Excellencies, Ladies and Gentlemen:
Welcome to the launch of our December 2022 Cambodia Economic Update – Navigating global economic headwinds. My name is Mariam Sherman, Country Director for Myanmar, Cambodia and Lao PDR. I am pleased to meet all of you today.
The Cambodia Economic Update is an integral part of our advisory services and analytical work. This is the 19th edition of our biannual report. The report analyzes Cambodia’s recent macroeconomic developments, and discusses the economic outlook, risks, and policy options for sustaining growth and poverty reduction. Each edition of the Cambodia Economic Update has a special focus, and this edition’s special focus topic is “Poverty and Distributional Impact of Inflation in Cambodia.”
As you will see shortly in the presentation, since the second quarter of 2022, economic recovery has gained momentum on the back of continued resilient garment, travel goods, and footwear exports. The services sector, especially the travel and tourism industries, has also improved, with rising international arrivals, as the strategy of “living with COVID-19” introduced late last year paid off.
Cambodia’s real GDP growth projection has been revised up to 4.8 percent in 2022 on the back of a more broad-based economic recovery. However, real growth projection for 2023 has been downgraded to 5.2 percent (from 5.8 percent) due to a gloomy global outlook.
Risks are rising. Global trade growth is projected to slow sharply in 2023. Cambodia’s export-oriented manufacturing sector is vulnerable to an extended slowdown in the United States, Cambodia’s largest export market. Similarly, the slowdown in China, Cambodia’s largest source of foreign direct investment, if sustained, will negatively impact investment and capital inflows into the country. The European Union, Cambodia’s second largest export market, is facing significant downward risks amid high energy prices and inflation. If elevated energy prices linger, the deterioration of the terms of trade will undermine consumer confidence and corporate profitability. High credit growth and concentration of domestic credit in the construction and real estate sectors remain a key risk to Cambodia’s financial stability.
The road ahead remains uncertain but Cambodia can still navigate its way forward. To ensure fiscal sustainability, regaining the fiscal space is a must. To this end, it is important to start broadening the tax base. Safeguarding financial stability is crucially important.
Strengthening domestic market confidence will help partly offset the deterioration of external demand conditions. To this end, more needs to be done to promote the domestic economic sectors, in particular the travel, tourism, and hospitality industries. It is equally important to address supply chain constraints, which include high logistics and transportation costs, as well as addressing supply-side bottlenecks by reducing the cost of energy, doing business, and licensing, especially for the exports sector to revive external competitiveness.
The Special Focus section of the report, which looks at poverty and the distributional impact of inflation, points to the need to protect the poor and vulnerable through well-targeted and the temporary expansions of social protection programs. Hence, it will be beneficial to (i) continue and enhance income support to the poor to prevent them from falling deeper into poverty, and (ii) strengthen the shock-responsiveness of social protection systems.
It is not only imperative to protect the income of poor and vulnerable households from income shocks, but to also protect their access to basic services that builds their human capital and future earning potential. Hence, continued investment in social services is crucial.
Excellencies, Ladies and Gentlemen:
Once again thank you for being here today to join the launch of our December 2022 Cambodia Economic Update.
Without further ado, let me invite our Cambodia Economic Update World Bank team, led by Sodeth Ly and Wendy Karamba, supported by Saroeun Bou, Kimsun Tong, and Seakheang Heng, working under the guidance of Maryam Salim and Sebastian Eckardt to continue the session.