outpacing gains in productivity. At the same time, the REER has appreciated, though not as much as competitor countries (Vietnam, Bangladesh, Lao PDR). This deterioration in competitiveness is particularly challenging in a highly dollarized country. Therefore, maintaining competitiveness through improving the business climate and ensuring that wages do not outstrip productivity will be important.

23. Poverty and social indicators. Progress on poverty alleviation and improving social indicators has been encouraging. Strong gains in reducing poverty have been realized as the poverty rate declined from 50 percent in 2004 to 18 percent in 2012. Cambodia achieved the Millennium Development Goal (MDG) of halving poverty in 2009. Also, consumption of the bottom income quintile has increased sharply and ameliorated income inequality. While further efforts to improve health and education remain important development priorities, improvements in maternal health, early childcare and primary education programs in rural areas were achieved.22 Financial inclusion has progressed, with the access to bank accounts rising rapidly, though remaining below peers.23

24. Policy recommendations. The priority should be lowering the overall cost of doing business by reducing transportation, energy, and logistics costs, improving the legal and regulatory environment, and upgrading public services.

  • With higher electricity supply expected to materialize in future, the priority is to lower its price, improve supply, and boost rural access.

  • Following major improvements in highways, secondary roads are needed for better market access and integration with regional supply chains.

  • Improve the quality of education, building on impressive gains in access to elementary education. Vocational and industry-led training programs can address immediate skill gaps most efficiently.

  • Streamlined government procedures and improved governance in doing business. More transparent and predictable customs procedures can expedite cross-border flows of goods and integration with regional supply chain network. In addition, strengthening the anti-corruption framework would help address governance concerns and ease constraints on doing business.

  • Further gains in ameliorating inequality require improved public service delivery (especially in health and education), reducing skill gaps, and fostering a dynamic agricultural sector.

Private Investment to GDP

(2011-2013 Average)

1/ Include Bangladesh, Myanmar, Mongolia, Sri Lanka and Vietnam.

2/ Include India, Indonesia, Malaysia, Philippine, and Thailand. Source: Authorities data and staff caluclation.

25. Authorities’ views. The authorities emphasized their efforts to improve the business environment. They also showed concern with the recent deterioration in external competitiveness, and have prepared an Industrial Development Policy 2015–25 to provide a roadmap to boost investment and broaden the country’s economic base.24 The focus is in line with staff recommendations (i.e., reducing electricity costs, simplified registration and accounting standards for SMEs, etc.).

Staff Appraisal

26. Economic setting. Growth remains strong and is projected to remain steady in 2015 and to rise modestly over the medium term. Inflation is projected to rise gradually over 2015, reflecting the recovery in food prices and stabilization of global energy prices. Rapid credit growth accelerated, reflecting both supply and demand factors. The external position is stable and the real effective exchange rate is assessed to be broadly in line with fundamentals.

27. Risks. The outlook is subject to substantial downside risks. External risks stem from a stronger U.S. dollar and/or a protracted growth slowdown in Europe constraining garments export and tourism growth. Weaker-than-expected growth in China would also have spillovers through the FDI, banking and tourism channels. Domestic risks include materialization of financial sector vulnerabilities from rapid credit growth, fiscal pressures and erosion of competitiveness from wage increases.

28. Monetary policy and prudential regulations need to be tightened further in order to contain financial sector vulnerabilities. Rapid credit growth, increasing bank flows from abroad, and greater exposure to the real estate and construction sectors pose macro-financial risks. Reserve requirements should be raised to moderate the pace of credit growth. Prudential regulations on large deposit-taking micro-finance institutions (MFIs) should be upgraded/ tightened to match those of banks to prevent regulatory arbitrage. Moreover, reserve requirements should also be expanded to include foreign funding of MFIs.

29. Macro financial policies. Given the increase in financial sector risks, well-designed macroprudential tools should be introduced. Fragility from high loan-to-deposit (LTD) ratios needs to be managed by a phased introduction (and tightening) of LTD limits. Imposing countercyclical capital requirements would help enhance resilience and build buffers. Given the growing exposure to real estate, higher capital requirements and risk weights linked to real estate, as well as sectoral concentration limits are possible policy measures. Better monitoring of developments in the real estate sector is warranted, including by enhancing data collection.

30. Supervision and market development. Given that supervisory capacity is stretched, a moratorium on new bank licenses should be imposed. Strengthening the crisis management framework is critical to manage systemic risk and should be expedited. Also, to contain rising financial stability risks, the implementation of FSAP recommendations should be expedited. Going forward, developing money and foreign exchange markets is needed to promote de-dollarization and to implement an effective monetary framework, including exchange rate flexibility to help absorb external shocks.

31. Fiscal policy. While strong revenue growth has temporarily eased fiscal pressures, fiscal consolidation is necessary to maintain adequate government deposits in view of spending pressures from a higher wage bill. Steadfast implementation of the RMS is needed to sustain revenues. Wage increases should be formulated contingent on projected fiscal performance and be accompanied by deeper, efficiency enhancing civil-service reforms. Better managing contingent liabilities is critical to safeguard fiscal space. Continuing to reform public financial management will help to ensure spending effectiveness.

32. Diversification and inclusiveness. Greater investment in education and a reduction in the overall cost of doing business will enhance competitiveness, economic diversification, and promote inclusiveness. Upgrading infrastructure, in particular ensuring cheaper and more reliable electricity supply, also remains a key priority. Efforts to enhance the business climate should include removing regulatory impediments to expedite integration with regional supply chains.

