C mbodi Economic Upd t Jun 2024 CAMBODIA’S EXPORT REVIVAL AND TRADE SHIFTS SPECIAL FOCUS Strengthening Cambodia's Education System for Future Growth Cambodia Economic Update June 2024 CAMBODIA’S EXPORT REVIVAL AND TRADE SHIFTS SPECIAL FOCUS Strengthening Cambodia’s Education System for Future Growth TABLE OF CONTENTS ACKNOWLEDGMENTS..................................V The riel appreciated against regional currencies........................................................20 ABBREVIATIONS ........................................... VI Money supply marginally increased................ 21 Domestic interest rates remained elevated...... 22 PART 1. RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK............... 1 Credit sharply decelerated as housing development activity stalled............................. 22 EXECUTIVE SUMMARY.................................. 2 Credit is rotating from the real estate to trade Recent developments......................................... 2 and agriculture sectors..................................... 22 Outlook............................................................... 3 Domestic revenue collection remained sluggish ..........................................................23 Policy options..................................................... 4 Budget expenditure expanded moderately ..... 24 RECENT DEVELOPMENT.............................. 7 The overall fiscal deficit widened..................... 24 Economic activity has picked up....................... 7 Public debt stock reached 35.5 percent of International arrival numbers accelerated......... 7 GDP................................................................25 Foreign tourists visiting Siem Reap remained Cambodia remained at low risk of external and below 2019 levels................................................ 9 overall debt distress.......................................... 27 Goods exports accelerated................................ 10 OUTLOOK........................................................ 27 ASEAN has become Cambodia’s second-largest CHALLENGES AND RISKS........................... 27 export market................................................... 10 POLICY OPTIONS........................................... 27 Manufacturing jobs increased, thanks to the expansion of GTF exports................................ 11 Approved FDI project value accelerated......... 12 PART 2. STRENGTHENING CAMBODIA’S EDUCATION SYSTEM FOR FUTURE Property development remained sluggish....... 13 GROWTH........................................................... 31 Imports of basic construction materials picked Introduction..................................................... 33 up....................................................................... 14 Access and Equity in Education...................... 34 Crop production expanded............................. 14 Education Spending and Outcomes................ 37 Cambodia is emerging as a major agricultural exporter............................................................. 16 Teacher Effectiveness........................................ 40 The business environment needs to be further improved........................................................... 17 RECOMMENDATIONS.................................. 43 Private consumption marginally improved..... 18 ANNEX. CAMBODIA – SELECTED Inflation declined to zero over the 12 months INDICATORS................................................... 46 ending March 2024.......................................... 18 BIBLIOGRAPHY.............................................. 49 An unprecedented current account surplus was recorded in 2023............................................... 20 ii Cambodia Economic Update June 2024 BOXES Box 1. Global economic developments and outlook......................................................................................... 8 Box 2. The 2023 World Bank Enterprise Surveys ..................................................................................................15 Box 3. The 2023 current account surplus ..............................................................................................................19 FIGURES FIGURE ES.1. CAMBODIA’S RECENT DEVELOPMENTS AT A GLANCE..............................................6 Figure B.1.1. Global growth.....................................................................................................................................8 Figure B.1.2. Global goods trade growth.................................................................................................................8 Figure 1. Economic recovery continued...................................................................................................................9 Figure 2. Three-month arrivals and tourism receipts...............................................................................................9 Figure 3. Contribution to export growth by product ..........................................................................................10 Figure 4. Contribution to export growth by market ............................................................................................10 Figure 5. Manufacturing sector jobs and factories.................................................................................................11 Figure 6. Garment, travel goods, and footwear jobs .............................................................................................11 Figure 7. Approved QIP project value...................................................................................................................12 Figure 8. Approved FDI-financed project by sector..............................................................................................12 Figure 9. Approved property project permits........................................................................................................13 Figure 10. Approved permit area by property type...............................................................................................13 Figure 11. 3-month agricultural exports................................................................................................................14 Figure 12. Shares of main goods export items........................................................................................................14 Figure B.2.1. Top 5 constraints in 2023.................................................................................................................15 Figure 13. 2023 Enterprise Surveys – regional comparison..................................................................................16 Figure 14. Enterprise Surveys for Cambodia.........................................................................................................16 Figure 15. Imports of consumer goods improved.................................................................................................17 Figure 16. Inflation dipped.....................................................................................................................................17 Figure 17. The current account surplus was unprecedented................................................................................18 Figure 18. The riel appreciated against regional currencies...................................................................................18 Figure B.3.1. The current account.........................................................................................................................19 Figure B.3.2. Gold trade, net..................................................................................................................................19 Figure 19. Broad money growth recovered............................................................................................................21 Cambodia Economic Update June 2024 iii Figure 20. Interest rates remained elevated............................................................................................................21 Figure 21. Domestic credit growth plummeted ....................................................................................................23 Figure 22. Domestic credit allocation is shifting to finance trade and agriculture ..............................................23 Figure 23. Domestic revenue eased........................................................................................................................24 Figure 24. Expenditure remained contained..........................................................................................................24 Figure 25. General government operations............................................................................................................25 Figure 26. General government surplus/deficit and financing..............................................................................25 Figure S.1. Net enrollment rate by school level......................................................................................................34 Figure S.2. Reasons for not being enrolled in school.............................................................................................34 Figure S.3. Net enrollment rate across gender, location, and socioeconomic status by school level, 2019.........35 Figure S.4. Net enrollment rate by location, 2009–19..........................................................................................35 Figure S.5. Net enrollment rate by wealth quintile (Top and Bottom), 2009–19...............................................36 Figure S.6. Net enrollment rate by gender, 2009–19............................................................................................36 Figure S.7. Early childhood enrollment by age......................................................................................................37 Figure S.8. Public expenditure on education (% of GDP), 2011–21....................................................................38 Figure S.9. MoEYS spending by category (% of total MoEYS spending), 2011–21............................................38 Figure S.10. Share of fifth grade students proficient in math and reading, SEA-PLM 2019..............................38 Figures S.11. Percent of fifth grade students proficient in reading and math as revealed in the Socio-Economic Survey (SES)..............................................................................................................................................................39 Figure S12. Student test scores at the national level (National Learning Assessment, Grade 6), 2013–21........40 Figure S13. Net teacher shortage/surplus by location...........................................................................................41 