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publicationDecember 7, 2022

Cambodia Economic Update, December 2022: Navigating Global Economic Headwinds

Latest Issue: 
  • December 2022

Key Findings


  • Cambodia’s economy is recovering from the COVID-19 related slowdown, boosted by resilient exports. However, the country faces global economic headwinds as world trade growth slows.

  • The World Bank has upped its projection for Cambodia’s real GDP growth to 4.8 percent in 2022, on the back of the broader economic recovery. Garment, travel goods, and footwear exports remain notably buoyant. Earnings from services, especially travel and tourism, have also improved following the introduction of the “living with COVID-19” strategy late last year.

  • Inflation is rising in Cambodia, as elsewhere, and is particularly harmful to poor households, some of whom are forced to reduce food consumption and withdraw children from school. This could have long-term effects on human capital, causing losses in worker productivity and welfare, and disparities in income.

  • Monetary policy continues to underpin the economic recovery, with confidence in the banking system high. Domestic credit growth is strong and the exchange rate stable. Domestic revenue growth has now fully recovered, while expenditure is expected to decelerate after last year’s spending on pandemic relief measures. The fiscal deficit is therefore projected to narrow, although it is still relatively large at 4.6 percent of GDP and will remain largely financed by external borrowing. 

  • Despite recovery, real growth projection for 2023 has been downgraded to 5.2 percent due to the projected slowdown in global trade, especially in the United States and China. These are Cambodia’s largest export market and source of foreign direct investment respectively. 

  • However, the medium-term outlook is positive, with free-trade agreements supporting growth in agricultural production and agroprocessing. Strong investment in several infrastructure projects will benefit many sectors, including tourism and hospitality, which are likely to accelerate further.

  • If elevated energy prices linger, deteriorating terms of trade will undermine consumer confidence and corporate profitability. Meanwhile, high credit growth and the concentration of domestic credit in the construction and real estate sectors remain key risks to financial stability. 

  • To ensure sustainability, Cambodia must regain fiscal space. To this end, the World Bank recommends: 

  • Broadening the tax base.

  • Safeguarding financial stability.

  • Promoting domestic economic sectors, particularly in travel, tourism, and hospitality.

  • Addressing supply chain constraints, which include high logistic and transportation costs, as well as easing supply-side bottlenecks by reducing the costs of energy, doing business and licensing. This would help export businesses revive external competitiveness. 

  • The Special Focus section of the report looks at poverty to identify the implications of inflation on the most vulnerable segments of the population, and the measures that could be taken to alleviate ensuing economic hardship.

  • Data shows that during the COVID-19 pandemic, more than 60 percent of Cambodian households and about 90 percent of poor households reduced their food consumption. The national school dropout rate increased in 2019/20, reversing years of declining trends, and about 14 percent of poor children aged 6-17 dropped out in early 2022.

  • A simulation analysis suggests that current inflation could increase poverty substantially.

  • Well-targeted and temporary expansions to social protection programs, notably through cash transfers, would substantially mitigate poverty and protect the poor and vulnerable.