Population 15.254 million
GDP 14.246 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
6.1 |
7.1 |
6.5 |
6.7 |
|
Inflation (yearly average) (%)
|
4 |
5.5 |
3.1 |
3.8 |
|
Budget balance (% GDP)
|
-7.8 |
-7.3 |
-6.2 |
-5.7 |
|
Current account balance (% GDP)
|
-3.9 |
-8.1 |
-10 |
-9.9 |
|
Public debt (% GDP)
|
28.7 |
29.7 |
30.1 |
30.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Flexible textile industry and highly promising tourism sector
- Potential offshore hydrocarbon reserves (oil and gas)
- Country benefiting from financial support of bilateral and multilateral donors
- Political stability since 1997
- Regional integration (ASEAN)
WEAKNESSES
- Considerable share of agriculture in GDP; vulnerable to climatic vagaries
- Underdeveloped electricity industry
- Lack of skilled labour
- Dependent on concessional finance due to weak fiscal revenues
- Significant governance shortcomings
- High poverty levels
Risk assessment
Sustained growth expected in 2013
As in 2012, growth is expected to be driven by domestic and external demand (linked especially to public investment in major energy infrastructure projects) in 2013. External demand is expected to increase, although this increase will be moderate, with the still weak demand coming from the U.S. (main trading partner) and the EU. In this context, manufacturing, highly focused on the external market (clothing, textiles) is likely to remain steady, though less robust than before the crisis. The textile sector will no doubt benefit from the delocalisation of Chinese factories due to rising wages in China. However, growth in the sector will still be limited by lack of infrastructure, especially energy infrastructure (frequent power cuts). Growth is also likely to be driven by the construction sector, which is benefiting from a rebound in residential property, boosted by rapid private sector credit growth (20% of GDP in January 2008 and nearly 37% in July 2012). Tourism will also expand thanks to the start of new direct flights from several countries in Asia.
Weak current and public accounts, reliant on foreign aid
There is still a huge trade deficit due to high capital good imports, inputs for the textile industry (24% of imports) and oil products (15%) and especially because of export growth, mainly of textiles and clothing (78% of exports), remains moderate due to ongoing weakness in the U.S. and European demand. The increase in tourism, higher international aid and income transfers by expatriate workers will largely offset the rise in dividend repatriations by foreign companies. FDIs are expected to cover the current account deficit and their recovery since 2011 is mainly directed to major energy infrastructure construction projects (hydroelectric dams and coal power stations) launched by the government based on public/private partnerships.
The public deficit is expected to fall slightly thanks to the steps announced by the government (“revenue mobilisation strategy with IMF technical assistance) to improve tax collection and gradually cut spending. For example, the 2013 budget makes no provision for civil servant wage rises. However, social spending will remain substantial to cover efforts to combat poverty. In this context, the public finances will remain heavily dependent on foreign aid (3% of GDP).
Meanwhile, weakness persists in the banking sector due to lack of supervision (limited and declining number of qualified employees) at a time when the sector is growing rapidly. The number of banks has doubled since 2006, with a 50% increase in assets and loans between 2010 and mid-2012. Moreover, the banks remain vulnerable to currency risk, due to strong dollarisation, and especially because the Central Bank’s foreign exchange reserves are insufficient to cover foreign currency deposits which accounted for 99% of total deposits in July 2012.
Political stability and difficult business environment
The political stage is dominated by the Cambodian People’s Party, led by Prime Minister Hun Sen. At the January 2012 elections to the Senate, the Party won 46 out of 57 seats and the June 2012 local elections confirmed their dominance with a victory for the party in 1592 out 1633 municipalities. Given the opposition’s weakness, along with repeated harassment by the CPP, the latter will probably win the next legislative elections (lower chamber) in 2013. If the party wins two thirds of the seats, it will be in a position to amend the constitution, making democratic progress less likely. Meanwhile, tensions between Cambodia and Thailand are still high, due to the border dispute between the two countries (near the Preah Vihear temple) linked to key economic issues (offshore gas fields).
Finally, the business environment will remain marked by lack of transparency, considerable legal uncertainty and high levels of corruption.