Figure S14. PISA results by location......................................................................................................................41 TABLES Table ES.1. Macro outlook.......................................................................................................................................3 Table B.2.1. Enterprise Survey findings.................................................................................................................15 Table 1. Family Package components.....................................................................................................................26 Table 2. The macro outlook indicates continued economic recovery...................................................................29 iv Cambodia Economic Update June 2024 ACKNOWLEDGMENTS The June 2024 Cambodia Economic Update (CEU) was prepared by Sodeth Ly, Lauri Pynnonen, Lars M. Sondergaard, Tara Beteille, and Saurav Katwal, with contributions from Samuel Christopher Hill, Kimsun Tong, Faya Hayati, Tsuyoshi Fukao, Fata No, and Runsinarith Phim. Chankesey Heav served as a research assistant. Seakheang Heng provided administrative support. Saroeun Bou helped with the press release, web display, and dissemination events. The team worked under the overall guidance of Sebastian Eckardt and Cristian Aedo. The team is grateful for the advice and comments provided by Lalita M. Moorty, Mariam Sherman, and Maryam Salim. Several colleagues, including Aaditya Mattoo and Ergys Islamaj, provided comments on the draft version. The team is grateful to the Cambodian authorities, particularly the Ministry of Economy and Finance and the National Bank of Cambodia, for their cooperation and support. The authorities have just rebased Cambodia’s Gross Domestic Product (GDP). The rebased GDP data will be used in the next edition of the CEU. The report also benefited from the advice, comments, and views of various stakeholders in Cambodia, including its enthusiastic readers and critics. The CEU, produced biannually, provides up-to-date information on macroeconomic developments in Cambodia. It is distributed and discussed widely, including among Cambodian authorities, development partners, the private sector, think tanks, civil society organizations, and academia. For information about the World Bank and its activities in Cambodia, please visit our website at www.worldbank. org/cambodia. To be included in the email distribution list of the CEU and related publications, please contact Seakheang Heng (sheng4@worldbank.org). For questions on the contents of this publication, please contact Saroeun Bou (sbou@ worldbank.org). The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Cambodia Economic Update June 2024 v ABBREVIATIONS ASEAN Association of Southeast Asian Nations CEU Cambodia Economic Update COVID-19 Coronavirus disease 2019 CPI Consumer Price Index CSES Cambodia Socio-Economic Survey EAP East Asia and Pacific region ECE Early childhood education EU European Union FDI Foreign direct investment FP Family Package GDP Gross domestic product GTF Garment, travel goods, and footwear MEF Ministry of Economy and Finance MFI Micro-finance institution MoEYS Ministry of Education, Youth, and Sports NBC National Bank of Cambodia NLA National Learning Assessment PISA Program for International Student Assessment QIP Qualified investment project SEA-PLM 2019 Southeast Asia Primary Learning Metrics 2019 report TVET Technical and vocational education and training UN United Nations United States U.S. US$ United States dollar VAT Value-added tax y/y Year-on-year vi Cambodia Economic Update June 2024 PART 1. RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK billion, or 17.4 percent of total goods exports, second EXECUTIVE SUMMARY only to garment exports, which amounted to US$2.0 billion. Recent developments Alongside strong trade performance, foreign Economic activity in Cambodia picked up in the direct investment in the tradeable sectors first quarter of 2024, driven mainly by goods remained resilient. The value of approved foreign and services exports. While domestic demand direct investment (FDI)-financed investment remained subdued, caused by a sharp slowdown in (outside special economic zones) under the qualified domestic credit growth impacted by the downturn in investment project (QIP) scheme, accelerated, the property market and tighter financial conditions reaching US$455 million or a 149.8 percent y/y including elevated interest rates, exports of goods increase during the first quarter of 2024. and services accelerated. International tourist arrivals continued to improve. Incoming data shows that In contrast, construction and real estate activity during the first quarter of 2024, services exports remained subdued. Domestic credit financing the rapidly expanded, with international tourist arrivals real estate and property sector significantly slowed. increasing at 22.5 percent year-on-year (y/y), reaching The housing market correction continued, due largely 84.2 percent of arrivals recorded during the same to a significant increase in supply during the pre- period in 2019. Indicating rising tourism receipts, pandemic construction boom and elevated interest revenue from Angkor Temple entrance fees rapidly rates. The value of approved property development grew, rising at 95.9 percent y/y during the same permits contracted by 38.8 percent y/y during the period, reaching 58.7 percent of 2019 levels. first quarter of 2024, signaling downbeat investor sentiment in property investment. Merchandise exports also started to accelerate. Amid stronger external demand, goods exports The current account improved as the trade surged during the first quarter of 2024, growing deficit narrowed. While goods exports surged, goods at 17.2 percent y/y, reaching US$6.3 billion. The imports remained sluggish, amounting to US$6.39 acceleration was largely boosted by a revival of billion, or a 9.0 percent y/y increase, reflecting soft exports of garment, travel goods, and footwear domestic demand. The resulting decline in the trade (GTF) products to the United States (U.S.) and deficit, together with rising remittances and tourism European Union (EU) markets. Exports of non- receipts, helped improve the current account balance, GTF products, which mainly include agricultural which reached an unprecedented surplus of 1.7 commodities, electronics, electrical, leather, and percent of GDP in 2023. wood products, including furniture, continued to be resilient. Cambodia has emerged as one of the main Better external sector performance helped agricultural product exporters, and is now one of the maintain the exchange rate. The exchange rate top nine rice producers in the world. Agricultural hovered around 4,100 riel per U.S. dollar. Meanwhile, exports increased almost fourfold during the past gross international reserves, reached US$19.9 billion decade. – an 11.7 percent y/y increase in 2023. The country’s gross international reserves are estimated to be Since 2023, the Association of Southeast Asian equivalent to about seven months of prospective Nations (ASEAN) has overtaken the EU market imports. As food prices decelerated owing to the and become Cambodia’s second-largest export easing of domestic demand, Cambodia’s Consumer market. During the first quarter of 2024, exports Price Index (CPI) dipped to zero in March 2024, a to ASEAN countries accounted for 28.0 percent 15-year low. The easing of food prices, particularly of Cambodia’s total exports, up from 24.7 percent of rice, meat, fish, and vegetables, subdued inflation, during the same period in 2023 (and 14.6 percent given the fact that the food component (subindex) in 2022). In the first quarter of 2024, the ASEAN captures a 43 percent weight of the inflation basket. market grew at 33.1 percent y/y, importing 85 percent of Cambodia’s total agricultural commodity exports. To spur economic growth, the central bank cut Main agricultural commodities include rice, cassava, the foreign currency reserve requirement ratio cashew nut, and rubber. Cambodia’s agricultural by 2 percent, to 7 percent, in December 2023, commodity exports surged during the first quarter of the largest cut during the post-pandemic period. 2024, growing at 28.1 percent y/y, reaching US$1.1 In addition, there has been a recent uptick in money 2 Cambodia Economic Update June 2024 supply, indicating improvements in capital inflows. The economic recovery supported job creation. Broad money growth recovered, growing at 14.9 The number of manufacturing jobs rose as percent y/y in February 2024, up from 6.8 percent garment, travel goods, and footwear employment during the same period in 2023, as foreign currency recovered. Consistent with improved goods exports, deposits accelerated. employment in the manufacturing sector also picked up. Manufacturing jobs rose by 50,500 to 1.058 Domestic credit growth has experienced a million (18.1 percent of nonfarm employment) in significant slowdown since mid-2023. Sluggish March 2024, or a 5 percent y/y increase. construction activity reduced demand for domestic credit, which substantially decelerated to a 4.6 Outlook percent y/y increase in February 2024, a 20-year low, down from a 14.8 percent y/y increase during This year’s economic growth is projected to the same period in 2023. Upward pressure on marginally improve to 5.8 percent (table ES.1), domestic interest rates continued, due to tightening driven mainly by a continued revival of services global financial conditions. Cambodia’s interest and goods exports. Looking ahead, Cambodia’s rates remained elevated as the country imports the improved current account balance, supported by U.S. monetary policy tightening, due to the Federal some success in diversifying its exported products Reserve’s action to tame inflation. There have been beyond GTF products (to agricultural commodities, rising funding costs for banks and microfinance solar panels, and electrical and electronic parts), and institutions in Cambodia, as they need to increase its export markets beyond the U.S. and EU markets interest rates on deposits to attract depositors. This (to regional markets, especially the ASEAN market), has pushed up their operating costs, squeezing their should support resilience of goods exports. profit margins. In 2023, the returns on assets halved to 0.7 percent for the banking sector and 1.5 percent for the microfinance institution (MFI) sector, down Table ES.1. Macro outlook from 1.4 percent and 3.0 percent in 2022, respectively. (percent of GDP unless otherwise indicated) In parallel, the nonperforming loan ratios rose to 5.4 Change from percent for banks and 6.7 percent for MFIs, up from Projections November 2023 2.2 percent and 2.6 percent, respectively. 