33. It is recommended that the next Article IV consultation takes place on the standard 12-month cycle.

Cambodia: Risk Assessment Matrix 1/
RiskRelative LikelihoodImpact if RealizedPotential ImpactStaff Advice on Policy Response
Domestic risksThe materialization of domestic financial vulnerabilitiesMHDeterioration of asset quality including in the real estate sector, abrupt decline in credit growth, large deposits withdrawal, all accentuating liquidity risks and declining investor confidenceIncrease reserve requirements to slow down credit growth, develop macro and micro-prudential measures and crisis management framework, ensure adequate emergency liquidity, strengthen supervision and regulation including for MFIs. Preemptively strengthen the crisis management framework.
Recurrent political uncertainty and/or labor market disruptionsLHLarge deposits withdrawal, drag in FDI and export growth and weaker investor confidenceEnsure continued macroeconomic stability to support confidence in the economy.
Revenue shortfallLMFiscal position deteriorates -fiscal deficits widen and government deposits depletes sharplySteadfast implementation of the RMS. Formulating wage increase contingent on projected fiscal performance.
Extreme weatherMMWeaker agricultural production and exports, weaker tourism, and wider income inequalityExpedite structural reforms to accelerate diversification, improve infrastructure, and increase transfers to the rural poor.
Structurally weak growth in Euro areaHHWeaker garment export growthExpedite structural reforms to accelerate diversification.
External risksPersistent US dollar strengthHMWeaker exports, tourism receipts, FDI, and bank lending from other partner countriesMaintain macroeconomic stability and develop interbank and foreign exchange markets to enhance monetary policy effectiveness and to reduce dollarization. Expedite structural reforms to boost non-price competitiveness.
Euro area bond market contagionMMWeaker exports, tourism receipts, FDI, and bank lending from other partner countriesEnsure continued macroeconomic stability through prudent fiscal, monetary, and structural policies to support confidence and FDI.
Sharp China slowdown in 2015-16LHWeaker tourism receipts and FDI, reduced foreign borrowing by banks resulting in liquidity risks and declining investor confidenceExpedite structural reforms to accelerate diversification. Ensure adequate emergency liquidity, strengthen supervision and regulation including to MFIs.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low (L)” is meant to indicate a probability below 10 percent, “medium (M)” a probability between 10 and 30 percent, and “high (H)” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Nonmutually exclusive risks may interact and materialize jointly.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low (L)” is meant to indicate a probability below 10 percent, “medium (M)” a probability between 10 and 30 percent, and “high (H)” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Nonmutually exclusive risks may interact and materialize jointly.

Figure 1.Cambodia: Strong Growth with Substantial Risks

Sources: Cambodian authorities; IMF’s World Economic Outlook; and IMF staff estimates.

Figure 2.Cambodia: Stable External Position

Sources: Cambodian authorities; IMF’s Government Finance Statistics and World Economic Outlook; Globalintegrity.com; and IMF staff estimates.

Figure 3.Cambodia: Strong Revenues Amid Increasing Wage Pressures

Figure 4.Cambodia: Containing Rapid Credit Growth

Sources: Cambodian authorities; and IMF staff estimates.

Figure 5.Cambodia: Promoting Competitiveness and Structural Diversification

Table 1.Cambodia: Selected Economic Indicators, 2011–16
201120122013201420152016
Est.Proj.
Output and prices (annual percent change)
GDP in constant prices7.17.37.47.07.07.2
(Excluding agriculture)8.68.49.49.28.68.4
Real agricultural output3.14.31.60.31.32.7
GDP deflator3.41.41.60.91.82.6
Inflation (end-year)4.92.54.71.01.92.8
(Annual average)5.52.93.03.91.11.8
Saving and investment balance (in percent of GDP)
Gross national saving11.812.511.311.011.412.1
Government saving0.81.92.13.43.73.2
Private saving11.010.69.17.57.78.9
Gross fixed investment22.023.523.523.222.522.7
Government investment8.79.08.88.17.57.5
Private investment 1/13.314.514.715.115.015.2
Money and credit (annual percent change, unless otherwise indicated)
Broad money21.420.914.629.923.923.1
Net credit to the government 2/0.0−1.5−1.1−4.8−4.80.0
Private sector credit31.228.026.731.330.234.0
Velocity of money 3/2.02.02.02.02.02.0
Public finance (in percent of GDP)
Revenue15.616.918.419.819.419.4
Domestic revenue12.414.114.516.917.517.6
Of which: Tax revenue10.211.311.713.914.414.5
Grants3.22.83.93.01.91.8
Expenditure19.720.720.521.221.422.0
Expense11.312.011.913.213.914.4
Net acquisition of nonfinancial assets8.48.78.68.07.57.5
Net lending (+)/borrowing(−)−4.1−3.8−2.1−1.3−2.0−2.6
Net lending (+)/borrowing(−) excluding grants−7.3−6.6−6.0−4.3−3.8−4.4
Net acquisition of financial assets0.00.60.52.31.40.6
Net incurrence of liabilities 4/4.14.42.63.73.43.1
Of which: Domestic financing0.7−0.4−1.0−1.4−1.4−0.6
Balance of payments (in millions of dollars, unless otherwise indicated)
Exports, f.o.b. 5/5,0355,6336,5307,4088,2129,116
(Annual percent change)28.911.915.913.410.911.0
Imports, f.o.b. 5/−7,730−8,600−9,744−10,991−11,869−12,796
(Annual percent change)32.911.313.312.88.07.8
Current account (including official transfers)−1,303−1,547−1,880−2,027−1,971−2,031
(In percent of GDP)−10.2−11.0−12.2−12.2−11.1−10.6
Gross official reserves 6/3,0323,4633,6424,3914,9795,494
(In months of prospective imports)3.63.63.43.84.04.0
(In percent of foreign currency deposits)64.058.254.050.946.541.7
External debt (in millions of dollars, unless otherwise indicated)
Public external debt3,8114,4334,9975,5346,0586,527
(In percent of GDP)29.731.532.533.434.234.0
Public debt service7785112143166199
(In percent of exports of goods and services)1.01.01.11.31.41.5
Memorandum items:
Nominal GDP (in billions of riels) 7/52,06956,68261,86666,82572,76780,044
(In millions of U.S. dollars)12,81814,05715,36216,551
Exchange rate (riels per dollar; period average)4,0624,0324,0274,038
Sources: Cambodian authorities; and IMF staff estimates and projections.

From 2011, includes FDI related to public-private power sector projects.

Net credit to the government refers to its contribution to broad money growth.

Ratio of nominal GDP to the average stock of broad money.

Includes statistical discrepancy.

Trade data has been revised backward to 2008.

Excludes unrestricted foreign currency deposits held as reserves at the National Bank of Cambodia; starting in 2009, includes the new SDR allocations made by the IMF of SDR 68.4 million.

GDP data have been revised backward to 2010.

Sources: Cambodian authorities; and IMF staff estimates and projections.

From 2011, includes FDI related to public-private power sector projects.

Net credit to the government refers to its contribution to broad money growth.

