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© 2009 International Monetary Fund

December 2009

IMF Country Report No. 09/325

Cambodia: 2009 Article IV Consultation—Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2009 Article IV consultation with Cambodia, the following documents have been released and are included in this package:

  • The staff report for the 2009 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on September 23, 2009, with the officials of Cambodia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on October 30, 2009. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • A staff supplement of on the joint World Bank/IMF debt sustainability analysis.

  • A staff statement of November 18, 2009, updating information on recent developments.

  • A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its November 18, 2009, discussion of the staff report that concluded the Article IV consultation.

  • A statement by the Executive Director for Cambodia.

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

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Staff Report for the 2009 Article IV Consultation

Prepared by the Staff Representatives for the 2009 Article IV Consultation with Cambodia

Approved by Kalpana Kochhar and Dominique Desruelle

October 30, 2009

  • Discussions: Held in Phnom Penh September 9–23 with Deputy Prime Minister and Minister of Economy and Finance Keat Chhon, Deputy Prime Minister and Minister-in-Charge of the Office of the Council of Ministers Sok An, National Bank of Cambodia Governor Chea Chanto, Senior Minister of Commerce Cham Prasidh, and other ministers and senior officials, as well as donor and private sector representatives.

  • Team: Mr. Cowen (Head), Mr. Yoshida, Ms. Baker, Ms. Duma (all APD), Mr. Shin (FAD), and Ms. Kim (SPR), assisted by Mr. Nelmes (Resident Representative). Mr. Gil Sander (World Bank) worked with the team on the debt sustainability analysis, in collaboration with Mr. Chang (AsDB). Ms. Vongpradhip and Mr. Nget (OED) participated in discussions.

  • Context of past surveillance: Broad agreement on the direction of policies has been tempered by the need for more comprehensive reforms in critical areas, notably on public financial management and banking supervision. In support of the government’s reform agenda, extensive technical assistance has been provided in fiscal, money and banking, and statistical areas through long-term advisors, peripatetic experts, and staff visits. A follow up safeguards assessment mission was held in July 2009 and a joint IMF-World Bank Financial Sector Assessment Program (FSAP) mission is scheduled for March 2010.

  • Exchange arrangement: Cambodia has accepted the obligations under Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions (Annex I). The exchange regime is classified as floating.

  • Data: Some progress has been made in improving economic statistics, but weaknesses remain, in particular in the compilation of the balance of payments, external debt and disbursements, and national income accounts. Core economic data are adequate for surveillance purposes, although regular provision of bank soundness data is needed to ensure timely monitoring of macro-financial risks (Annex IV).


  • Executive Summary

  • I. Introduction

  • II. Recent Economic Developments and Outlook

  • III. Report on Discussions

    • A. Preserving Macroeconomic Stability in the Wake of the Global Crisis

    • B. Strengthening the Financial Sector

    • C. Reducing Vulnerabilities and Fostering Competitiveness

  • IV. Staff Appraisal

  • Boxes

  • 1. Garments Sector—Impact of the Global Slowdown and Prospects

  • 2. Update on Public Financial Management Reform

  • 3. Banking Sector Vulnerabilities

  • Figures

  • 1. Real Sector and Inflation Developments

  • 2. External Developments

  • 3. Fiscal Developments

  • 4. Monetary Developments

  • Tables

  • 1. Selected Economic Indicators, 2005–10

  • 2. Balance of Payments, 2007–14

  • 3. Medium-Term Macroeconomic Framework, 2007–14

  • 4. General Government Operations, 2006–10

  • 5. Monetary Survey, 2006–10

  • 6. Financial Soundness Indicators, 2006–09

  • 7. Millennium Development Goals Indicators

Executive Summary

Background: Following a decade of high economic growth and significant poverty reduction, Cambodia’s economy has been buffeted by the global recession. Three of the four main drivers of growth have registered sharp contractions since late 2008, and the property bubble has burst under the weight of weaker economic activity and foreign currency inflows. As a result, the economy is expected to contract in 2009, with only a modest yet still uncertain pickup in 2010. Under these conditions, banks’ balance sheets have weakened considerably. At the same time, inflation has come down rapidly, and foreign reserves have remained broadly stable, as plunging imports offset sharply declining exports and foreign direct investment.

Key policy issues: Discussions focused on policies aimed at mitigating the impact of the global crisis while preserving macroeconomic stability, and on critical actions required to reinforce the banking system. Efforts to strengthen policy effectiveness, reduce vulnerabilities, and improve competitiveness also figured prominently in the discussions.

Staff’s views: Given Cambodia’s highly dollarized economy, fiscal policy should continue to anchor macroeconomic stability, remaining appropriately supportive while avoiding weakening the external position. A sizable domestic financing requirement resulting from the projected sharp widening of the fiscal deficit this year and next could exert pressure on inflation, the exchange rate, and foreign reserves, and should be eliminated through a combination of revenue and expenditure measures. In view of the recession, spending should be targeted at high-impact social and infrastructure outlays. The monetary stance is broadly appropriate, but allowing greater exchange rate flexibility would help facilitate adjustment and protect international reserves, especially in view of the accommodative fiscal stance. In light of the deterioration in banks’ balance sheets and rising credit risks, the authorities should strictly enforce corrective actions plans and urge banks to bring forward compliance with new minimum capital requirements ahead of the end-2010 deadline.

Authorities’ views: The authorities reiterated their commitment to returning to a more prudent fiscal stance, sharing similar concerns related to recent fiscal loosening. Selected revenue measures are under consideration, efforts to strengthen tax administration are ongoing, and expenditures—especially ballooning functional allowances—are being reviewed. On monetary policy, they agreed that the large liquidity overhang warranted increased vigilance as the recovery takes hold. However, in their view, staff’s call for limiting foreign exchange intervention underplays seasonal demand and supply factors, as well as the important role of exchange rate stability in anchoring inflation expectations. Moreover, while the authorities agreed on the need to deal firmly with problem banks, they preferred a more gradual approach. Notwithstanding differences of views in some areas, they greatly appreciated past and present IMF technical assistance and the presence of the resident office, which have supported their continued efforts to strengthen capacity and improve policy effectiveness.

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Joint IMF/World Bank Debt Sustainability Analysis 2009 1

Prepared by the staffs of the International Monetary Fund and the International Development Association

Approved by Kalpana Kochhar and Dominique Desruelle (IMF) and Carlos Alberto Primo Braga and Vikram Nehru (IDA)

October 30, 2009

This document presents the joint IMF-World Bank debt sustainability analysis (DSA) for Cambodia using the Debt Sustainability Framework (DSF) for Low-Income Countries (LICs).2 It shows that external debt burden indicators do not breach the relevant policy-dependent indicative thresholds under the baseline scenario. However, the debt level is sensitive to a number of standard bound tests.3 There are considerable downside risks to the baseline scenario, given a continued building of external pressures in the face of weak export performance and an expansionary fiscal stance, with possible reserve losses over the medium term. An assessment of the impact of a continued expansionary fiscal stance on external debt sustainability underscores the importance of fiscal adjustment over the near to medium term. The results show Cambodia faces a moderate risk of debt distress.

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Staff Report for the 2009 Article IV Consultation—Informational Annex

Prepared by the Asia and Pacific Department (In Consultation with Other Departments)

October 30, 2009


I. Fund Relations

II. Relations with the World Bank Group

III. Relations with the Asian Development Bank

IV. Statistical Issues

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Public Information Notice (PIN) No. 09/131


December 8, 2009

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

IMF Executive Board Concludes 2009 Article IV Consultation with Cambodia

On November 18, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Cambodia.1

Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 •