2024 2025 2026 2024 2025 Domestic revenue, which was partly buoyed by Real growth 5.8 6.1 6.4 0.0 0.0 a short-lived post-COVID consumer spending (percent) boom in 2022, significantly eased. General CPI (period government revenue (including grants) is estimated average, 2.8 2.7 3.0 0.0 0.0 to have reached only 21.4 percent of GDP in 2023, percent) down from 23.4 percent in 2022. Taxes on goods Current 2.7 2.6 1.6 14.2 12.2 and services, especially value-added taxes, excises, accounts and import duties declined with softening domestic Overall fiscal demand, as credit growth slowed. Efforts to contain -5.5 -4.4 -4.2 -0.7 -1.2 deficit expenditures continued, despite spending pressures, Public debt 35.6 35.5 34.8 -0.9 -0.9 driven by civil servant wage increases and election- related spending. As a result, the general government Cambodia’s real growth is projected to reach 6.1 expenditure also eased, estimated to have reached 26.7 percent in 2025 and 6.4 percent in 2026. The percent of GDP in 2023, down from 27.7 percent of tourism and hospitality industries are anticipated GDP in 2022. The fiscal deficit (including grants) to continue to expand, with a projected increase in is estimated to have widened to 5.3 percent of GDP international arrivals, surpassing the pre-pandemic in 2023, up from 4.4 percent in 2022. Financing the levels in the coming years, while goods exports and widening fiscal deficit required increased drawdown FDI inflows are expected to be further strengthened of government deposits (fiscal reserves), which by the newly ratified free trade agreements and a declined to 16.4 percent of GDP in 2023, down from substantial increase in private and public investment 18.1 percent in 2022. However, public debt remained in key physical infrastructure. low at 35.2 percent of GDP in 2023. Cambodia Economic Update June 2024 3 Policy options reduce time needed to import, there is an urgent need to accelerate implementation of pre-arrival Against the backdrop of the ongoing recovery, processing electronically, while undertaking complete more efforts are needed to restore fiscal space automation of customs clearance procedures to as Cambodia’s fiscal buffers have shrunk, after allow the official use of electronic documents to years of government fiscal intervention. First, shorten export time. The 2023 Enterprise Surveys increasingly generous tax holidays and exemptions also revealed that in Cambodia, 28 days were needed should be reviewed. Second, reforming the corporate to obtain an import license and 30 days to obtain an income tax to broaden the tax base and strengthen operating license, compared to, respectively, 13.2 days compliance is a must. Third, introducing a personal and 10.7 days in Vietnam, and 9 days and 5 days in income tax should be a medium-term objective of the Indonesia. next revenue mobilization strategy. Therefore, streamlining complex and restrictive Given high levels of private debt, rising NPLs business entry requirements, together with and falling returns to banking sector assets, improvements to the functioning of the safeguarding financial stability also remains insolvency framework, will help reduce costs important. The recent credit boom has resulted in of firm entry and exit, while promoting the relatively high levels of private sector debt, which is predictability of the regulatory environment. concentrated in real-estate exposures. To safeguard Considerable effort is needed to simplify and financial stability, the immediate focus should be digitalize business services, especially the issuance on intensified bank supervision: stress testing of of licenses and permits to reduce the associated individual institutions, systematic onsite inspections, costs. Accelerating full implementation of the final further alignment of the regulatory framework with phase of the National Single Window to include international standards, and thorough assessments of licenses, permits, certificates, and other documents, the quality of loan portfolios, among others. There was is necessary. Fast-tracking the implementation of a rapidly growing number of financial institutions in licensed economic operators is also needed. Cambodia until 2022. Therefore, a consolidation of the financial sector through mergers and acquisitions Boosting learning outcomes is fundamental to should help preserve profit margins by improving develop a “future-ready” workforce and drive their efficiency and increasing market share. To Cambodia’s future productivity growth as the prepare for increasing levels of nonperforming loans, country endeavors to become an upper middle- it is crucial to ensure that resolution options are now income economy by 2030 and a high-income ready to be deployed as needed, and to strengthen economy by 2050. Labor productivity growth the country’s insolvency regime. Efforts to prepare has declined sharply over the past five years. Few legislation on deposit insurance and bank resolution young Cambodian children are being enrolled in must continue. early childhood education, while primary schools are experiencing a decline in learning outcomes. More effort is urgently needed to create Few students are progressing to secondary school, an accommodating business environment and those that do are often inadequately prepared encouraging firms to operate, innovate, and and experience high dropout rates. (See the Special increase productivity in an efficient manner. Focus section for a more in-depth discussion on It is necessary to address the top three perceived strengthening Cambodia’s education system for constraints, which are practices of the informal sector, future growth.) tax rates, and tax administration identified by the 2023 World Bank Enterprise Surveys, by promoting It is also important to improve logistics business registration, reducing the tax compliance performance, as targeted by the Pentagonal burden, and reviewing effective tax rates. The 2023 Strategy.1 Further efforts must be made to reduce Enterprise Surveys indicate that in Cambodia, 8.2 days transport and logistics costs by monitoring the were needed to clear direct exports through customs efficiency of main trade gateways such as ports and 9 days were needed to clear imports, compared and border checkpoints. The Enterprise Surveys to 4 days and 8.3 days, respectively, in Vietnam. To reveal that transportation is now the fourth greatest constraint for businesses. This is consistent with 1 The Pentagonal Strategy is a roadmap for transforming Cambodia into a high-income country by 2050. 4 Cambodia Economic Update June 2024 one of the findings discussed in a policy note that Cambodia, compared to 12.7 percent (0.2 outages analyzed post-pandemic supply chain disruptions. in a typical month) in Indonesia, and 28.6 percent The findings indicated that the national logistics (0.4 outages in a typical month) in Malaysia (2019). costs in Cambodia are significantly higher than in Inadequate electricity supply can increase costs, comparable ASEAN countries, estimated at 26.4 disrupt production, and reduce profitability. The percent of GDP in 2020. To this end, it is necessary Enterprise Surveys indicated that in Cambodia, losses to establish a team, and local authorities dedicated to due to electricity outages worsened as associated costs facilitating trade with hotline support, especially for rose from 0.3 percent of annual sales in 2013 to 1.1 road transport. percent in 2023, well above Indonesia (0.2 percent), Vietnam (0.2 percent), and Singapore (zero percent). Upgrading Cambodia’s infrastructure, Large investments are needed in the energy sector to particularly its electricity supply, is critically address the dual challenge of meeting rapid growth important for moving up to higher-value-added in electricity demand while meeting the country’s manufacturing and agro-processing industries. climate change commitments. Investments are While access to electricity has significantly also needed to upgrade basic urban services such as improved, low reliability of power supply remains piped water, sanitation, solid waste management, a key bottleneck. The Enterprise Surveys indicate telecommunications, and transport, in conjunction that 43 percent of surveyed firms experienced with strengthened urban planning. electrical outages (0.9 outages in a typical month) in Photo: Pexels-kelly Cambodia Economic Update June 2024 5 FIGURE ES.1. CAMBODIA’S RECENT DEVELOPMENTS AT A GLANCE FIGURE FIGURE FIGURE ES.1. ES.1. ES.1. CAMBODIA’S CAMBODIA’S CAMBODIA’S RECENT DEVELOPMENTS RECENT RECENT DEVELOPMENTS DEVELOPMENTS ATAT AA AT GLANCE A GLANCE GLANCE FIGUREES.1. FIGURE ES.1. FIGURE CAMBODIA’S CAMBODIA’S ES.1. RECENT CAMBODIA’S RECENT RECENTDEVELOPMENTS DEVELOPMENTS DEVELOPMENTS AT A GLANCE ATA AT AGLANCE GLANCE Economic growth accelerated … Supported by rising services exports … Economic Economic Economic growth growth growth Real accelerated growth accelerated accelerated (percent) …… … Supported Supported Supported bybyrising by rising International services rising services services arrivals exports (million exports ) …… exports … Economic Economic growth growth accelerated accelerated … Supported by services ) exports … Economic Real growth growth Real Real growth growth (percent) … accelerated... (percent) (percent) Supported ...Supported byrising Internationalrising International International services services arrivals arrivals arrivals exports exports... (million (million (million ) ) … Real Real Real growth growth growth (percent) (percent) (percent) International International International arrivals arrivals arrivals (million (million (million) )) Pre-COVID historical average (5 years) Arrivals (million) 10.0 Pre-COVID Pre-COVID Pre-COVID historical average historical historical (5 (5 average average years) (5 years) years) Arrivals (million) 10.0 GDP growthhistorical Pre-COVID average (5 years) Arrivals Arrivals (million) (million) 10.0 10.0 Pre-COVID historical average (5 years) 0.8 Pre-COVID Arrivals Arrivals historical average (5 years) (million) (million) 10.0 10.0 GDP growth GDP GDP growth growth 0.8 Pre-COVID historical average years) (5 (5 8.0 GDP growth 0.8 0.8 Pre-COVID Pre-COVID historical historical average average (5 years) years) GDP growth 6.4 0.7 0.80.8 Pre-COVID Pre-COVID historical average historical (5 average (5years) years) 8.0 8.0 8.0 0.7 8.0 6.1 6.4 6.4 6.4 0.7 0.7 8.0 5.8 6.1 0.6 0.70.7 6.0 5.8 6.1 6.4 6.1 6.4 0.6 6.0 6.0 5.8 6.1 5.8 6.1 0.6 0.6 6.0 5.8 5.8 0.5 0.60.6 6.0 6.0 0.5 4.0 0.5 0.5 4.0 0.4 0.50.5 4.0 4.0 0.4 4.0 4.0 0.4 0.4 2.0 0.3 0.40.4 2.0 2.0 0.3 0.3 0.3 2.0 0.2 0.3 2.0 2.0 0.3 0.0 0.2 0.2 0.2 0.0 0.0 0.1 0.20.2 0.0 0.1 0.0 0.0 0.1 0.1 -2.0 0.0 0.10.1 -2.0 -2.0 -2.0 0.0 0.0 0.0 -2.0 -2.0 -0.1 0.00.0 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 -4.0 -0.1 -0.1 -0.1 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2014 2017 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 -4.0 -0.1 -0.1 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 -4.0 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 -4.0 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2014 2017 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2014 2017 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2014 2017 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 -4.0 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 -4.0 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2014 2017 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023e 2024p 2025p 2026p 2014 2017 … And a revival of goods exports … … Inflation declined to zero over the 12-month ending … And … Andaa …...And And revival( of arevival revival goods of of goods goods exports …… exports exports … ……In …Infl Ination flfl declined ation ation to declined declined tozero to over zero the over the the 12-month 12-monthending 12-month ending ending Goods ……And Goods And aaa exportsyear revival exportsrevival ( year to toof of of goods date, y/y goods date,goods y/y exports... percent exports exports percent change) …… change) …...Inflation …In Inflfl ation declined March declined declined ation March to zero 2024, toto 2024, zero a over aover 15 zero 15 -year over the -yearthe 12 low low months 12-month … … ending 12-month ending ending Goods Goods Goods exports exports ( year year ( toto exports (year-to-date, date date, , y/y y/y percent percent y/y percent change) change) percent change) March March 2024, 2024, 2024, a a 1515 -year -year low low …… Goods Goodsexports exportsyear ( ( to year todate , ,y/y date y/y percentchange) change) March March (y/y (y/y percent 2024, 2024, aa15-year percent1515 change) -year -year change) low... low low… … (y/y (y/y (y/y percent percent percent change) change) change) (y/ypercent (y/y percentchange) change) Exports Headline inflation (y/y) Exports Exports Exports Headline infl Headline ation in (y/y) flation (y/y) 40 Pre-COVID Exports historical average (5 years) 10 Headline in flation (y/y) Exports Pre-COVID Headline Headlineinin historical ation flflation average (10 years) (y/y) (y/y) 4040 40 Pre-COVID historical Pre-COVID Pre-COVID average historical historical (5 (5 average average years) (5 years) years) 101010 Pre-COVID historical average (10 years) 40 Pre-COVID historical average (5 years) 10 Pre-COVID Pre-COVID historical historical average average (10 (10 years) years) 3040 Pre-COVID historical average (5 years) 10 8 Pre-COVID Pre-COVID historical average historical average(10 (10years) years) 3030 30 8 88 3030 88 6 20 2020 20 6 66 2020 66 4 10 1010 10 4 44 1010 44 2 0 0 00 2 22 00 22 0 -10 -10 0 00 -10-10 00 -10 -10 -20 -2 -2 -2-2 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-13 Aug-13 May-15 Dec-15 Jul-16 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Jan-24 Mar-24 Mar-14 Oct-14 Feb-24 Feb-17 Sep-17 -20 -20-20 -2 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-13 -2 Aug-13 May-15 Dec-15 Jul-16 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Jan-24 Mar-24 Mar-14 Oct-14 Feb-24 Feb-17 Sep-17 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-13 Aug-13 May-15 Dec-15 Jul-16 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Jan-24 Mar-24 Mar-14 Oct-14 Feb-24 Feb-17 Sep-17 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-13 Aug-13 May-15 Dec-15 Jul-16 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Jan-24 Mar-24 Mar-14 Oct-14 Feb-24 Feb-17 Sep-17 -20 -20 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-13 Aug-13 May-15 Dec-15 Jul-16 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Jan-24 Mar-24 Mar-14 Oct-14 Feb-24 Feb-17 Sep-17 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-13 Aug-13 May-15 Dec-15 Jul-16 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Jan-24 Mar-24 Mar-14 Oct-14 Feb-24 Feb-17 Sep-17 … Broad money (M2) growth picked up … … Domestic revenue slowed . ………...Broad Broad Broad Broad money money money(M2) money (M2) (M2) (M2) growth growth growth growth picked picked up picked picked up... up …… up … ...Domestic …(percent Domestic … Domestic …Domestic revenue revenue revenue revenue slowed slowed slowed . .. slowed … Broad Broad Broad …Broad money money money liabilities (M2) (M2) (y/y growth growth percent picked picked change) up up …… …… of GDP, Domestic Domestic y/y percent revenue revenue change) slowed slowed .. money money Broad Broad liabilities liabilities money money liabilities(y/y (y/y liabilities percent (y/ypercent (y/y change) percentchange) percent change) change) (percent (percentof of (percent (percent GDP, of of GDP,y/y y/y GDP, percent y/y y/ypercent percentchange) percentchange) change) change) 60 moneyliabilities Broadmoney Broad (y/ypercent liabilities(y/y percentchange) change) (percent ofGDP, of (percent y/ypercent GDP,y/y percentchange) change) 60 60 60 60 M2 y/y, percent change Domestic revenue 60 Domestic revenue 50 M2 M2y/y, M2 percent y/y, y/y, change percent percent change change Domestic Domestic revenue revenue M2M2 y/y, y/y,percent percentchange change Domestic Pre-COVID-19 Domestic revenuehistorical aveage revenue 5050 50 Pre-COVID historical average Pre-COVID-19 historical aveage 50 Pre-COVID 20 (5 Pre-COVID-19 Pre-COVID-19 years) historical historical aveage aveage 50 years) historical Pre-COVID Pre-COVID (5 average historical historical average average 2020 20 Pre-COVID-19 (5 (5Pre-COVID-19 years) historical aveage historical aveage 40 Pre-COVID Pre-COVID (5 (5 years) historical historicalaverage average (5 years) years) (5 years) years) 15 2020 (5(5years) years) 4040 40 (5(5years) years) 1515 15 40 40 10 1515 30 1010 10 3030 30 105 10 30 30 5 55 20 055 2020 20 0 00 20 20 -5 00 10 -5 -5-5 1010 10 -10 -5-5 10 10 -10 -10-10 0 -15 -10 -10 0 00 -15 -15-15 2019 2020 2021 2022 2023e Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 00 -15 -15 2019 2019 2019 2020 2020 2020 2021 2021 2021 2022 2022 2022 2023e 2023e 2023e Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 2019 2019 2020 2020 2021 2021 2022 2022 2023e 2023e Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 Sources: Cambodian authorities; World Bank staff projections. Note: e = estimate; p = projection; y/y = year-on-year. 6 Cambodia Economic Update June 2024 as elevated debt and weakness in the property RECENT DEVELOPMENT sector, as well as longer-term structural factors, such as aging and decoupling, weigh on growth. Economic activity has picked up The rest of the EAP region, which had suffered in 2023 The global economy is set to slow further this from slow trade growth and tight financial conditions, year, amid the lagged and ongoing effects of tight is expected to grow by 5.0 percent in 2024. The likely monetary policy, restrictive financial conditions, rebound in global goods trade and the projected easing and feeble global trade and investment.2 Global of global financial conditions are expected to offset the growth is expected to slow to 2.4 percent in 2024 – the impact of China’s slowing growth. third consecutive year of deceleration – reflecting the Resilient economic activity in the United States lagged and ongoing effects of tight monetary policies (U.S.) should support Cambodia’s merchandise to rein in decades-high inflation, restrictive credit exports, given that the U.S. is Cambodia’s largest conditions, and anemic global trade and investment. export market, while declining inflation, which may Near-term prospects are diverging, with subdued result in monetary policy easing in the U.S., should growth in major economies alongside improving help contain the country’s inflation and interest conditions in emerging market and developing rates, given the economy is highly dollarized. In economies with solid fundamentals (see box 1 on contrast, slower growth in China could negatively global economic developments and outlook). The impact the economy, given that China is one of recent conflict in the Middle East, coming on top Cambodia’s major trading partners, especially for of the Russian Federation’s invasion of Ukraine, imports of intermediate goods used in the production has heightened geopolitical risks. On the upside, of garment, travel goods, and footwear products for resilient economic activity and declining inflation in exports. China is also the main source of foreign direct the United States could be sustained, even in the face investment (FDI) and tourism receipts for Cambodia. of substantial headwinds, if aided by further labor Chinese FDI continued to account for about half of supply improvements. Thus, there is a possibility that FDI inflows. Chinese tourists accounted for a third of U.S. growth continues to be stronger than projected total international tourist arrivals to Cambodia before as price pressures recede and monetary policy is eased, the pandemic. which would bolster global activity. Most economies in developing East Asia and International arrival numbers Pacific (EAP) are growing faster than the rest accelerated of the world but more slowly than before the pandemic.3 Economic performance in the Despite external headwinds, Cambodia’s region, including Cambodia, is being shaped by a economic recovery has accelerated, although combination of external and domestic developments. growth remains at a slower pace than during the Slowing global growth, still-tight financial pre-COVID-19 period (figure 1). The recovery conditions, and an increase in trade protection and is largely underpinned by a revival of services and industrial support in large and rich countries are goods exports. During the first quarter of 2024, key aspects of the external environment. Amplified international arrivals reached 1.58 million, up from public and private debt, constrained macroeconomic 1.29 million during the same period in 2023. The policy, and increased political and policy uncertainty recovery of international tourist arrivals in Cambodia are the major domestic issues. While domestic factors is relatively comparable to those of Thailand, but are likely to be the dominant influence on growth in slower than those of Vietnam. During the first quarter China, external factors will have a stronger influence of 2024, tourist arrivals in Cambodia recovered to on growth in much of the rest of the region, including 84.3 percent of the arrival number recorded during Cambodia. the same period in 2019 (figure 2), compared to 75.9 percent and 103.15 percent for Thailand and Growth in China is projected to slow in 2024, Vietnam, respectively. However, the composition of as the bounce back from the reopening of the arrivals has changed, indicating a slower recovery of economy fades and proximate problems, such