Cambodia
Briefing Notes for the Launch in Phnom Penh, March 2008
Economic growth
- Although Cambodia’s growth rate decreased from 10.8% in 2006 to 8.5% in 2007, it remained the highest in the South-East Asian sub-region, which grew at an average annual rate of 6.3% that year
- Both private consumption and gross fixed investment grew faster in 2007 than in 2006
- Private consumption increased its growth rate from 6.8% in 2006 to 9.2% in 2007
- Investment increased its growth rate slightly from 15.8% in 2006 to 16.3% in 2007
- Government consumption growth also increased from -4.8% in 2006 to -0.7% in 2007
- Overall, the growth rate of domestic demand increased from 8.1% in 2006 to 10.3% in 2007
- But the stronger performance of domestic demand was insufficient to compensate for a significant drop in the nominal rate of growth of exports from 19.3% in 2006 to 16.8 % in 2007
- GDP growth is forecast to slow down to 7.0% in 2008
Inflation and monetary policy developments
- Inflation increased from 4.7% in 2006 to 5.9% in 2007
- Food, beverages and tobacco prices increased the most in 2007, 10%, followed by transportation and communication prices, 5.8%
- Rent controls help keep inflation checked: excluding rent, the CPI would have increased from 6.2% in 2006 to 7.6% in 2007
- The annual inflation rate increased over the year from 3% in the first quarter to 4.7% in the second, 6% in the third, and 9.7% in the fourth
- The high degree of dollarization of the economy continues to limit the extent to which the National Bank of Cambodia can use monetary policy to control inflation
Exchange rates and foreign exchange reserves
- The riel remained pegged to the dollar at a rate slightly above 4,000 CR/USD
- Foreign exchange reserves increased over 40% between January and November of 2007, from US$1.19 billion to US$1.71 billion
External sector
- The current account deficit is estimated to have increased from US$ 337 million in 2006 to US$ 495 million in 2007
- Export growth is fragile due to its concentration in the garment industry, which account for more than 70% of the country’s exports, because low cost competitors from Viet Nam and India are gaining market share
- The end of restraints on garment exports from China to the European Union and the United States will put more pressure on Cambodian garment exporters
- The expected recession in the United States, Cambodia’s main market, will also adversely affect exports
- Imports are expected to increase, as tariffs cuts committed under the ASEAN Free Trade Agreement and to the WTO take effect
- Tourism income is expanding rapidly.
