IMF Forecasts Continued Economic Growth In Mid-term


The International Monetary Fund (IMF) yesterday said Cambodia’s gross domestic product (GDP) will hover around 7.25 percent in the near term due to strong economic activity and reforms implemented in the country.

The Vattanak Tower in Phnom Penh. KT/Chor Sokunthea

An IMF team led by Jarkko Turunen, visited Phnom Penh from September 19 to October 2 to carry-out discussions on the 2018 Article IV consultations.

“Cambodia has made significant progress towards the Sustainable Development Goals due to the years of impressive economic growth and reforms implemented. Income growth has outpaced peers, poverty has declined, and the economy has begun to gradually diversify.

“Economic activity has been strong in 2018 and real GDP growth is projected to grow by 7.25 percent, owing to strong external demand and expansionary fiscal policies, while inflation remains low at around 2.5 percent,” said Mr Jarko during a press conference.

Growth is projected to remain robust in the near term (2 or 3 years) before moderating to its potential growth rate, estimated at around 6 percent, in the medium-term (5 or 6 years) due to subdued productivity growth, maturing credit and the real estate cycles.

“The current account deficit is projected to widen to about 10 percent of the GDP in 2018, due to higher imports, including imports of construction materials. Foreign reserves are nevertheless expected to continue to grow, reaching US$9.6 billion (around 5 months of prospective imports) at end-2018,” Mr Jarko said.

Cambodia’s economic outlook is positive, although there are downside risks. IMF’s discussions were focused on four areas—managing macro-financial risks, safeguarding fiscal sustainability, supporting inclusive growth, and addressing governance vulnerabilities.

“Bank credit, increasingly concentrated in the real estate and construction sectors, is expected to grow around 20 percent in 2018.

“Concerns about credit quality, external funding, increasing concentration in the real estate sector and unregulated lending by real estate developers and high credit growth and growing systemic importance of microfinance institutions continue to pose risks to financial and macroeconomic stability,” Mr Jarko said.

To mitigate financial stability risks, the National Bank of Cambodia has taken several welcomed macro-prudential policy measures, including introduction of the capital conservation buffer, to be implemented in phases, introduction of a liquidity management framework, and improvements in banks’ loan classification and revisions to provisioning rules.

“Further efforts are needed. This includes effective implementation of past measures, further targeted prudential measures, such as raising risk weights for real-estate lending, introduction of a crisis management framework with a deposit insurance scheme, and continued upgrading in regulation and supervision, including for non-bank financial institutions.

“Promptly addressing shortcomings in the Anti-Money Laundering and Combating the Financing of Terrorism regime would reduce financial risks. Promoting further financial market development and reforms to encourage local currency use would help increase resilience over the medium-term,” Mr Jarko said.

Fiscal performance in 2017 was considerably stronger than anticipated, with tax revenue growing by an impressive 26 percent.

Fiscal stance in 2018 continues to be expansionary, reflecting expected increases in both current and capital expenditure.

As a result, the fiscal deficit is projected to widen to about 2.2 percent of GDP. Following expansionary policies this year, the authorities’ preliminary plans for 2019 are geared towards fiscal consolidation.

“Going forward, due to the absence of tax policy reforms, revenue growth is expected to slow down as past revenue mobilization reforms mature and grants decline. Therefore, additional measures are needed to safeguard fiscal sustainability.

“Spending pressures should be contained, including ensuring that public wage increases are consistent with fiscal sustainability and are accompanied by further progress in public administration reforms. While ensuring spending efficiency, priority should be given to growth-enhancing infrastructure and development spending.

This article was originally published in the Khmer Times.