Ratio of nominal GDP to the average stock of broad money.

Includes statistical discrepancy.

Trade data has been revised backward to 2008.

Excludes unrestricted foreign currency deposits held as reserves at the National Bank of Cambodia; starting in 2009, includes the new SDR allocations made by the IMF of SDR 68.4 million.

GDP data have been revised backward to 2010.

Table 2.Cambodia: Medium-Term Macroeconomic Framework, 2011–20
2011201220132014201520162017201820192020
Est.Proj.
Output and prices (percent change)
GDP at constant prices7.17.37.47.07.07.27.27.37.37.3
GDP deflator3.41.41.60.91.82.62.72.92.82.8
Consumer prices (end-year)4.92.54.71.01.92.83.03.03.03.0
Saving and investment balance (in percent of GDP)
Gross national saving11.812.511.311.011.412.112.714.315.116.7
Government saving0.81.92.13.43.73.22.92.72.83.0
Private saving11.010.69.17.57.78.99.811.612.313.8
Gross fixed investment22.023.523.523.222.522.722.723.023.023.0
Government investment8.79.08.88.17.57.57.77.77.77.7
Private investment 1/13.314.514.715.115.015.215.015.315.315.3
Public finance (in percent of GDP)
Revenue15.616.918.419.819.419.419.619.619.819.9
Domestic revenue12.414.114.516.917.517.617.817.918.018.1
Of which: Tax revenue10.211.311.713.914.414.514.614.815.015.2
Grants3.22.83.93.01.91.81.81.81.81.8
Total expenditure19.720.720.521.221.422.022.522.822.822.8
Expense11.312.011.913.213.914.414.815.215.215.2
Net acquisition of nonfinancial assets8.48.78.68.07.57.57.77.67.67.6
Of which: Domestically-financed1.81.61.71.82.22.52.83.03.13.4
Net lending (+)/borrowing(−)−4.1−3.8−2.1−1.3−2.0−2.6−2.9−3.2−3.1−2.9
Net lending (+)/borrowing(−) excluding grants−7.3−6.6−6.0−4.3−3.8−4.4−4.7−5.0−4.8−4.7
Net acquisition of financial assets0.00.60.52.31.40.6−0.2−0.7−0.9−1.1
Net incurrence of liabilities4.14.42.63.73.43.12.72.52.21.8
Domestic financing, net0.7−0.4−1.0−1.4−1.4−0.60.20.70.91.1
Government deposits4.64.95.07.18.18.17.36.14.83.4
Balance of payments (in percent of GDP, unless otherwise indicated)
Exports (percent change) 2/28.911.915.913.410.911.010.811.011.312.0
Imports (percent change) 3/33.911.413.513.08.17.98.99.110.19.9
Current account balance (including transfers)−10.2−11.0−12.2−12.2−11.1−10.6−10.0−8.7−7.9−6.3
(Excluding transfers)−13.3−13.1−14.1−14.2−12.9−12.3−11.6−10.2−9.3−7.7
Foreign direct investment 4/11.612.111.910.19.89.69.69.59.69.6
Other flows 5/2.01.91.46.54.63.63.02.62.31.3
Overall balance3.43.01.14.43.32.62.73.44.04.7
Gross official reserves (in millions of U.S. dollars) 6/3,0323,4633,6424,3914,9795,4946,0656,8547,8649,145
(In months of next year’s imports)3.63.63.43.84.04.04.14.24.54.8
Public external debt (in millions of U.S. dollars)3,8114,4334,9975,5346,0586,5276,9677,4217,8718,262
(In percent of GDP)29.731.532.533.434.234.033.432.631.730.5
Public external debt service (in millions of U.S. dollars)7785112143166199251299336415
(In percent of exports of goods and services)1.01.01.11.31.41.51.71.81.92.1
Sources: Cambodian authorities; and IMF staff estimates and projections.

Includes nonbudgetary, grant-financed investment, and, from 2011, public-private partnerships in the power sector projects.

Excludes re-exported goods.

Excludes imported goods for re-export; from 2011, includes imports related to public-private power sector projects.

From 2011, includes FDI related to public-private power sector projects.

Net official disbursements, exceptional financing, and official transfers.

Excludes unrestricted foreign currency deposits held as reserves at the National Bank of Cambodia; starting in 2009, includes the new SDR allocations made by the IMF.

Sources: Cambodian authorities; and IMF staff estimates and projections.

Includes nonbudgetary, grant-financed investment, and, from 2011, public-private partnerships in the power sector projects.

Excludes re-exported goods.

Excludes imported goods for re-export; from 2011, includes imports related to public-private power sector projects.

From 2011, includes FDI related to public-private power sector projects.

Net official disbursements, exceptional financing, and official transfers.

Excludes unrestricted foreign currency deposits held as reserves at the National Bank of Cambodia; starting in 2009, includes the new SDR allocations made by the IMF.

