Cambodia’s real GDP grew by an unprecedented 13.4 percent in 2005.  The stellar performance was driven by solid garment exports, strong tourism receipts, significant growth in foreign direct invesment (FDI), the continuing construction boom, and record crops in agriculture.  Agriculture remained a crucial sector for the economy, accounting for 38 percent of GDP growth and some 60 percent of total employment in 2005. Growth in 2006 is expected to moderate to a projected 8.9 percent owing to slower expansion in construction and agriculture. Consumer price inflation is projected to fall to around 5 percent in 2006, down from 6.7 percent in 2005.  A sound macroeconomic framework has helped underpin success in 2006. However, Cambodia’s narrow growth base remains a concern. Recent and ongoing work—including the National Export Strategy, 2007–2010, the Small and Medium Enterprise Development Framework, 2005–2010, and the second phase of the Integrated Framework for trade—aim to tackle this challenge. Resources on Cambodia | | Country Overviews | |
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The external sector maintained its dynamism in 2005 with an 11 percent increase in apparel exports. The apparel industry benefited from protective measures against Chinese apparel imports introduced by the U.S. and the European Union in mid-2005. The signing of the Trade and Investment Framework Agreement between Cambodia and the U.S. in July 2006 is expected to further spur bilateral trade. The external sector also saw 44 percent growth in tourism receipts and a more than doubling of FDI. The external sector remains strong, with exports expected to grow by 15 percent in 2006 and FDI continuing to expand. Despite projected strong export growth, the trade deficit is forecast to reach 20 percent of GDP in 2006, up from 16 percent in 2005, due to faster import growth. Gross foreign reserves are projected to reach US$1.1 billion (from US$0.9 billion in 2005) and the exchange rate is projected to depreciate slightly (0.8 percent) against the US dollar. The fiscal front saw modest improvement in 2005 with total revenue rising slightly from 10.4 percent of GDP in 2004 to 10.5 percent in 2005. Revenue is expected to jump to 12 percent of GDP in 2006, due to growth in both domestic and international tax collections, while non-tax revenue is expected to remain steady as a share of GDP. Expenditure contracted to 13.8 percent of GDP in 2005, but is expected to increase slightly to 14.4 percent in 2006, reflecting growth in current spending. The net impact of both revenue and expenditure measures is expected to reduce the overall deficit (excluding grants) from -3.4 to -2.6 percent of GDP in 2006, with the deficit inclusive of grants falling to 0.9 percent in 2006. Growth in broad money is expected to increase by about 27 percent in 2006, significantly higher than in 2005. Private sector credit is expected to continue to accelerate in 2006 with growth of about 35 percent. Commercial interest rates, however, remain relatively high at about 15 percent per year. On the structural reform agenda the Public Financial Management Reform Program, launched by the Prime Minister in December 2004, is beginning to yield results. The amount of customs revenue collected through the banking system has increased from zero in 2004 to 36 percent of the total in 2005, and is scheduled to increase further in 2006; 86 percent of all Tax Department revenue is now collected through the banking system; a growing share of Treasury payments to suppliers are made by check instead of cash; a new annual budget process that incorporates program budgeting has been adopted; the stock of old expenditure arrears has been reduced by over 40 percent; the procurement process has been streamlined, tightened, and made more competitive; the Government has set up internal audit departments in a dozen line ministries, and, for the first time in Cambodia, a pilot program has been launched to pay civil servants through commercial banks instead of by cash. The Public Financial Management Reform Program is supported by 11 donors, most recently the World Bank, which approved a US$14 million grant project in June 2006. Financial sector reform, guided by the ten-year sector blueprint adopted in 2001, has also progressed. A Credit Information Sharing System has been introduced, providing commercial banks with credit-related information on prospective customers, thus lowering delinquency rates and loan defaults. The development of a national payment system and a comprehensive information technology system for banking functions has become a pressing sectoral challenge. Another major challenge for the Government is the passage of several laws necessary for WTO compliance, including: the Secured Transactions Law, the Commercial Leasing Law, the Law on the Issuance and Trade of Non-Governmental Securities, the Insolvency Law, and the Law on Establishment of Commercial Court, among others. Back to top
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