tourism receipts. During the pre-pandemic period, 2 World Bank 2024a. 3 World Bank 2024b. Cambodia Economic Update June 2024 7 Box 1. Global economic developments and outlook Although recent economic activity has proved surprisingly resilient in some major economies, notably the United States, the global outlook remains subdued, with global growth of 2.4 percent projected for 2024, and 2.7 percent in 2025) (figure B.1.1).a Even with the expected modest pickup next year, growth is set to remain below the pre-pandemic average amid the lagged and ongoing effects of tight monetary policy and elevated geopolitical uncertainty. Global headline and core inflation have continued to decline from 2022 peaks. However, inflation remains above target in many economies, and globally is projected to stay above its pre-pandemic average beyond this year. Monetary tightening in advanced economies and emerging market and developing economies (EMDEs) appears to have mostly concluded, but interest rates are expected to remain elevated for some time, as inflation returns to target only gradually. This will keep the stance of monetary policies in advanced economies restrictive in the near term, following the largest and fastest increase in U.S. real policy rates since the early 1980s. In 2023, global trade was largely stagnant, recording its worst outcome in the past 50 years outside global recessions, but is expected to recover mildly this year. Goods trade contracted last year, reflecting falling trade in key advanced economies and a deceleration in EMDEs, while services trade lost momentum following an initial rebound from the pandemic. In February 2024, global goods trade increased for almost the first time in a year (figure B.1.2). Global trade growth is expected to pick up this year, supported by expanding goods trade, but will remain below pre- pandemic averages. The contribution of services to total trade growth is expected to decrease, aligning more closely with the composition of trade before the pandemic. Although global food and energy prices have moderated from their peaks in 2022, since the beginning of this year heightened geopolitical tensions have seen upward pressure on the prices of key commodities, notably oil. Assuming no escalation of ongoing conflicts, overall commodity prices are forecast to decline only slightly in 2024 and 2025, and to remain about 38 percent above pre-pandemic levels.b In the East Asia and Pacific (EAP) region, growth is expected to slow this year.c This primarily reflects weakening growth in China, where the boost from the post-pandemic release of pent-up demand has faded. Amid softening consumption and a continued downturn in the property sector that will weigh on investment, growth in China is projected to decline from 5.2 percent last year to 4.5 percent this year. Next year, growth is projected to slow further, to 4.3 percent. In the EAP excluding China, growth is expected to pick up modestly, from 4.4 percent in 2023 to 4.6 percent in 2024, supported by the anticipated recovery in global trade, and then strengthen to 4.8 percent next year. Risks to the global outlook remain titled to the downside. An escalation in armed conflict could weaken global sentiment and push up commodity prices, stoking still-elevated global inflation and delaying global monetary easing. A further downside risk concerns the possibility of tighter-than-expected global financial conditions. Monetary easing in advanced economies could be delayed if progress returning inflation to targets slows, while an intensification of geopolitical tensions could lead to a lower global risk appetite. Weaker-than-expected growth in China, stemming from a protracted slowdown in the property sector, and climate-change-related natural disasters, pose further key downside risks to the global outlook. FigureB.1.1. Figure Global B.1.1. Global growth growth FigureB.1.2. Figure B.1.2.Global Globalgoods goodstrade trade growth growth Figure B.1.1. Global growth Figure B.1.2. Global goods trade growth Percent Percent 8 8Percent Percent 88 2010-19 average 2010-19 average 66 66 44 44 22 22 00 00 -2-2 -2 -4 -2 -4 -4-4 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 2014 Feb-24 2017 2024f 2025f 2010 2011 2012 2013 2015 2016 2018 2019 2020 2021 2022 2023 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 2014 Feb-24 2017 2024f 2025f Source: World Bank. Source: CPB World Trade Monitor. Note: Real world GDP growth. 2024 and 2025 are forecasts. Note: Year-on-year change in real global goods trade. Sources: a. World Bank 2024a, b. World Bank 2024c. c. World Bank 2024d. Note: This box was prepared by Samuel Christopher Hill, DECPG. 8 Cambodia Economic Update June 2024 air arrivals, which are often associated with relatively Foreign tourists visiting Siem Reap high tourist expenditure, accounted for two-thirds and land arrivals for one-third. The opposite has remained below 2019 levels been true in the post-COVID-19 period. During the During the first quarter of 2024, as a share first quarter of 2024, international arrivals by land of 2019 arrivals, total international tourist accounted for 60.0 percent (0.94 million) of the total, arrivals to Siem Reap reached only 28.8 percent. while air arrivals accounted for the remaining 40 International arrivals to Siem Reap reached 0.2 percent (0.64 million). In addition, while the share of million, accounting for 13.0 percent of the total Chinese tourists was the largest, amounting to almost during the first quarter of 2024, compared to 0.71 40 percent of total arrivals during the pre-pandemic million or 38.2 percent of the total during the same period, it accounted for only 12.0 percent and ranked period in 2019. As Siem Reap province is the largest third during the first quarter of 2024. tourist attraction site in the country, the revival of the Thai and Vietnamese visitors now comprise the tourism sector remained below the expectations of first- and second-largest number of tourists, many travel, tourism, and hospitality industries there. accounting for 26.5 percent and 18.9 percent of In addition, the number of arrivals at Kong Keng the total, respectively, up from 5.6 percent and International Airport at Sihanoukville, a Chinese 10.0 percent, respectively, in 2019. Rising land investment hotspot (receiving the approved property arrivals reflect increased foreign tourists with relatively development permit value of almost US$6 billion short lengths of stay and low daily expenditures, during 2018–20) remained subdued, at only 3,600 mainly Thai, crossing from Aranyaprathet (Thailand) (0.2 percent of the total) during the first quarter of to visit mostly Poi Pet (Cambodia), where there are 2024, down from 75,000 (6.0 percent of the total) casinos catering to foreign tourists. Cambodia’s during the same period in 2019. neighbors, especially Thailand and Vietnam, have Revenue collection from Angkor Temple been more successful in attracting Chinese tourists. entrance fees rose to US$22.0 million, or a 97.8 During the first quarter of 2024, Chinese tourists percent y/y increase during the first quarter of accounted for 21.4 percent for Thailand and 19.1 2024.4 However, the revenue accounted for only percent for Vietnam, compared to 12.0 percent for 61.3 percent of the 2019 level. Although international Cambodia. arrival numbers quickly recovered, tourism receipts Figure Figure 1. Economic Figure 1. Economic recovery 1. Economic recovery continued continued recovery continued Figure Figure Figure 2. 2. Three-month 3-month 2. 3-month arrival s and arrival arrivals s tourism and and receipts tourism receipts Contribution Contribution toreal to Contribution toGDP real GDP growth real GDP growth tourism (percent, (percent, 2019 receipts = 100) 2019 = 100) (percent) (percent) (percent) (percent, 2019 = 100) Agriculture Agriculture TaxesTaxes less subsidies less subsidies Revenue from from Revenue Angkor temple Angkor entrance temple fees fees entrance Serv-others Serv-others Serv-hotels Serv-hotels & rests& rests Arrivals Arrivals 2019 2019 Indus-others Indus-others Indus-construction Indus-construction Indus-garment Indus-garment & footwear & footwear GDPGDPgrowthgrowth 84.3 84.3 9 9 7.5 7.5 6.9 7.0 7.1 7.1 7.0 7.0 7.0 6.9 6.4 6.4 68.8 68.8 6 6 5.8 6.1 5.4 6.1 5.4 5.8 5.2 5.2 3.0 3.0 61.5 61.5 61.3 61.3 49.8 49.8 3 3 0 0 31.0 31.0 -3 -3 -3.1 -3.1 8.5 8.5 0.5 3.8 2.3 2.3 0.5 3.8 -6 -6 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023e 2023e 2024p 2024p 2025p 2025p 2026p 2026p Q1 2020 Q1 2020 Q1 2021 Q1 2021 Q1 2022 Q1 2022 Q1 2023 Q1 2024 Q1 2023 Q1 2024 Sources: Cambodian authorities and World Bank staff projections. Source: Cambodian authorities. Note: e = estimate, p = projections. Figure Figure 3. 3.Contribution Contribution to export to export growth growth by by product product Figure 4. Contribution Figure 4. Contribution to export to export growth by market growth by market (YTD,(YTD, 4 Angkor Enterprise 2024. percentage point) percentage point) (YTD, percentage (YTD, percentage point point ) ) Others Others Gold Gold Agricultural Agricultural commodities commodities WoodsWoods ASEAN ASEAN EU EU USA USA Bicycle Bicycle Electricals Electricals and parts and parts Cambodia Travel Travel Goods Goods Footwear Footwear 40 40 China China RoWRoW TotalTotal 9 40 40 Economic Update June 2024 Clothing Clothing & textiles & textiles exports TotalTotal exports 30 30 30 30 20 20 received from international arrivals by land are acceleration. Goods exports to the U.S., Cambodia’s estimated to have been lower than those from air largest export market, accounting for 31.4 percent of arrivals. In 2023, Cambodia’s tourism receipts were total exports, reached US$2.0 billion, or an 8.9 percent estimated by the Cambodian authorities to have y/y increase during the first quarter of 2024, driven by reached only 62.9 percent (US$3.08 billion) of what exports of GTF products. Of the 17.2 percent goods was collected in 2019 (US$4.9 billion).5 export increase, garment, travel goods, footwear, and wood (plywood and furniture) products contributed Goods exports accelerated 7.6 percentage points, 1.1 percentage points, 0.4 percentage points, and 0.8 percentage points of the Driven by stronger external demand, Cambodia’s increase in goods exports to the market, respectively, merchandise exports accelerated. During the first while the rest of the products contributed 7.2 quarter of 2024, goods exports (including gold) rose by percentage points. Figure 17.2 percent Figure Economic 1. 1. y/y, Economic reaching recovery recovery US$6.3 continued continued billion. This year’s Figure Figure 2. 