Table 3.Cambodia: Balance of Payments, 2011–20 (BPMS)(In millions of U.S. dollars, unless otherwise indicated)
2011201220132014201520162017201820192020
EstProj.
Current account (including official transfers)−1,303−1,547−1,880−2,027−1,971−2,031−2,079−1,979−1,954−1,699
(Excluding official transfers)−1,711−1,835−2,171−2,356−2,286−2,357−2,418−2,332−2,321−2,099
Trade balance−2,695−2,967−3,214−3,583−3,657−3,680−3,828−3,976−4,228−4,365
Exports, f.o.b.5,0355,6336,5307,4088,2129,11610,10211,20912,47313,972
Of which: Garments3,9374,2454,9115,3345,7816,3376,8937,4928,1548,887
Imports, f.o.b. 1/−7,730−8,600−9,744−10,991−11,869−12,796−13,930−15,184−16,700−18,337
Of which: Garments-related−1,752−2,012−2,483−2,694−3,064−3,295−3,585−3,821−4,077−4,355
Petroleum−1,118−1,179−1,123−1,397−861−925−1,119−1,329−1,460−1,604
Services and income (net)8121,0089549631,0101,0931,2021,3481,5351,860
Services (net)1,4101,6581,7351,8131,9972,0842,2242,3642,6012,987
Of which: Tourism (credit)2,0842,4632,6602,9473,1133,2793,5213,7664,1024,394
Income (net)−598−649−781−850−988−991−1,022−1,017−1,067−1,128
Private transfers (net)17212489264362230209296372406
Official transfers (net)408288291329315326339353367400
Capital and financial account1,7411,9692,0472,4782,4172,5342,6382,7562,9522,966
Medium- and long-term loans (net)490649613445335327271228200177
Disbursements532695676528443452436429438472
Amortization−41−47−63−83−108−126−165−201−237−296
Foreign direct investment 2/1,4841,6981,8261,6771,7321,8502,0042,1572,3722,610
Net foreign assets of deposit money banks 3/40−330180−209350357364371379180
Unrestricted foreign currency deposit at NBC127−256−59−9515015315615916280
Commercial banks−87−73240−114200204208212216100
Other short-term flows and errors and omissions−273−48−571564000000
Overall balance4384231687295765035597779981,267
Financing−438−423−168−729−576−503−559−777−998−1,267
Change in gross official reserves 4/−454−438−184−745−588−515−571−789−1,011−1,281
Use of IMF credit0000000000
Debt restructuring0000000000
Accumulation of arrears16151616121212121313
Memorandum items:
Current account balance (in percent of GDP)
Excluding official transfers−13.3−13.1−14.1−14.2−12.9−12.3−11.6−10.2−9.3−7.7
Including official transfers−10.2−11.0−12.2−12.2−11.1−10.6−10.0−8.7−7.9−6.3
Trade balance (in percent of GDP)−21.0−21.1−20.9−21.6−20.6−19.2−18.4−17.5−17.0−16.1
Gross official reserves 5/3,0323,4633,6424,3914,9795,4946,0656,8547,8649,145
(In months of next year’s imports)3.63.63.43.84.04.04.14.24.54.8
Sources: Cambodian authorities; and IMF staff estimates and projections.

From 2011, includes imports related to public-private power sector projects.

From 2011, includes FDI related to public-private power sector projects.

Includes unrestricted foreign currency deposits (FCDs) held as reserves at the National Bank of Cambodia (NBC).

Excludes changes in unrestricted FCDs held as reserves at the NBC, and changes in gold holdings and valuation.

Excludes unrestricted FCDs held at the NBC; starting in 2009, includes the new SDR allocations made by the IMF of SDR 68.4 million.

Sources: Cambodian authorities; and IMF staff estimates and projections.

From 2011, includes imports related to public-private power sector projects.

From 2011, includes FDI related to public-private power sector projects.

Includes unrestricted foreign currency deposits (FCDs) held as reserves at the National Bank of Cambodia (NBC).

Excludes changes in unrestricted FCDs held as reserves at the NBC, and changes in gold holdings and valuation.

Excludes unrestricted FCDs held at the NBC; starting in 2009, includes the new SDR allocations made by the IMF of SDR 68.4 million.

Table 4.Cambodia: General Government Operations, 2010–16 (GFSM 2001)
201120122013201420152016
Budget 1/ActualBudgetActualActualBudgetProj.BudgetProj.Proj.
(In billions of riels)
Revenue8,0648,1148,9009,59011,37211,38713,26012,15214,11815,516
Of which: Nongrant6,3726,4367,2808,0178,97110,17711,26311,52512,76514,093
Tax5,4625,2896,2636,4247,2658,2919,2979,42410,46111,629
Income, profits, and capital gains1,0449601,2781,2761,5611,7771,9642,0692,4562,755
Good and services3,1923,1233,6243,8154,2104,7505,4505,3955,9206,695
International trade and transactions1,2261,2061,3611,3331,4931,7641,8831,9612,0852,179
Grants1,6921,6781,6201,5722,4011,2101,9976271,3541,422
Other revenues 1/9101,1471,0171,5931,7061,8861,9652,1002,3042,464
Total expenditure9,54310,23610,43111,74012,68513,46814,16015,23115,56517,583
Expense5,8515,8886,5186,8187,3518,5828,8389,93910,08211,541
Compensation of employees2,3792,2902,7352,6603,1183,8643,9524,7684,7685,917
Purchase of goods and services1,9541,9622,0452,3102,4002,3002,7982,9413,0473,399
Interest140160171305439231232276276307
Expense not elsewhere classified1,3791,4761,5661,5431,3942,1871,8571,9541,9911,918
Net acquisition of nonfinancial assets3,6924,3483,9134,9225,3344,8865,3225,2915,4836,043
Of which: Externally financed2,6003,4032,8604,0234,3063,4604,1473,6873,8794,069
Net lending (+)/borrowing(−)−1,479−2,122−1,531−2,150−1,313−2,080−900−3,079−1,446−2,067
Net acquisition of financial assets−498−3−521363308991,564−1561,004442
Net incurrence of liabilities 2/9812,1191,0102,5141,6222,1792,4642,9232,4502,510
Of which: External8601,7791,0102,3501,9232,1791,8112,9232,4502,510
(In percent of GDP)
Revenue15.515.615.716.918.417.019.816.719.419.4
Of which: Nongrant12.212.412.814.114.515.216.915.817.517.6
Tax10.510.211.011.311.712.413.913.014.414.5
Income, profits, and capital gains tax2.01.82.32.32.52.72.92.83.43.4
Good and services tax6.16.06.46.76.87.18.27.48.18.4
International trade and transactions tax2.42.32.42.42.42.62.82.72.92.7
Grants3.33.22.92.83.91.83.00.91.91.8
Other revenues 1/1.72.21.82.82.82.82.92.93.23.1
Total expenditure18.319.718.420.720.520.221.220.921.422.0
Expense11.211.311.512.011.912.813.213.713.914.4
Compensation of employees4.64.44.84.75.05.85.96.66.67.4
Purchase of goods and services3.83.83.64.13.93.44.24.04.24.2
Interest0.30.30.30.50.70.30.30.40.40.4
Expense not elsewhere classified2.62.82.82.72.33.32.82.72.72.4
Net acquisition of nonfinancial assets7.18.46.98.78.67.38.07.37.57.5
Of which: Externally-financed5.06.55.07.17.05.26.25.15.35.1
Net lending (+)/borrowing(−)−2.8−4.1−2.7−3.8−2.1−3.1−1.3−4.2−2.0−2.6
Net acquisition of financial assets−1.00.0−0.90.60.50.12.3−0.21.40.6
Net incurrence of liabilities 2/1.94.11.84.42.63.33.74.03.43.1
Of which: External1.73.41.84.13.13.32.74.03.43.1
Memorandum items:
Net lending (+)/borrowing(−) excluding grant−6.1−7.3−5.6−6.6−6.0−4.9−4.3−5.1−3.8−4.4
Domestic financing 3/1.20.70.9−0.4−1.0−0.1−1.40.2−1.4−0.6
Government deposits4.64.95.07.18.18.1
GDP (in billions of riels)52,06952,06956,68256,68261,86666,82566,82572,76772,76780,044
Sources: Data provided by the Cambodian authorities; and IMF staff estimates and projections.

