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Cambodia’s Banking Regulations Receive Update Amid Economic Recovery

PHNOM PENH, CAMBODIA - The International Monetary Fund (IMF) has issued an update on Cambodia’s banking regulations following a recent visit by an IMF team led by Davide Furceri. The team held discussions with senior officials of the Royal Government of Cambodia, the National Bank of Cambodia, and other public agencies, as well as representatives of the business and banking sectors, and development partners.

Economic Recovery

According to the report, Cambodia’s economy is steadily recovering from the pandemic, with growth projected at:

  • 5.3 percent in 2023
  • 6.0 percent in 2024

The ongoing recovery in tourism and surging exports of solar panels and electrical components are the main growth drivers. However, garment exports remain weak, showing only modest signs of recovery in recent months.

Inflation and Fiscal Deficit

The report also notes that inflation rebounded to:

  • 3.8 percent in September 2023

due to higher food and fuel prices, but is expected to average:

  • 2.3 percent for the full year 2023
  • Converge to its long-term trend around 3 percent by 2024 absent further commodity price shocks.

The fiscal deficit is expected to widen this year to:

  • 3.6 percent
  • Mainly reflecting higher one-off spending needs, but is projected to fall to:
    • 2 percent in 2024
    • About 2.5 percent in the medium term

as temporary support measures for the pandemic and rising cost of living are removed, and revenues improve owing to tax and customs administration reforms.

Public Debt and Credit Growth

Public debt to GDP is projected to increase moderately during the next decade, but the risk of debt distress remains low, although there are vulnerabilities from shocks to exports and growth. Credit growth decelerated to:

  • 8.1 percent y/y in August 2023
    • Down from 23.4 percent in 2019

The banking sector is well capitalized and profitable according to financial soundness indicators.

Recommendations

The report recommends strengthening the fiscal framework by:

  • Establishing a government bond market
  • Improving investment efficiency through public investment management
  • Enhancing data gathering and analysis capacity

Additionally, it encourages the authorities to continue strengthening the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework, which enabled Cambodia to exit from the Financial Action Task Force’s list of Jurisdictions under Increased Monitoring in February 2023.

Conclusion

The IMF team expressed its deep appreciation to the authorities and other stakeholders for open and constructive discussions.