Climate impacts could have further ripple effects on the economy if not addressed
PHNOM PENH, October 31, 2023—Cambodia, one of the poorest countries in East Asia, can achieve its development goals and address climate change with actions summarized as “three Rs:” reducing significant exposure and vulnerability to climate change; realigning its emissions trajectory; and reorienting its economy to seize new opportunities afforded by a global green transition, according to the World Bank’s recently released Cambodia Country Climate and Development Report (CCDR).
Cambodia is already heavily affected by climate change, which translates to an urgent need to adapt to its already-visible effects. Increased variability in rainfall patterns is causing more frequent droughts and more frequent and intense floods. A severe drought in 2015–2016 affected 18 of 25 provinces and impacted over 2.5 million people. Rice production losses caused by droughts associated with the 2019 El Nino were estimated at $100 million. In September 2022, the heaviest rainfall in three years caused severe flooding in 14 provinces, with some 85,000 households affected and landslides that led to the evacuation of 5,000 households.
Climate projections suggest that future flood risk and heat stress will worsen in Cambodia. Without proper adaptation and mitigation measures, climate change could cost up to 9% of Cambodia’s GDP by 2050 while increasing the poverty rate by up to 6 percentage points by 2040, the report says.
The Cambodia CCDR is the latest in a series of World Bank core analytical studies that integrate climate change and development considerations and offer client governments recommendations for eradicating poverty on a livable planet.
“Cambodia is heavily exposed to climate change impacts, in particular through increased frequency and intensity of floods,” said World Bank Vice President for East Asia and Pacific Manuela V. Ferro. “In order to recover the lost ground due to the pandemic and high food and energy prices, Cambodia needs to sustain high growth, while addressing the impacts of climate change on the economy and reducing its carbon intensity.”
Cambodia has generated rapid economic growth averaging 7.1% between 1995 and 2021, cutting the percentage of people living below the poverty by half between 2009 and 2019, and raising life expectancy from 57 in 1998 to 71 in 2018. The country has set a far-reaching objective to further transform its economy and reach upper middle-income status by 2030. Despite its success, to sustain strong growth, Cambodia must overcome structural constraints that include trade-related regulatory barriers, insufficient trade-related infrastructure, low domestic investment, a decline in public capital investment, and rapid growth in private debt.
Cambodia’s economy is concentrated in terms of exports, markets, sectors, and financing sources, making it highly vulnerable to external shocks. Diversifying its export base, improving the enabling environment for the private sector, addressing low education and health outcomes, and improving critical infrastructure are crucial for sustained inclusive growth and development.
At the same time, climate impacts pose significant risks to the country and its people and are likely to further exacerbate development challenges. Floods are projected to increase losses to factories, roads, housing, and schools and to disrupt critical services and supply chains. Climate change is projected to lower yields for staple crops and fisheries, posing challenges to food security and nutrition. Higher temperatures and more extreme rainfall adversely impact health and are associated with increased prevalence of diseases.
Recent patterns of development have added to climate exposure. Cambodia has one of the world’s highest deforestation rates. Recent patterns of urban development have increasingly placed new urban residents in flood-prone areas. While historically a low emitter of greenhouse-gases, Cambodia has the fastest emissions growth rate in Southeast Asia, and one of the highest carbon intensity rates – a measure of how much carbon it emits per unit of GDP – among its peers.
However, government and private sector measures can reduce the negative impacts of climate change, and the report identifies recommendations and priorities for immediate action. For example, government-led adaptation could include improving the climate resilience of existing road networks and raising resilience standards, especially for health and education infrastructure. Private actions could include investment in energy-efficient cooling systems and flood resilient buildings.
“Ensuring sustainable economic growth and meeting the demands of climate change are intertwined challenges for Cambodia,” said World Bank Country Director for Myanmar, Cambodia and Lao PDR, Mariam Sherman. “Increasing economic competitiveness, building human capital, and investing in climate resilience will benefit all Cambodians.”
Cambodia has pledged to meet carbon neutrality by 2050. Achieving this ambitious goal will require rapidly reversing deforestation and steering the energy, transport, and industrial sectors onto a lower carbon growth path. These can be done without compromising development outcomes, the report adds.
Cambodia’s private sector could reap economic benefits from the global economy’s low-carbon transition by seizing new export and job opportunities afforded by the growing demand for low-carbon goods and services. Lowering barriers to trade and investment could improve the business environment and boost competitiveness in these areas.
Rapid cost declines for clean energy technologies globally, including solar energy, present further opportunities for Cambodia. The share of solar in Cambodia's installed power generation capacity has increased sharply from near zero in 2016 to 12.5% in 2021. Solar energy costs in Cambodia are projected to decline further, making it an attractive option for the country's energy needs.