2.3-month 3-month arrival arrival s and s and tourism tourism receipts receipts Contribution Contribution real to to GDP real GDP growth growth (percent, (percent, 2019 2019 = 100) = 100) goods export acceleration has been (percent) (percent) largely boosted by a ASEAN has become Cambodia’s revival of exports of garment, travel goods, and footwear (GTF) products. Agriculture Agriculture Exports of non-GTFServ-hotels Taxes Taxes lessless products, subsidies subsidies which second-largest Revenue Revenue Arrivals export from from Arrivals Angkor Angkor market temple temple 2019 entrance 2019 fees entrance fees Serv-others Serv-others Serv-hotels & rests & rests mainly include agricultural Indus-others Indus-others commodities, electronics, Indus-construction Indus-construction Since 2023, the Association of Southeast Asian electrical, solar panels,& leather, Indus-garment Indus-garment footwear & footwear furniture, GDPGDP and growth growth other Nations (ASEAN) has overtaken the EU to84.3 become 84.3 9 9 products 6 continued 7.07.0 7.0 6.96.9 7.07.5to 7.5be 7.1 resilient 7.1 (figure 3). The revival Cambodia’s second-largest export market. The 6.46.4 68.8 68.8 garment of 6 6 product exports has also been 5.25.2 reflected 5.45.4 5.85.8 6.1in 6.1the of share61.5 the ASEAN market rose to 20.1 61.5 percent 61.3 61.3 of 3.03.0 recovery of main intermediate goods imports, especially the total in 2023, up from 14.6 percent in 2022, while 49.8 49.8 3 3 used for manufacturing GTF products. Fabric fabric, the share of the EU market declined to 15.6 percent imports 0 0 rose, growing at 10.0 percent y/y during the first of the total, down from 18.0 percent 31.0during the same 31.0 quarter of 2024, up from a negative 20.4 percent during period. Goods exports to the ASEAN market increased -3 same the -3 period in 2023. -3.1 -3.1 further, accounting 8.58.5 percent of total goods for 28.0 3.83.8 2.32.3 0.50.5 In addition, a recovery of GTF exports to -6 -6 exports, reaching US$1.8 billion, or a 33.1 percent 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023e 2023e 2024p 2024p 2025p 2025p 2026p 2026p Cambodia’s main export markets, especially y/y Q1increase Q1 2020 during 2020 Q1 Q1 2021 2021the Q1first 2022 2022 Q1 quarter2023 Q1Q1 of 20232024. Q1Q1 Exports 2024 2024 the United States (U.S.) and the European Union of cashew nut, cassava, rubber, and mango products (EU) (figure 4) has been behind the recent export contributed 6.6 percentage points, 5.4 percentage Figure Figure Figure 3. 3.3. Contribution Contribution Contribution to to export to export export growth growth growth by byby product product Figure product Figure Figure4. 4. Contribution Contribution 4. export toexport to to Contribution growth export byby growth growthmarket market by market (YTD, (YTD, percentage percentage point) point) (YTD, (YTD, percentage percentage point point ) ) (YTD, percentage point) (YTD, percentage point) Others Others Gold Gold Agricultural commodities Agricultural commodities Woods Woods ASEAN ASEAN EUEU USA USA Bicycle Bicycle Electricals and Electricals parts and parts Travel Goods Travel Goods Footwear Footwear 40 40 China China RoW RoW Total Total 40 40 Clothing & textiles Clothing & textiles Total exports Total exports 30 30 30 30 20 20 20 20 10 10 10 10 0 0 0 0 -10-10 -10-10 -20-20 -20-20 Jan-20 Jan-20 Mar-20 Mar-20 May-20 May-20 Jul-20 Jul-20 Sep-20 Sep-20 Nov-20 Nov-20 Jan-21 Jan-21 Mar-21 Mar-21 May-21 May-21 Jul-21 Jul-21 Sep-21 Sep-21 Nov-21 Nov-21 Jan-22 Jan-22 Mar-22 Mar-22 May-22 May-22 Jul-22 Jul-22 Sep-22 Sep-22 Nov-22 Nov-22 Jan-23 Jan-23 Mar-23 Mar-23 May-23 May-23 Jul-23 Jul-23 Sep-23 Sep-23 Nov-23 Nov-23 Jan-20 Jan-20 Mar-20 Mar-20 May-20 May-20 Jul-20 Jul-20 Sep-20 Sep-20 Nov-20 Nov-20 Jan-21 Jan-21 Mar-21 Mar-21 May-21 May-21 Jul-21 Jul-21 Sep-21 Sep-21 Nov-21 Nov-21 Jan-22 Jan-22 Mar-22 Mar-22 May-22 May-22 Jul-22 Jul-22 Sep-22 Sep-22 Nov-22 Nov-22 Jan-23 Jan-23 Mar-23 Mar-23 May-23 May-23 Jul-23 Jul-23 Sep-23 Sep-23 Nov-23 Nov-23 Jan-24 Jan-24 Mar-24 Mar-24 Jan-24 Jan-24 Mar-24 Mar-24 Source: Cambodian authorities. Source: Cambodian authorities. Note: YTD = year-to-date. Note: RoW = rest of the world; YTD = year-to-date. Figure Figure Manufacturing 5. 5.Manufacturing sector’s sector’s jobs jobs and and factories factories Figure Figure 6. 6. Garment, Garment, travel travel goods, goods, and footwear and jobs footwear jobs 5 Ministry of Tourism 2024. 6 Unfortunately, further analysis cannot be conducted, as a large part of non-GTF exports is classified as “others” exports under Cambodia’s goods export data. Workers Workers Factories Factories Garment Garment Travel Travel goods goods & footwear & footwear (RHS) (RHS) 700700 280280 1,070 1,070 2,300 2,300 Thousands Thousands Thousands Thousands 680680 270270 2,200 2,200 1,050 1,050 660660 10 Cambodia Economic Update June 2024 260260 2,100 2,100 640640 1,030 1,030 250250 2,000 2,000 620620 600 600 240 240 Figure1. Figure Economicrecovery 1. Economic continued recoverycontinued Figure Figure2. 2. 3-month arrival ss and 3-month arrival tourismreceipts andtourism receipts Contributionto Contribution realGDP toreal GDPgrowth growth (percent,2019 (percent, 2019= 100) =100) (percent) (percent) Agriculture Agriculture Taxesless Taxes lesssubsidies subsidies Revenue Revenuefrom Angkortemple fromAngkor templeentrance fees entrancefees Serv-others Serv-others Serv-hotels Serv-hotels&&rests rests Arrivals Arrivals 2019 2019 Indus-others Indus-others Indus-construction Indus-construction points, 3.6 percentage Indus-garment &footwear Indus-garment& points, footwear and GDP 2.6 percentage growth GDPgrowth in 2023 (and 40.0 percent, 14.7 percent, and 18 points of the increase in goods export to the ASEAN 84.3 84.3 percent, respectively in 2022). So, a rapid expansion 99 7.0 6.9 7.5 7.1 7.0 7.5 6.9 7.0 7.0 respectively, 7.1 market, while the rest of the products6.4 6.1 6.4 of the share of the ASEAN market, 68.8driven mainly by 68.8 66 5.2 5.4 5.2 5.8 6.1 5.4 5.8 contributed 15.0 percentage 3.0 points. 3.0 Unlike the U.S. non-GTF 61.5 61.5 exports, which rose to 28.0 percent 61.3 of total 61.3 33 EU) markets, which import mostly Cambodia’s (and during the first quarter of 2024, up from 24.7 percent 49.8 49.8 GTF products and bicycles, the ASEAN market largely in 2023 (and 14.7 percent in 2022), will lessen the 31.0 31.0 imports 00 Cambodia’s agricultural commodities, which country’s reliance on the U.S. and EU markets, driven include cassava, cashew nut, rubber, and mango, which largely by GTF exports. -3 -3 -3.1 -3.1 8.5 8.5 accounted for 25.0 percent, 14.1 percent, 5.7 percent, 3.8 0.53.8 0.5 2.3 2.3 and -6 2.4 percent of total goods exports to the market, -6 Manufacturing jobs increased, thanks 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023e 2023e 2024p 2024p 2025p 2025p 2026p 2026p respectively, during the first quarter of 2024. to Q1 the Q12020 2020 expansion Q12021 Q1 2021 Q1 of Q12022 GTF 2022 Q1 exports 2023 Q12023 Q12024 Q1 2024 Goods exports to the EU, Cambodia’s third- Consistent with improved goods exports, largest export market, accounting for 14.3 employment in the manufacturing sector also percent of total exports, reached US$903 expanded. After some easing in labor market Figure3. Figure 3. or million, Contribution Contribution an 11.9 percent toexport to exportgrowth growth y/y by product by increase product during Figure4. Figure Contributionto 4. Contribution toexport growthby exportgrowth bymarket market (YTD, (YTD, percentage percentage point) point) was conditions (YTD, observed (YTD, percentage percentageduring point)) the first half of point the first quarter of 2024, driven mainly by 2023, manufacturing jobs started to recover. The exports of garment and rice products. Others Others Gold Gold Of the manufacturing sector added 50,578 new jobs, reaching Agricultural Agricultural commodities commodities Woods Woods increase in goods exports to the EU market, garment ASEAN (18.1 percent ASEAN 1.058 million EUof nonfarm employment) EU USA USA Bicycle Bicycle Electricalsand Electricals parts andparts products and rice Travel Travel Goods contributed 17.8 Goods Footwear Footwearpercentage 40 40 China China RoW RoW Total Total in March 2024 or a 5.0 percent y/y increase, as goods 40 40 points and Clothing Clothing & textiles &textiles 2.4 percentage Totalexports Total exports while points, respectively, 30 exports accelerated (figure 5). Employment gains were 30 the contribution of bicycle exports contracted by 30 30 recorded in most manufacturing industries during 7.8 percentage points. Japan, China, the United 20 20 20 20 the first quarter of 2024. Kingdom, and rest of the world markets accounted 10 10 10 10 for 5.8 percent, 5.8 percent, 3.3 percent, and 11.3 GTF manufacturing jobs, which account for 0percent, 0 respectively during the first quarter of 2024. 00 83.3 percent of total manufacturing jobs, rose -10 -10 -10 -10 to 0.88 million in March 2024 or a 4.0 percent The U.S., ASEAN, and EU markets accounted y/y increase. Of the 0.88 million workers, garment for 31.4 percent, 28.0 percent, and 14.3 percent -20 -20 -20 workers accounted for 0.6 million, and travel goods -20 of Cambodia’s total goods exports during the and footwear workers 0.28 million (figure 6). However, Jan-20 Jan-20 Mar-20 Mar-20 May-20 May-20 Jul-20 Jul-20 Sep-20 Sep-20 Nov-20 Nov-20 Jan-21 Jan-21 Mar-21 Mar-21 May-21 May-21 Jul-21 Jul-21 Sep-21 Sep-21 Nov-21 Nov-21 Jan-22 Jan-22 Mar-22 Mar-22 May-22 May-22 Jul-22 Jul-22 Sep-22 Sep-22 Nov-22 Nov-22 Jan-23 Jan-23 Mar-23 Mar-23 May-23 May-23 Jul-23 Jul-23 Sep-23 Sep-23 Nov-23 Nov-23 Jan-20 Jan-20 Mar-20 Mar-20 May-20 May-20 Jul-20 Jul-20 Sep-20 Sep-20 Nov-20 Nov-20 Jan-21 Jan-21 Mar-21 Mar-21 May-21 May-21 Jul-21 Jul-21 Sep-21 Sep-21 Nov-21 Nov-21 Jan-22 Jan-22 Mar-22 Mar-22 May-22 May-22 Jul-22 Jul-22 Sep-22 Sep-22 Nov-22 Nov-22 Jan-23 Jan-23 Mar-23 Mar-23 May-23 May-23 Jul-23 Jul-23 Sep-23 Sep-23 Nov-23 Nov-23 Jan-24 Jan-24 Mar-24 Mar-24 Jan-24 Jan-24 Mar-24 Mar-24 first quarter of 2024, respectively, compared to 33.8 jobs in the metal processing manufacturing industries, percent, 24.7 percent, and 15.0 percent, respectively accounting for 6.0 percent of total manufacturing Figure Figure Figure 5. Manufacturing 5. 5. Manufacturing Manufacturing sector’ssector sector’s jobsand jobs jobs and and factories factories Figure FigureFigure 6. 