An International Monetary Fund (IMF) team led by Jarkko Turunen, deputy division chief of the Asia Pacific Department (APD) visited Phnom Penh to conduct discussions under what is known as the Article IV consultation.
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Under the Article IV consultation, IMF staff undertakes annual surveillance and analysis of economic developments and policies of member countries for discussion.
“Stable macroeconomic environment, strong growth performance, and ongoing structural reforms have contributed to significant progress towards Sustainable Development Goals (SDGs),” said Mr Turunen.
He also added that the Kingdom will face uncertainties including from trade tensions and potential suspension of preferential market access under the Everything-but-arms (EBA) scheme.
Mr Turunen also highlights that inflation remains stable at 2.5 percent, while the deterioration of external conditions is expected to slow growth below 7 percent in 2020.
“In the medium term, growth is expected to moderate further as the real-estate and credit cycles mature. Export growth is also expected to moderate, leading to a widening of the current account deficit to about 13.5 percent of gross domestic product [GDP] this year,” said Mr Turunen.
The IMF mission to the capital also saw significant downside risks stemming from the possible suspension of the EBA agreement, which could have a large negative impact on near-term economic activity.
Other downside risks include spillovers from the rise in global trade protectionism which could hamper exports and dent investors’ confidence. The report also saw risks stemming from elevated financial sector vulnerabilities.
In terms of the fiscal position, the IMF believes it will remain in surplus this year.
“Robust revenue performance continues and, thanks to strong administrative efforts, tax revenues reached close to 19 percent of GDP in 2018. As a result, the 2018 fiscal balance shows a surplus close to 1 percent of GDP,” said Mr Turunen.
Public debt remains low at 28.6 percent and the country is expected to remain at low risk of debt stress despite an increase in both debt disbursements and Public-Private Partnerships (PPPs) to finance needed infrastructure investment.
However, Mr Turunen stressed the need for further policy efforts to address elevated financial sector vulnerabilities.
“Priority measures include the implementation of targeted policies, such as higher risk weights and provisioning requirements for real estate lending as well as introducing a prudent aggregate loan-to-value limit, to address risks associated with the real-estate sector,” he said.
Looking ahead, the strong implementation of the new Revenue Mobilisation Strategy (2019-2023) is expected to help sustain revenue growth through tax policy and revenue administration reforms.
“Additional expenditure should continue to be oriented towards priority infrastructure investment, as well as health and education spending while ensuring gains in spending efficiency,” Mr Turunen said.