Includes provincial tax and nontax revenue.

Includes statistical discrepancy.

The figure is different from the domestic financing figure in Table 5 (GFSM 1986) because of differences in classification, in particular for capital revenue.

Sources: Data provided by the Cambodian authorities; and IMF staff estimates and projections.

Includes provincial tax and nontax revenue.

Includes statistical discrepancy.

The figure is different from the domestic financing figure in Table 5 (GFSM 1986) because of differences in classification, in particular for capital revenue.

Table 5.Cambodia: General Government Operations, 2011–16 (GFSM 1986)
201120122013201420152016
ActualActualActualBudgetEst.BudgetProj.Proj.
(In billions of riels)
Total revenue6,8228,5969,26410,51611,62711,65812,89914,240
Tax revenue5,4766,6747,5368,6209,6839,80111,04512,201
Direct taxes9601,2761,5611,7771,9642,0692,4562,755
Indirect taxes4,1324,9325,4746,3007,1287,1007,9108,699
Of which: Trade taxes1,0931,2181,3661,6221,7601,8311,9182,005
Provincial taxes385465501544591632680748
Nontax revenue9591,3441,4351,5571,5801,7241,7201,892
Capital revenue 2/386579293339364134134147
Total expenditure10,74412,17613,21313,57714,41615,23115,56517,583
Current expenditure5,9976,9467,6488,5818,9599,93910,08212,308
Wages2,2332,5983,0573,7833,8624,5664,5665,696
Nonwage3,5214,0393,789 04,4864,5654,7094,8185,845
Provincial expenditure243308401312532664698767
Capital expenditure4,5485,1225,4754,9215,3845,2915,4836,043
Locally financed1,1451,1001,1691,4611,2371,6041,6041,973
Externally financed3,4034,0234,3063,4604,1473,6873,8794,069
Net lending198107917573000
Overall balance−3,922−3,579−3,949−3,060−2,789−3,572−2,666−3,343
Financing3,9223,5793,949 03,0602,7893,5722,6663,343
Foreign (net)3,4573,9234,3243,3894,0683,5503,8043,932
Grants1,6781,5722,4011,2101,9976271,3541,422
Loans1,9432,5412,165 02,5102,3823,3602,8873,034
Amortization−164−190−242−331−312−437−437−524
Domestic (net) 3/465−344−375 0−329−1,27922−1,138−589
(In percent of GDP)
Total revenue13.115.215.015.717.416.017.717.8
Of which: Central government12.314.314.114.916.515.116.716.8
Tax revenue10.511.812.212.914.513.515.215.2
Direct taxes1.82.32.52.72.92.83.43.4
Indirect taxes7.98.78.89.410.79.810.910.9
Of which: Trade taxes2.12.12.22.42.62.52.62.5
Provincial taxes0.70.80.80.80.90.90.90.9
Nontax revenue1.82.42.32.32.42.42.42.4
Capital revenue 2/0.71.00.50.50.50.20.20.2
Total expenditure and net lending20.621.521.420.321.620.921.422.0
Current expenditure11.512.312.412.813.413.713.915.4
Wages4.34.64.95.75.86.36.37.1
Nonwage6.87.16.16.76.86.56.67.3
Provincial expenditure0.50.50.60.50.80.91.01.0
Capital expenditure9.08.87.48.17.37.57.5
Locally financed2.21.91.92.21.92.22.22.5
Externally financed6.57.17.05.26.25.15.35.1
Net lending0.40.20.10.10.10.00.00.0
Overall balance−7.5−6.3−6.4−4.6−4.2−4.9−3.7−4.2
Financing7.56.36.44.64.24.93.74.2
Foreign (net)6.66.97.05.16.14.95.24.9
Grants3.22.83.91.83.00.91.91.8
Loans3.74.53.53.83.64.64.03.8
Amortization−0.3−0.3−0.4−0.5−0.5−0.6−0.6−0.7
Domestic (net) 3/0.9−0.6−0.6−0.5−1.90.0−1.6−0.7
Memorandum item:
GDP (in billions of riels)52,06956,68261,866 066,82566,82572,76772,76780,044
Government deposits (percent of GDP)4.64.95.07.18.18.1
Sources: Data provided by the Cambodian authorities; and IMF staff estimates and projections.

Includes supplementary budget.

Includes privatization proceeds.

Includes statistical discrepancy. The figure is different from the domestic financing figure in Table 4 (GFSM 2001) because of differences in classification, in particular for capital revenue.

Sources: Data provided by the Cambodian authorities; and IMF staff estimates and projections.

Includes supplementary budget.

Includes privatization proceeds.

Includes statistical discrepancy. The figure is different from the domestic financing figure in Table 4 (GFSM 2001) because of differences in classification, in particular for capital revenue.

