PHNOM PENH, CAMBODIA (26 September 2018) — The Asian Development Bank (ADB) forecasts Cambodia’s gross domestic product (GDP) growth to maintain its strong momentum in 2018 with strong performances expected in exports and domestic demand.
In an update of its flagship publication, Asian Development Outlook (ADO) 2018, ADB forecasts economic growth for Cambodia at around 7.0% for 2018 and 2019, in line with stable growth across most of developing Asia and moderate growth in the major industrial economies.
“Cambodia’s economy continues to expand at a robust pace, propelled by strong export growth, robust tourist arrivals, buoyant domestic demand, and expansionary fiscal policy,” said ADB Country Director for Cambodia Ms. Sunniya Durrani-Jamal. “Rapidly rising wages without increased productivity, however, could pose a major domestic risk, eroding Cambodia’s external competitiveness, which still mainly relies on cheap labor.”
Merchandise exports rose by 13.3% and imports by 25.7% because of strong domestic demand in the first half of 2018. The current account deficit excluding official transfers will rise to 12.1% of GDP this year, up from 10.9% in 2017, but it is expected to narrow next year, though still exceeding the April 2018 ADO forecasts of 11.1% in 2018 and 10.8% in 2019. The recovery of the tourism sector, which started early last year, has continued, mainly supported by tourist arrivals from the People’s Republic of China.
The overall balance of payment should remain in surplus due to strong inflows of foreign direct investment, leading to a further buildup in foreign reserves, from $9.1 billion in July 2018 to around $10 billion by the end of 2018, providing six months of prospective import cover.
Despite strong growth, inflation has been subdued, averaging 2.4% in the first six months of 2018, down from 3.4% a year earlier due to modest increases in food prices. The average inflation rate is forecast to come in at 2.6% this year, and edge up to 3.0% next year.
Higher government spending due to rising public investment and public sector wages provides additional support to growth in 2018. Revenues in the first six months of 2018 amounted to 53.3% of the budget target for the year. Meanwhile, disbursements were only 34.5% of the year’s target, though previous experience shows expenditure picking up towards the end of the year. The fiscal deficit this year is expected to be close to the budget target, equal to 5.1% of GDP.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.