6. Garment, 6. Garment, Garment, travelgoods, travel travel goods, goods, and and and jobs footwear footwear foot- jobs factories wear jobs Workers Workers Factories Factories Garment Garment Travel Travelgoods &footwear goods& (RHS) footwear(RHS) 700 700 280 280 1,070 1,070 2,300 2,300 Thousands Thousands Thousands Thousands 680 680 270 270 2,200 2,200 1,050 1,050 660 660 2,100 2,100 260 260 640 640 1,030 1,030 250 250 2,000 2,000 620 620 1,010 1,010 1,900 1,900 600 600 240 240 580 580 230 230 1,800 1,800 990 990 560 560 1,700 1,700 220 220 970 970 540 540 1,600 1,600 210 210 520 520 950 950 1,500 1,500 500 500 200 200 Sep-19 Sep-19 Nov-19 Nov-19 Jan-20 Jan-20 Mar-20 Mar-20 May-20 May-20 Jul-20 Jul-20 Sep-20 Sep-20 Nov-20 Nov-20 Jan-21 Jan-21 Mar-21 Mar-21 May-21 May-21 Jul-21 Jul-21 Sep-21 Sep-21 Nov-21 Nov-21 Jan-22 Jan-22 Mar-22 Mar-22 May-22 May-22 Jul-22 Jul-22 Sep-22 Sep-22 Nov-22 Nov-22 Jan-23 Jan-23 Mar-23 Mar-23 May-23 May-23 Jul-23 Jul-23 Sep-23 Sep-23 Nov-23 Nov-23 Apr-20 Apr-20 Jun-20 Jun-20 Aug-20 Aug-20 Oct-20 Oct-20 Dec-20 Dec-20 Feb-21 Feb-21 Apr-21 Apr-21 Jun-21 Jun-21 Aug-21 Aug-21 Oct-21 Oct-21 Dec-21 Dec-21 Feb-22 Feb-22 Apr-22 Apr-22 Jun-22 Jun-22 Aug-22 Aug-22 Oct-22 Oct-22 Dec-22 Dec-22 Feb-23 Feb-23 Apr-23 Apr-23 Jun-23 Jun-23 Aug-23 Aug-23 Oct-23 Oct-23 Dec-23 Dec-23 Jan-24 Jan-24 Mar-24 Mar-24 Feb-24 Feb-24 Source: Cambodian authorities. Source: Cambodian authorities. Note: RHS = right-hand scale. Note: RHS = right-hand scale. Cambodia Economic Update June 2024 11 jobs, decreased to 0.06 million, or a 13.3 percent of total employment.7 Given that these industries y/y decline. Jobs in the chemical and plastics receive the minimum wage of about US$200 a manufacturing industries, accounting for 2.8 percent month, the economic effect created by the gains of of total manufacturing jobs, rose to 0.03 million, or a 50,578 employed people could be estimated to reach 63.9 percent y/y increase. Jobs in the food, beverage, between US$60 million to US$70 million in wages and and tobacco manufacturing industries, accounting for allowances alone covering October 2023–March 2024. 2.7 percent of total manufacturing jobs, rose to 0.029 million, or a 7.9 percent y/y increase. Approved FDI project value accelerated Indicating gradual productivity gains in The approved FDI project value classified as Cambodia’s GTF manufacturing industry a qualified investment project (QIP) reached before and after the pandemic, jobs in the GTF US$455 million, or a 149.8 percent y/y increase industries declined by 2.8 percent, decreasing to during the first quarter of 2024 (figure 7).8 0.84 million in 2023, down from 0.87 million in While recovering, the approved amount is still below 2019, while the value of GTF exports rose by 2.6 the approved FDI-financed project value during the percent, increasing to US$11.1 billion during same period in 2019, which was US$878 million. the same period. Indicating some gains in industrial Of the total US$455 million, the garment industry diversification, jobs in the non-GTF manufacturing received US$162.5 million or 36.0 percent of the industries rose to 0.2 million, or a 25.9 percent total, while the agricultural and agro-processing increase during the same period. Most of the gains sector received US$61.4 million or 13.0 percent are reflected in the metal processing industry, with its of total. The non-garment manufacturing sector employment share increasing to 7.0 percent of total received the remaining US$231.2 million or 51 manufacturing jobs, up from 5.5 percent, and in the percent of total (figure 8). The agricultural and food, beverage, and tobacco industries, with their agro-processing sector includes fruit plantation and job share rising to 2.7 percent, up from 1.8 percent processing projects (US$45.6 million) and pig farm during the same period. and processing projects (US$15.8 million), indicating an increased appetite for investing in the agriculture Jobs in the manufacturing sector account for 50 and agro-processing sector. The largest component of percent of industrial employment, 18.1 percent non-GTF manufacturing industries includes lighting of nonfarm employment, and 11.6 percent and decoration projects of US$36.6 million. Figure7. Figure Figure 7.Approved 7. Approved QIP projectvalue QIP project ApprovedQIP project value value Figure Figure Figure 8. 8.8. Approved Approved Approved FDI-financed FDI FDI - fi - fi nanced project nancedproject by project by sector by sector sector (US$ (US$ (US$billion, billion, billion,fixed fix fix ed edasset) asset) asset) (US$ million, (US$ million, Q1 Q1 of 2024) 2024) Q1of 2024) 2.5 2.5 Domestic Domestic FDI FDI 61.4 61.4 2.0 2.0 13% 13% 231.2 231.2 1.5 1.5 51% 51% 162.5 162.5 36% 36% 1.0 1.0 0.5 0.5 0.0 0.0 Agriculture Agriculture && food food Non-garment Non-garment Garment Garment Q1 Q1 2019 Q1 2019 Q1 2020 Q1 2020 Q12021 Q1 2021 Q1 2022 Q1 2022 Q1 2023 Q1 Q1 2023 2024 2024 processing processing industries industries Source: Cambodian authorities. Source: Cambodian authorities. Note: QIP = qualified investment project. 7 Ministry of Planning 2021. 8 Figure data9. Figure The newlyproperty Approved 9. Approved cover only property approvedproject projectpermits permits qualified Figure Figure investment projects located outside 10. 10. economic special Approved Approved permit permit zones. area area by by property property type type (US$ (US$ million) million) (million (million square square meters) meters) Approved Approved value value 12 3000 3000 o/w o/wvalue valuefor for SHV SHV 250 250 Residential Residential Industrial Industrial Commercial Commercial Cambodia Touristic Touristic Economic Others Update Others June 2024 Approved Approved value value (y/y, (y/y, RHS) RHS) 6.0 6.0 200 200 Millions Millions 2500 2500 5.0 5.0 150 150 Chinese FDI accounted for 95.0 percent of Property development remained the total approved FDI projects amounting to US$455 million. Vietnamese and Malaysian FDI sluggish financed the remaining projects. During the past Approved permit value for real estate development decade, most of the approved FDI-financed projects projects continued to trend down, consistent in Cambodia came from China (including Hong with subdued real estate and construction Kong SAR, China). The share of approved Chinese activity. During the first quarter of 2024, approved FDI-financed projects rose to 90 percent in 2023, up property development project value reached US$786 from 55 percent in 2014. In addition, there have been million, or a 38.8 percent y/y decline (figure 9). Of this, notable shifts in the composition of FDI projects, approved property development permits for projects compared to the pre-COVID period, with a rising in Sihanoukville province, which experienced the most share of non-garment manufacturing projects and a rapid construction boom during the pre-pandemic declining share of real estate investment projects. The period, accounted for US$77.3 million, or a 54.7 percent Figure non-garment Figure 7. Approved 7. Approved manufacturing QIP QIP sector project project includes value value the metal, Figure Figure 8. Approved 8. Approved FDI FDI - financed - financed project project by bysector sector (US$ billion, (US$ billion, fix fix ed ed asset) asset) y/y decline. The(US$number (US$ million,of Q1 million, approved Q1 of 2024) square meters of of 2024) paper, furniture, plastic, and chemical industries, as property development permits also eased, reaching 1.8 well as the logistics, energy, and hospitality industries. 2.5 2.5 million, or a 34.8 percent y/y decrease in the first quarter If these newly emerging Domestic manufacturing Domestic industries FDI FDI are of 2024. In 2023, investor appetite 61.461.4 for investing in the 9 properly nurtured, product diversification will follow. 2.0 2.0 real estate sector, especially the 13%housing 13% market, partly As shown in figure 7, about 50 percent of QIP revived, as reflected 231.2in an expansion of approved permit 231.2 1.5 1.5 51%51% was hit hard value after the sector by the pandemic 162.5 162.5 projects are domestically financed. However, 36%36% unlike FDI-funded projects, domestic QIP projects during 2020–22. The revival, however, was short-lived, 1.0 1.0 are relatively large. Most projects are invested in the given that construction activity has remained subdued non-tradeable industries, especially infrastructure as housing price corrections continue, despite a limited 0.5 0.5 and construction. Prior to the COVID-19 period, supply of affordable housing. domestic QIP projects were mostly invested in hotels, Regardless of the overall decline, the approved 0.0 0.0 shopping centers, cement, and energy. Since resorts, Agriculture Agriculture industrial & food & food building Non-garment area Non-garment is trending Garment Garment Q1 2019 Q1 2019 Q1 2020 Q1 2020 Q1 2021 Q1 2021 Q1 2022 Q1 2022 Q1 2023 Q1 2023 Q1 2024 Q1 2024 processing processing industries upward. The industries the pandemic hit, domestic QIP projects have been approved industrial building area rose to 0.67 million largely invested in logistics and port infrastructure, square meters or 33.6 percent of total approved area energy, casinos, and agro-industry. during the first quarter of 2024, up from 0.65 million Figure Figure Figure9. 9. Approved 9. Approved property property Approved project property project project permits permits permits Figure Figure Figure 10. 10. 10. Approved Approved Approved permitpermit areaarea permit area bytype by property property by property type type (US$ (US$ million) (US$ million) million) (million (million square (million square square meters)meters) meters) Approved Approved valuevalue 3000 3000 o/wo/w value for SHV value for SHV 250 250 ResidentialIndustrial Residential IndustrialCommercial CommercialTouristic TouristicOthers Others Approved value Approved (y/y, value RHS) (y/y, RHS) 6.0 6.0 200 200 Millions Millions 2500 2500 5.0 5.0 150 150 2000 2000 100 100 4.0 4.0 0.450.45 1500 1500 50 50 3.0 3.0 0.310.31 1000 1000 0.450.45 0 0 2.0 2.0 0.660.66 500 500 -50 -50 1.0 1.0 0.670.67 0.190.19 0.340.34 0 0 -100-100 0.0 0.0 Q1 2019 Q1 2019 Q1 2020 Q1 2020 Q1 2021 Q1 2021 Q1 2022 Q1 2022 Q1 2023 Q1 2023 Q1 2018 Q1 2018 Q1 2019 Q1 2019 Q1 2020 Q1 2020 Q1 2021 Q1 2021 Q1 2022 Q1 2022 2Q1 023 2Q1 023 Q1 2024 Q1 2024 Q1 2024 Q1 2024 Source: Cambodian authorities. Source: Cambodian authorities. Note: RHS = right-hand scale; SHV = Sihanoukville province. Figure Figure 1 1 1. Value 1. Value of a of agricultural gricultural exports exports Figure Figure 1 2. 2. Share 1 Share gricultural of a of agricultural exports exports (US$ (US$ million million ) ) (YTD, (YTD, % share of total % share of total goods goods exports ) exports ) 9 0.334.934.9 permit 0.3construction The approved 53.753.7 data do not indicate investor nationalities. 24.624.6 0% 0%3% 3% 4% 4% Garment Garment Agricultural Agricultural products products Non-garment Non-garment 2% 2% 100.8 100.8 100.0 100.0 127.5 127.5 8% 8% 134.1 134.1 10%10% 11%11% 90.090.0 Cambodia Economic Update June 2024 80.080.0 13 274.8 274.8 70.070.0 21%21% 421.9 421.9 33%33% 60.060.0 50.050.0 Figure 7. Figure Approved 7.Approved QIP QIP project project value value Figure 8. Figure 8.Approved Approved FDI- fi FDI nanced - financedproject project by sector by sector (US$ (US$ billion, billion, fix fix ededasset) asset) (US$ (US$ million, million, Q1Q1 of2024) of 2024) 2.5 2.5 square meters or 21.5 percent of the total during the rising industrial building permit and approved FDI- same period in 2023 (figure 10). In contrast, Domestic Domestic FDIas appetite FDI financed non-garment QIP projects. 