The economy will grow at a rate of 6.9 percent in 2018, according to the latest report from the World Bank.
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Other international financial institutions have issued similar forecasts this month, with the Asian Development Bank (ADB) and the International Monetary Fund (IMF) putting national growth at seven percent this year.
The World Bank East Asia and Pacific Economic Update was released yesterday, predicting that Cambodia’s high growth trajectory will continue into 2018 and 2019, although it will decelerate at a modest pace in the medium term.
The World Bank expects growth in 2018 to be underpinned by rising government spending and favourable global conditions, including robust demand in advanced economies.
In the medium term, large flows of foreign and public investment in infrastructure are expected to help promote output by boosting aggregate demand and expanding the productive capacity of the economy.
According to the report, the agriculture sector will grow by 1.1 percent this year (down from 1.7 percent in 2017), while industrial activity and the service sector will expand by 8.2 and 8.3 percent respectively (compared to 9.9 and 6.8 percent last year).
Sudhir Shetty, chief economist for East Asia and the Pacific at the World Bank, said the upcoming national elections have not played a significant role in the forecast.
“We are assuming that the elections will take place as planned and that they will not destabilise the economy to a noticeable degree.
“For our 6.9 percent forecast, we assumed that political uncertainty won’t be a major risk factor this year. This is the case not only for Cambodia, but also for other countries in the region having elections in the next 12 months,” he said.
“There is, of course, the possibility that political uncertainty may affect the business cycle to a large degree, but we don’t think it is the most likely scenario.”
According to the World Bank report, downside risks to the outlook include threats associated with a prolonged construction boom and declining external competitiveness.
In addition, employment growth prospects look less certain. As real wages rapidly increase, Cambodia’s external competitiveness, which primarily relies on cheap labour, is being eroded. Thus, addressing skills constraints should be a priority, the report says, suggesting that the government focuses on upskilling its labour force to help the country climb up the regional value chain.
Lifting constraints to small and medium-sized enterprises is also important, the World Bank recommends, as it will support growth and job creation. They suggest a reduction in the costs to firm formalisation to strengthen linkages to foreign-owned businesses and exporters.
With growth in the real estate and construction sector accelerating in recent years, the so-called “boom” in these industries needs to be monitored closely, the World Bank says in its report, arguing that it is essential to reduce speculative activities.
Likewise, the report says the banking and microfinance sector should adopt lending guidelines and ensure adequate monitoring, while revisiting the non-performing loan classifications.