Table 6.Cambodia: Monetary Survey, 2011–17
2011201220132014201520162017
MarJunSepDecMarJunSepDecDecDecDec
Proj.Proj.Proj.
(In billions of riels)
Net foreign assets18,42621,26522,54921,77318,72121,26023,34426,23626,81826,70031,00435,11039,365
National Bank of Cambodia16,01018,58320,02619,01916,86819,53520,97523,15124,54424,47627,87031,16034,751
Foreign assets16,43519,00320,43719,43817,29519,95721,39923,57924,96124,88028,29031,58835,179
Foreign liabilities425421410418427421425427416404420428428
Deposit money banks2,4162,6822,5232,7541,8521,7252,3703,0842,2732,2243,1333,9504,614
Foreign assets4,7148,7218,3898,3178,4448,56410,38710,41810,26110,00512,40313,83214,842
Foreign liabilities2,2986,0385,8665,5636,5926,8398,0177,3347,9877,7829,2709,88210,228
Net domestic assets5,2157,3277,9329,88610,63511,50811,81712,02413,95015,86021,73829,79439,356
Domestic credit14,89819,31220,21822,14823,64624,82725,24826,88129,11431,88542,83458,87480,551
Government (net)−2,123−2,486−2,992−3,013−2,808−2,795−3,349−3,747−4,113−4,359−4,369−4,376−4,366
Private sector17,02121,79323,19925,14626,44527,60928,58530,62133,22636,24547,20363,25084,918
Other items (net)−9,684−11,985−12,286−12,262−13,011−13,318−13,431−14,857−15,163−16,026−21,096−29,080−41,195
Broad money23,64028,59230,48131,65929,35632,76835,16238,26040,76842,56052,74264,90478,721
Narrow money3,9564,0464,5014,5864,7214,8785,3765,2315,5836,3087,1858,2169,397
Currency in circulation3,7723,7564,2234,2374,3194,4544,8414,7455,1335,5936,3937,3338,403
Demand deposits185290278349402424535487450715792884994
Quasi-money19,68424,54625,98027,07324,63527,89029,78633,02935,18536,25145,55756,68869,324
Time deposits5577806717459119458409669941,0901,2541,4421,658
Foreign currency deposits19,12723,76625,30926,32823,72326,94528,94632,06334,19135,16144,30355,24667,666
(12-month percentage change)
Net foreign assets8.015.416.35.1−8.60.03.520.543.325.616.113.212.1
Private sector credit31.228.028.529.428.326.723.221.825.631.330.234.034.3
Broad money21.420.922.618.89.314.615.420.838.929.923.923.121.3
Of which: Currency in circulation21.7−0.410.816.720.318.614.612.018.925.614.314.714.6
Foreign currency deposits20.724.326.718.86.113.414.421.844.130.526.024.722.5
(Contribution to year-on-year growth of broad money, in percentage points)
Net foreign assets7.012.012.74.0−9.50.02.614.127.616.610.17.86.6
Net domestic assets14.38.99.914.812.314.612.76.811.313.313.815.314.7
Domestic credit 1/20.818.718.919.116.119.316.515.018.621.525.730.433.4
Government (net)0.0−1.5−1.8−2.3−1.2−1.1−1.2−2.3−4.4−4.80.00.00.0
Private sector20.820.220.721.417.320.317.717.323.126.425.730.433.4
Other items (net)−6.4−9.7−9.1−4.3−3.8−4.7−3.8−8.2−7.3−8.3−11.9−15.1−18.7
Memorandum items:
Foreign currency deposits (in millions of U.S. dollars)4,7365,9496,3356,5905,9386,7457,1037,8688,3908,62810,69913,16015,924
(In percent of broad money)80.983.183.083.280.882.282.383.883.982.684.085.186.0
Riel component of broad money4,5134,8265,1725,3315,6325,8236,2166,1976,5777,3998,4389,65811,055
(In percent of broad money)19.116.917.016.819.217.817.716.216.117.416.014.914.0
Credit to the private sector (in millions of U.S. dollars)4,2145,4555,8076,2946,6206,9117,0157,5148,1548,89411,40015,06719,984
(In percent of GDP)32.738.440.042.443.744.644.647.150.454.264.979.096.4
Foreign Currency Loans16,58321,60922,95924,90226,20127,36828,34130,21832,77635,67746,46462,26183,589
Loan-to-deposit ratio (in percent) 2/86.790.990.794.6110.4101.697.994.295.9101.5104.9112.7123.5
Velocity 3/2.02.02.12.02.02.02.01.91.82.02.02.01.9
Money multiplier (broad money/reserve money)2.12.22.12.32.52.22.32.22.22.32.32.52.6
Reserve money (12-month percent change)7.719.022.811.5−6.313.08.922.657.824.623.315.615.0
Sources: Cambodian authorities; and IMF staff estimates and projections.

Revisions of monetary survey to exclude banks’ credits to nonresident.

Foreign currency loans and deposits only.

The ratio of nominal GDP to the year-to-date average stock of broad money.

Sources: Cambodian authorities; and IMF staff estimates and projections.

Revisions of monetary survey to exclude banks’ credits to nonresident.

Foreign currency loans and deposits only.

The ratio of nominal GDP to the year-to-date average stock of broad money.

Table 7.Cambodia: Core Financial Soundness Indicators (FSIs), 2008–14(In percent)
2008200920102011201220132014
Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Capital-based FSIs
Regulatory capital to risk-weighted assets27.632.433.134.232.331.531.331.531.431.229.027.526.229.128.827.225.025.625.625.924.825.324.022.721.5
Nonperforming loans net of provisions to capital5.98.28.39.75.35.15.56.03.83.94.65.43.33.83.54.33.53.43.63.53.63.73.94.03.3
Return on equity 1/12.45.85.04.74.95.96.26.66.59.09.610.59.711.211.010.510.312.911.65.78.810.710.86.09.9
Net open position in foreign exchange to capital0.90.91.04.51.43.25.05.02.33.13.03.93.92.93.41.82.01.61.20.61.01.71.91.91.6
Asset-based FSIs
Nonperforming loans to total gross loans2.94.34.95.73.94.14.24.22.92.93.03.02.12.42.22.52.01.92.12.22.32.22.22.11.8
Return on assets 1/2.71.21.11.01.01.21.21.31.31.91.82.01.82.32.11.91.72.32.11.21.82.12.11.11.8
Liquid assets to total assets14.215.416.219.819.416.118.017.618.017.917.919.016.217.217.516.115.416.216.016.817.916.419.018.817.4
Liquid assets to short-term liabilities30.620.822.427.326.822.424.824.525.225.225.327.023.024.324.422.521.222.422.224.625.523.026.326.024.5
Sectoral distribution of loans to total gross loans
Residents94.495.197.894.795.091.792.191.891.891.090.891.192.388.385.787.184.086.687.288.189.386.289.089.991.1
Deposit-takers3.83.54.55.96.56.66.14.04.43.94.74.97.78.17.98.47.78.17.97.28.89.110.011.611.6
Central bank0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
Other financial corporations0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.10.10.10.10.2
General government0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
Nonfinancial corporations70.672.474.471.371.168.969.272.472.372.271.371.169.565.863.864.162.063.863.864.663.361.262.661.762.4
Other domestic sectors20.119.318.917.517.516.216.815.415.114.914.815.115.114.414.014.614.314.715.616.317.115.816.316.516.9
Nonresidents5.64.92.25.35.08.37.98.28.29.09.28.97.711.714.312.916.013.512.811.910.713.811.010.18.9
Income-and expense-based FSIs
Interest margin to gross income48.367.066.464.160.868.967.867.962.267.765.363.664.363.165.666.766.769.968.269.769.069.169.869.569.7
Non interest expenses to gross income64.265.466.965.464.265.362.961.263.256.857.956.157.553.954.753.653.949.551.150.852.453.051.351.251.5
Source: National Bank of Cambodia

Annualized.

