On October 19, the Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV consultation with Cambodia.1
Cambodia is a fast-growing, highly open economy, and attained lower-middle income status this year. The Cambodian economy grew at around 7 percent in 2015, supported by strong garments exports, real estate and construction activity as well as the reduction in oil prices. Inflation unexpectedly picked up at end-2015 to 2.8 percent due to higher food prices resulting from extreme weather, but it remains well contained. Private sector credit growth has averaged nearly 30 percent (year-on-year) over the past three years, doubling the credit-to-GDP ratio to 62 percent by end-2015, which exceeds the median emerging market level and is double the median low-income country level.
The current account deficit (CAD) narrowed to 10.6 percent of GDP in 2015, and is largely financed by FDI and official flows. Gross official reserves rose to US$ 5.3 billion at end-2015, more than 4 months of prospective imports. The fiscal deficit narrowed to 1.6 percent of GDP in 2015, below the budget target, as the result of stronger-than-expected revenue growth, owing to improved revenue administration.
The near-term outlook remains broadly favorable. Growth is projected to remain robust at around 7 percent for 2016–17, supported by strong garments exports, real estate and construction activity, notwithstanding weaker agricultural and tourism growth. Medium-term growth is projected to decline to around 6.3 percent by 2021, due to a moderation in the credit cycle and challenges in economic diversification. The current account deficit (CAD) is projected to narrow to 9.7 percent of GDP in 2016, due to reduced imports following the completion of major hydro projects, low commodity prices and growing remittances. Over the medium-term, the CAD is forecast to decline to around 8.5 percent of GDP.
The outlook is subject to substantial downside risks. Rapid credit growth, along with growing concentration in real estate, poses heightened risks to financial and macroeconomic stability. External risks include a significant slowdown in China, U.S. dollar appreciation, structurally weaker growth in Europe coupled with increased uncertainty from the Brexit referendum result, and a sharper-than-anticipated tightening in global financial conditions.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.