Abstract
This 2009 Article IV Consultation underlies that following a decade of high economic growth and significant poverty reduction, Cambodia’s economy has been hard hit by the global crisis. Real GDP is contracting as key sectors falter—export and tourism receipts have fallen off sharply, reflecting a narrow production base, high concentration of exports, and softening external demand. In response to the slowdown, policies have been eased significantly. Executive Directors have emphasized the need to reduce the domestic financing component of the fiscal deficit while reprioritizing expenditure to protect vulnerable groups.
November 18, 2009
1. This statement provides information on macroeconomic and policy developments that has become available since the staff report was circulated to the Executive Board on November 2, 2009. This information does not alter the thrust of the staff appraisal.
Macroeconomic developments
2. Inflation performance is in line with staff’s outlook, with the headline rate at 6 percent (year-to-date) in October. Food prices—a main driver—declined slightly last month due to seasonal factors.
3. Gross foreign reserves rose slightly in October to around US$2.2 billion at end-month (3.6 months of next year’s imports), due mainly to gold valuation effects. Reversing the recent trend, the National Bank of Cambodia (NBC) was a small net purchaser of foreign exchange in October (latest available data), with the riel-U.S. dollar exchange rate stable.
4. Fiscal performance through September 2009 suggests the primary and current balances could be slightly less favorable than anticipated for the year as a whole. On revenue, value-added tax collections show signs of lagging, although seasonal demand toward year-end could provide a lift. On expenditure, externally-financed capital spending also is running below expectations, but much of this is likely due to reporting lags.
5. Monetary conditions remain lax, but the pace of credit expansion continues to slow, as expected. Broad money growth reached about 19 percent (y/y) in September, driven by a nearly US$100 million increase that month in foreign currency deposits. Credit growth was 3½ percent (y/y) in September, with banks continuing to accumulate excess reserves at the NBC—now equivalent to one-third of the deposit base.
2010 budget
6. A draft 2010 budget was approved on October 28 by the Council of Ministers, with an overall deficit target equivalent to 5.3 percent of GDP. Final approval is expected by the National Assembly in December. Under the draft budget, the domestic financing requirement is around 0.7 percent of GDP—larger than recommended (see table below). While few budget details have been published with regard to new revenue and expenditure measures, summary highlights are as follows:
Total revenue is targeted at 12.3 percent of GDP, below staff’s baseline outlook and compared to an expected outturn of 12.0 percent in 2009. Leading the way are increases in direct taxes, with budgeted collections about 0.3 percent of GDP higher than this year’s expected outcome. Indirect taxes are unchanged (as a share of GDP), despite recent administrative improvements to customs procedures and collections and staff’s projected recovery in import demand.
Total expenditure stands at 17.6 percent of GDP, significantly lower than staff’s baseline, and compared to 18.8 percent projected for 2009. Externally-financed capital spending is about one percentage point of GDP lower than the expected outturn in 2009. However, the budget outlook may not fully reflect new donor commitments, including recently announced plans by China and Korea to increase project loans. Current spending is about 0.2 percentage points of GDP lower; the reduction is concentrated on wages and allowances, including limits on hiring, promotions, and pay incentive schemes.
Cambodia: Summary of General Government Operations, 2008–10
(In percent of GDP)
Baseline scenario inclusive of revenue and expenditure measures needed to eliminate the domestic financing requirement.
Capital revenue includes privatization proceeds.
Capital expenditure (externally financed) includes a statistical discrepancy, reflecting the difference between actual and recorded disbursements.
Cambodia: Summary of General Government Operations, 2008–10
(In percent of GDP)
| 2008 | 2009 | 2010 | |||||
|---|---|---|---|---|---|---|---|
| Est. | Budget | Staff Proj. | Draft Budget | Staff Proj. 1/ | |||
| Total revenue | 12.0 | 11.1 | 12.0 | 12.3 | 13.2 | ||
| Tax revenue | 9.9 | 9.0 | 9.8 | 10.0 | 11.1 | ||
| Nontax revenue | 1.7 | 1.8 | 1.7 | 1.6 | 1.8 | ||
| Capital revenue 2/ | 0.4 | 0.4 | 0.5 | 0.6 | 0.4 | ||
| Total expenditure | 14.8 | 15.3 | 18.8 | 17.6 | 19.0 | ||
| Current expenditure | 9.0 | 9.6 | 11.3 | 11.1 | 11.4 | ||
| Of which: Wages | 3.2 | 3.6 | 4.8 | 4.3 | … | ||
| Capital expenditure 3/ | 5.8 | 5.7 | 7.5 | 6.5 | 7.6 | ||
| Current balance | 2.6 | 1.1 | 0.2 | 0.6 | 1.4 | ||
| Overall balance | -2.8 | -4.2 | -6.7 | -5.3 | -5.8 | ||
| Financing | 2.8 | 4.2 | 6.7 | 5.3 | 5.8 | ||
| Foreign financing (net) | 5.3 | 3.9 | 5.5 | 4.6 | 5.8 | ||
| Domestic (net) | -2.5 | 0.3 | 1.2 | 0.7 | 0.0 | ||
Baseline scenario inclusive of revenue and expenditure measures needed to eliminate the domestic financing requirement.
Capital revenue includes privatization proceeds.
Capital expenditure (externally financed) includes a statistical discrepancy, reflecting the difference between actual and recorded disbursements.
Cambodia: Summary of General Government Operations, 2008–10
(In percent of GDP)
| 2008 | 2009 | 2010 | |||||
|---|---|---|---|---|---|---|---|
| Est. | Budget | Staff Proj. | Draft Budget | Staff Proj. 1/ | |||
| Total revenue | 12.0 | 11.1 | 12.0 | 12.3 | 13.2 | ||
| Tax revenue | 9.9 | 9.0 | 9.8 | 10.0 | 11.1 | ||
| Nontax revenue | 1.7 | 1.8 | 1.7 | 1.6 | 1.8 | ||
| Capital revenue 2/ | 0.4 | 0.4 | 0.5 | 0.6 | 0.4 | ||
| Total expenditure | 14.8 | 15.3 | 18.8 | 17.6 | 19.0 | ||
| Current expenditure | 9.0 | 9.6 | 11.3 | 11.1 | 11.4 | ||
| Of which: Wages | 3.2 | 3.6 | 4.8 | 4.3 | … | ||
| Capital expenditure 3/ | 5.8 | 5.7 | 7.5 | 6.5 | 7.6 | ||
| Current balance | 2.6 | 1.1 | 0.2 | 0.6 | 1.4 | ||
| Overall balance | -2.8 | -4.2 | -6.7 | -5.3 | -5.8 | ||
| Financing | 2.8 | 4.2 | 6.7 | 5.3 | 5.8 | ||
| Foreign financing (net) | 5.3 | 3.9 | 5.5 | 4.6 | 5.8 | ||
| Domestic (net) | -2.5 | 0.3 | 1.2 | 0.7 | 0.0 | ||
Baseline scenario inclusive of revenue and expenditure measures needed to eliminate the domestic financing requirement.
Capital revenue includes privatization proceeds.
Capital expenditure (externally financed) includes a statistical discrepancy, reflecting the difference between actual and recorded disbursements.