Source: National Bank of Cambodia

Annualized.

Table 8.Cambodia: Key 2010 FSAP Recommendations of High Priority
RecommendationTimeframe 1/Status
General Stability
· Improve the quality of data to enable an appropriate assessment of risks, and to enhance the reliability of stress tests, including through strengthening supervision; and collecting additional credit-related information.Short termIn process
· Ensure that banks retain an appropriate level of liquid assets to be able to meet short-term obligations by upgrading regulations.Short termIn process
· Establish procedures, through MOUs, for practical information exchange, coordination and accountability among domestic supervisors (NBC, MEF, SECC), and with foreign supervisors.Short termIn process
· Upgrade both the number and capacity of staff in the areas of banking, insurance, securities and payment system supervision; develop training programs for financial institutions on accounting, corporate governance, risk management, and for the external audit profession.Medium termIn process
Supervision and Regulation Banking
· Develop supervisory strategy to deal with banks that cannot meet the new capital requirement.Short termDone
· Impose a moratorium on new bank licenses as long as supervisory capacity and resources remain inadequate.Short termIn process
· Upgrade legal framework and enforce banks to report legal requirments on internal control and strenghthen on-site supervision to ensure quality of loan classification and provisioning by banks.Short termIn process
Nonbank Financial Sector
· Revise capital regulations in concert with liability, investment and accounting rules to better reflect the risks in a growing insurance market.Short termDone
· Conduct a readiness study prior to the launch of the stock exchange.Short termDone
· Upgarde regulations of microfinance deposit-taking institutions to those of banksShort termUnder NBC’s consideration
· Enhance powers for intervention, corrective measures and enforcement.Medium termUnder NBC’s
consideration
Crisis Management Framework
· Introduce regulation allowing banks to use their fixed deposits at the NBC and any issue of government (including government bodies) or government-guaranteed securities as eligible collateral for interbank and NBC repos.Short termDone
· Develop a crisis management framework.Short termIn process
· Revise PCA framework by developing additional triggers for asset quality, liquidity, and earlier intervention based on the solvency ratio.Short termUnder NBC’s consideration
Transparency of Monetary and Financial Policies
· Amend the law to reduce the government’s representation on the Board of the NBC; and to reflect the practice of appointing two Deputy Governors.Short termIn preparation
· Introduce due process for the dismissal of NBC Board members and the Governor by specifying the legal grounds for doing so, and defining an appeal process.Medium termIn preparation
Corporate governance of banks
· Draft and/or implement banking regulations on internal audit and controls, risk management, and compliance functions at banks.Short termDone
AML/CFT2/
· Introduce new measures for conducting overall AML/CFT risk assessments and risk profiling of financial institutions.Short termIn preparation

Short term: up to one year; medium term: one to three years.

Since the 2010 FSAP, Cambodia has made progress in adressing deficiencies in its legal and regulatory framework, resulting in its removal from the FATF’s On-Going Global AML/CFT Compliance Process in February 2015. The authorities are encouraged to continue to address the full range of issues identified in its mutual evaluation report and to effectively implement the AML/CFT framework.

Short term: up to one year; medium term: one to three years.

Since the 2010 FSAP, Cambodia has made progress in adressing deficiencies in its legal and regulatory framework, resulting in its removal from the FATF’s On-Going Global AML/CFT Compliance Process in February 2015. The authorities are encouraged to continue to address the full range of issues identified in its mutual evaluation report and to effectively implement the AML/CFT framework.

Table 9.Cambodia: Millennium Development Goals (MDG) Indicators, 1990–2015
19901995200020052009201020112012201320142015
MDG
Target
Goal 1: Eradicate extreme poverty and hunger
Percentage share of income or consumption held by poorest 20 percent8.5811
Population below minimum level of dietary energy consumption (percent)3321
Poverty headcount ratio at $1.25 per day (PPP, percent of population)494013111020
Poverty headcount ratio at national poverty line (percent of population)5024222118
Prevalence of underweight in children (under five years of age)4340282926
Goal 2: Achieve universal primary education
Net primary enrollment (percent of relevant age group)678790989898100
Primary completion rate, total (percent of relevant age group)42478588919398100
Proportion of pupils starting grade 1 who reach grade 563558566100
Youth literacy rate (percent of ages 15-24)7376798387100
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliament (percent)81021212020202030
Ratio of girls to boys in primary and secondary education (percent)7382100
Ratio of young literate females to males (percent ages 15-24)8184899097100
Share of women employed in the nonagricultural sector (percent)41
Goal 4: Reduce child mortality
Immunization, measles (percent of children ages 12-23 months)34626579929393939090
Infant mortality rate (per 1,000 live births)87878073393736343350
Under five mortality rate (per 1,000)11911910796464442403838
Goal 5: Improve maternal health
Births attended by skilled health staff (percent of total)3244717480
Maternal mortality ratio (modeled estimate, per 100,000 live births)450540206170250
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Incidence of tuberculosis (per 100,000 people)585557530505451437424411400
Prevalence of HIV, total (percent of population 15–49)211111
Goal 7: Ensure environmental sustainability
Access to an improved water source (percent of population)0193864666971
Access to improved sanitation (percent of population)081632333537
Nationally protected areas (percent of total land area)24262626
Goal 8: Develop a global partnership for development
Aid per capita (current U.S. dollars)450313951515454
Fixed line and mobile phone subscribers (per 100 people)0018455998132137
Internet users (per 1,000 people)00311356
Personal computers (per 1,000 people)013
Total debt service (percent of exports of goods and services)11111112
Goal 9: De-mining, UXO and assistance
Annual numbers of civilian casualties recorded1,6917972442862402400
Percentage of suspected contaminated areas cleared105053595656100
Other
Fertility rate, total (births per woman)65433333
GNI per capita, Atlas method (current U.S. dollars)280280450690740810880950
GNI, Atlas method (current, in billions of U.S. dollars)3.23.66.21011121314
Gross capital formation (percent of GDP)815181821171719
Life expectancy at birth, total (years)505870717171
Literacy rate, adult total (percent of people ages 15 and above)62646874
Population, total (millions)101113141414151515
Trade (percent of GDP)1978112137105114114140
Sources: World Bank database, World Development Indicators, and Poverty Assessment (2009); UN Human Development Indicators Report (2003); Cambodia MDG 2011 update; UN MDG Indicators 2011 (http://mdgs.un.org); and IMF staff estimates.
Sources: World Bank database, World Development Indicators, and Poverty Assessment (2009); UN Human Development Indicators Report (2003); Cambodia MDG 2011 update; UN MDG Indicators 2011 (http://mdgs.un.org); and IMF staff estimates.

