Cambodia Construction Booming Amidst Warning Of Credit Bubble

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The construction and real estate sector in Cambodia needs to be closely monitored in order to maintain macroeconomic stability, according to an economic update by the World Bank last October.

Construction projects approved by Cambodia’s Ministry of Land Management, Urban Planning & Construction increased substantially in overall value during 2016 compared to the previous year, according to figures from a report released by the Ministry on Tuesday. While the number of projects was up by 331 to a total of 2,636 last year, the value of investment more than doubled from $3.3 billion in 2015 to $8.5 billion in 2016.

Leading institutions have warned of the risks of such rapid expansion, with private sector credit almost doubling over the past four years to more than 60 percent of the GDP. This increase is “much faster than peer Asian economies in their own economic take-off,” read a report by the Asian Development Bank last March.

An economic update released by the World Bank in October stated that “the construction and real estate sector needs to be closely monitored in order to maintain macroeconomic stability”.

According to Miguel Chanco, lead Southeast Asia analyst for the Economist Intelligence Unit (EIU), the National Bank of Cambodia has initiated reforms such as increasing banks’ minimum capital requirements. However, Chanco noted that “the central bank’s hands are tied in one huge respect – the high level of dollarization in the economy limits the effectiveness of traditional monetary policy tools”.

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