Staff estimates show that lower oil prices would boost growth (by 0.3–0.7 percent) in 2015, improve the current account balance, and lower inflation. Most of the oil market is controlled by private companies. There is evidence of limited pass-through of international prices to domestic prices; therefore most of the windfall will be saved as higher profits.

Staff’s calculation of a real-time coincident index based by pooling together high-frequency (monthly) economic indicators including imports, exports, and private sector credit, implies economic activity has been growing slightly above trend by about 0.5–1.0 percent.

The average LTD ratio masks the distribution of risks: a number of banks have LTDs much higher than 100 percent. LTD ratios are significantly higher in microfinance institutions that collect deposits but rely heavily on external financing, with an average of 193 percent in 2014.

BIS analysis suggests that credit-to-GDP gap of 10 percent or more above trend indicates a high probability of serious banking strains in the following 2–3 years (Basel Committee on Banking Supervision 2010, Drehmann and others, 2010, etc.).

Construction and real estate-related lending constitute around 19 percent of total credit stock and grew by 44 percent (y/y) on average by 2015 Q2.

Residential real estate prices in prime locations have increased by over 30 percent and commercial prices by over 20 percent (y/y) in December 2014. Loan-to-value ratios are reported to trend upward of 70–80 percent.

RR for KHR is 8 percent, while RR for dollars and foreign borrowings are 12.5 percent.

After NBC’s policy change in pricing structure, the role of NCDs as liquidity absorbing instruments for the NBC has improved. The volume of outstanding NCDs has increased from US$2 million in November 2013 to over US$100 million in February (10 percent of fixed deposits) in 2015. NCDs are also an important step in fostering the emergence of a formal secured interbank market. Additionally they provide a simple and transparent form of collateral for use in the overdraft facility.

Under the current LR, banks can satisfy the minimum LR requirement of 50 percent but have a shortfall of maturing assets over maturing liabilities in the next 30 days. Although a large portion of banks’ balance sheet are invested in liquid assets, they may face a short-term liquidity risks. The NBC is working on upgrading regulations on Liquid Asset Ratio (LAR) and Liquidity Risk Management (expected to be implemented by early next year). The LAR encourages banks to hold a prudent amount of liquid assets to cover expected net cash outflows over a 30-day period and to better monitor true liquidity conditions.

Currently, MFIs have lower RR requirement on deposits (8.5 percent) and can borrow externally without being subjected to RR.

Cambodia’s de facto exchange rate regime was reclassified as “stabilized” from “other managed,” effective January 2014.

Initiated in late 2012, the RMS focuses on strengthening revenue administration, revenue policy and the institutional framework in order to continue raising domestic revenue by at least ½ percent of GDP annually over the medium term. Improved tax administration includes enhanced taxpayer registration, filing support, auditing, and arrears management. For customs, the focus is on strengthening clearance processes (customs declaration, risk management, and audit) and cross border control (smuggling, valuation), On revenue policy, the RMS focuses on excises, VAT, widening tax base, rationalizing tax incentives and holidays, and imposing property taxes.

In late 2014, the government pledged to raise the civil servants’ minimum monthly wage to US$250 by 2018 from about US$100 in 2013/14, matching the opposition’s campaign promises.

Government deposits, with a target of 5½, percent of GDP, serves as the fiscal anchor in Cambodia. The minimum threshold of deposits to withstand financing shocks based on historical data is estimated at 2¾ percent of GDP (i.e., two standard deviations of domestic financing over 1995–2012) and deposits of 5½ percent of GDP would provide an additional fiscal space of 2¾ percent of GDP.

The compression ratio is defined as the ratio between the salaries in the top and bottom scales in the government payroll.

Cambodia’s growth volatility has been around 5.5 percent, higher than the average of Asian LICs (4.5 percent).

There is evidence of FDI flows into nontextile manufacturing firms (e.g., electronics, automobile parts) from China, Korea, and Japan.

For further analysis of the implications of changing Chinese trade patterns, please see forthcoming cluster report on ‘China and the Mekong—Integration, Evolution, and Implications’.

These indicators should be interpreted with caution due to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.

Cambodia dropped its rank from 134 to 135 out of 189 countries in overall Doing Business Index and in Global Competitiveness Index, now ranking 95 out of 144 countries.

Cambodia ranks poorly at 107, 123, and 119 out of 144 countries with regard to infrastructure, education and training, and institutions, respectively.

Cambodia also progressed in meeting the following MDGs: reducing the number of deaths per births, child mortality rate, boosting net primary school admission rate, and the prevention and treatment of HIV/AIDS.

According to the World Bank’s Global Findex database, the percentage of people having accounts increased from 3.7 percent in 2011 to 22.2 percent in 2014, and among the lower income segment (bottom 40 percent) the percentage of people having accounts increased from 0.8 percent to 17.9 percent over the same time period.

The IDP has three goals: i) to increase the share of the industrial sector in GDP by 10 percentage points to 30 percent by 2025; ii) increase exports of non-garment exports (especially agricultural products) to 15 percent of GDP by 2025; iii) encourage formal registration of 80 percent of SMEs. The discussion focused on how to improve business climate (which specific actions broadly in line with staff’s recommendations).

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