61.4 61.4 2.0 2.0 for investing in residential property remained anemic, 13% 13% the approved residential property area declined to 0.77 231.2 expanded Crop production 231.2 1.5 square meters or 39.1 percent of the total, down 1.5 million 51% 51% 162.5 162.5 from 1.5 million square meters or 48.6 percent of the Despite less favorable weather36% conditions with 36% total 1.0 during the same period. Similarly, the approved 1.0 floods and droughts, agricultural production commercial building area declined to 0.13 million improved. Crop production, which accounts for square 0.5 meters or 6.4 percent of the total, down from 0.5 57.1 percent of agricultural GDP, reached 36.8 million 0.68 million square meters or 22.3 percent of total. metric tons or a 6 percent y/y increase in 2023.10 Rice The production rose to 12.5 million metric tons, or a 7.5 0.0 increase in the approved industrial building area 0.0 Agriculture Agriculture &&food food Non-garment Non-garment Garment Garment at the Q1expense Q1 2019 of Q1 2019 Q1 residential 2020 Q1 2020 Q12021 and 2021 Q1 Q1 commercial Q1 2022 Q1 2022 2023 property Q1 2023 Q1 2024 2024 percent y/y increase. Of theindustries processing processing 7.5 percent increase, land industries building areas may reflect a shift in investor appetite to expansion contributed 3.2 percentage points and production and manufacturing activity. yield improvement 4.3 percentage points. Average rice yield rose to 3.56 metric tons per hectare in 2023, up Imports of basic construction from 3.42 metric tons in 2022. In 2023, rainy season rice production reached 9.35 million metric tons and materials Figure Figure picked Approved 9.9. Approved up project property property project permits permits dry Figureseason Figure 10. 10. Approved rice production Approvedpermit permitarea area 3.14 byby million property property type metric tons, type Performance of basic (US$ (US$ million) million) construction material up from 8.71 (millionmillion (million metric square square meters)tons and 2.92 million meters) imports improved, after Approvedexperiencing Approved value value a steep metric tons, respectively, in 2022. Indicating a marginal decline during the past few years since the o/w o/w value for value SHV for SHV improvement Residential in rice irrigation Industrial Residential Industrial Commercial techniques, Commercial Touristic Touristic the share of Others Others 3000 3000 250 250 pandemic hit. During Approved Approved value the firstvalue(y/y, RHS) (y/y, quarter RHS) of 2024, dry 6.0 season rice to total rice production rose to 25.1 6.0 200 200 percent in 2023, up from 23.3 a decade ago. Millions Millions 2500 2500 imports of construction equipment, steel, and 5.0 5.0 150 150 2000 used for all types of construction industries cement 2000 Cultivation and production of industrial crops 4.0 4.0 recovered, growing at 19.9 percent, 33.5 percent, and 100 100 were mixed. In 2023, 0.45 rubber production reached 0.45 1500 1500 15.0 percent y/y in value terms, respectively, and 1.2 5050 3.0 3.0 391,800 metric 0.31tons or a 5.1 percent y/y increase. 0.31 percent, 1000 1000 35.9 percent, and 24.1 percent y/y in volume Cassava 0.45 0.45 production, however, declined 00 2.0 2.0 0.66 to 14.2 0.66 terms, 500 500 respectively. While privately financed real million metric tons, a contraction of 0.5 percent0.67y/y. 0.67 -50 -50 1.0 1.0 estate and property construction activities continue 0.19 0.19 Fruit production, which includes banana and mango, 0.34 0.34 0 0 subdued, private and public investments -100 to be -100 in 0.0 0.0 improved, rising to 0.9 million metric tons or a 5.0 Q1 2019 Q1 2019 Q1 2020 Q1 2020 Q1 2021 Q1 2021 Q1 2022 Q1 2022 Q1 2023 Q1 2023 Q1 2018 Q1 2018 Q1 2019 Q1 2019 Q1 2020 Q1 2020 Q1 2021 Q1 2021 Q1 2022 Q1 2022 2Q1 023 2Q1 023 Q1 2024 Q1 2024 Q1 2024 Q1 2024 nonresidential property projects, which include percent y/y increase and 2.2 million metric tons or a physical infrastructure such as roads, bridges, logistics, 14.6 percent y/y increase, respectively. and port infrastructure, continue, as indicated in Figure Figure Figure 11. 11 3-month 1.1. Value of Value a a agricultural of gricultural gricultural exports exports exports Figure Figure 11 Figure 12. 2.2.Shares Share Shareof ofaof a main goods gricultural gricultural export items exports exports (US$ (US$ (US$million) million ) ) million (YTD, (YTD, (YTD,%% % share share share of of of total total goods goods total goods exports) exports exports )) 0.3 34.9 0.3 34.9 53.7 53.7 24.6 24.6 0%0% 3%3% 4%4% Garment Garment Agricultural Agricultural products products Non-garment Non-garment 2%2% 100.8 100.8 100.0 100.0 127.5 127.5 8% 8% 134.1 134.1 10% 10% 11% 11% 90.0 90.0 80.0 80.0 274.8 274.8 70.0 70.0 21% 21% 421.9 421.9 33% 33% 60.0 60.0 50.0 50.0 40.0 40.0 30.0 30.0 69.0 69.0 20.0 20.0 5%5% 41.3 41.3 0.3 0.3 5.2 5.2 10.0 10.0 3%3% 0%0% 0%0% 0.0 0.0 Plywood Plywood Furniture Milled Furniture Milled rice rice Cassava Cassava Maize Maize Jan-13 Jan-13 Aug-13 Aug-13 May-15 May-15 Dec-15 Dec-15 Jul-16 Jul-16 Apr-18 Apr-18 Nov-18 Nov-18 Jun-19 Jun-19 Jan-20 Jan-20 Aug-20 Aug-20 Mar-21 Mar-21 Oct-21 Oct-21 May-22 May-22 Dec-22 Dec-22 Jul-23 Jul-23 Mar-14 Mar-14 Oct-14 Oct-14 Feb-24 Feb-24 Feb-17 Feb-17 Sep-17 Sep-17 Beans Beans Banana Banana Mango Mango Cashew Cashew nuts nuts Rubber Rubber Sugar Sugar Fishing Fishingproducts products Others Others Source: Cambodian authorities. Source: Cambodian authorities. Note: YTD = year-to-date. Note: YTD = year-to-date. 10 Ministry of Agriculture, Forestry & Fisheries 2023. 14 Cambodia Economic Update June 2024 Box 2. The 2023 World Bank Enterprise Surveys As shown in table B.2.1, there has been a significant reduction in the percentage of firms in total surveyed firms reporting constraints due to political instability and access to finance, among others, indicating improvements in the business environment in Cambodia during the past decade. Enhancements in political stability have positively influenced the country’s investment climate and business confidence. Access to finance has notably developed, with an increased availability of financial products and expanded services supporting business operations and growth. Infrastructure has also progressed, particularly with gradual improvements in roads, ports, and electricity supply, which has bolstered business activities and attracted foreign investments. Efforts have been made to advance the labor market through educational enhancements and vocational training. Nevertheless, Cambodia continues to face key challenges in four areas. Informal economy: The level of informality in Cambodia’s economy remains a significant and growing challenge compared to its regional peers. The results of Enterprise Survey 2023 for Cambodia revealed that many small and medium-sized businesses are reported to have operated without formal registration or outside the formal regulatory and fiscal systems. While the informality in the business sector can provide an unfair advantage to informal businesses over formal firms that comply with the prevailing rules and regulations, it can also lead to a less competitive economy overall, because informal businesses typically have limited access to new technologies, skilled labor markets, and export opportunities. Tax rate: Tax obligation in Cambodia is frequently identified by businesses as a considerable barrier. This burden affects not only profitability but also impinges on the financial capacity of businesses to pursue investments and expansion. The Enterprise Survey 2023 indicates that 71 percent of large firms perceived it as a significant constraint to business operations within the nation (figure B.2.1). Elevated tax burdens can deter investment, particularly in sectors where profit margins are already low. Compared with its regional peers, the tax rate in Cambodia is relatively more burdensome, which could place Cambodian businesses at a competitive disadvantage. This is particularly relevant in attracting foreign investment, where companies might opt for locations with more favorable tax conditions. Tax administration: Alongside the tax rate, how taxes are administered – that is, how they are collected, processed, and enforced – represents a major challenge, as specifically cited by numerous large firms. The World Bank’s Cambodia Public Expenditure Review underscores that the processes of tax administration in Cambodia are perceived as comparatively burdensome. The inefficiencies and ambiguity inherent in the tax administration system may result in uncertainty and elevate the compliance costs for businesses. Furthermore, frequent interactions with tax officials necessitated by these complexities raise the overall cost of doing business. Transport: Despite considerable progress made during the past decade, transport has been identified as the fourth most important constraint by small and medium-sized businesses in Cambodia. Though the percentage of firms that identified this constraint is similar across countries and region, the quality and reach of transportation infrastructure in Cambodia lags significantly behind its peers. According to the World Economic Forum’s competitiveness ranking in 2019, Cambodia scored 3.6 out of 7 in road quality, the second lowest in the region. In comparison, countries like Singapore led with a score of 6.5, followed by Malaysia with 5.3, Thailand with 4.4, Vietnam with 3.4, and Laos with 3.7. Inadequate roads, limited rail transport, and underdeveloped port facilities contribute to high logistics costs and inefficiencies in the supply chain. This not only affects domestic businesses but also diminishes Cambodia’s attractiveness as a destination for foreign investment. Table Table B.2.1. Enterprise B.2.1. B.2.1. Enterprise Enterprise surveys’ surveys’ Survey findings findings findings Figure Figure B.2.1. B.2 Figure B.2 . 1. . 1. Top Top Top 5 55c constraints onstraints c onstraints inin in 2023 2023 2023 (% (% (% of of firms) of firms) firms) (% (% of (% of of firms) firms) firms) Constraints Constraints KH13 KH13KH16 KH23SG23 KH16KH23 SG23 VN23 EAP23 VN23EAP23 7171 Access Access to tofinance finance 1 1 8 8 0 0 3 3 2121 2121 Access Access to toland land 4 4 5 5 1 1 1 1 3 3 4 4 Small Small Medium Medium Large Large All All License License and and permit permit 0 0 3 3 1 1 7 7 5 5 3 3 Corruption Corruption 1313 7 7 0 0 1 1 0 0 3 3 4747 Courts Courts 6 6 1 1 1 1 0 0 0 0 1 1 4242 Crime, Crime, theft theft andand disorder disorder 2 2 2 2 4 4 0 0 3 3 3 3 3838 Customs Customs andand trade trade regulation regulation 1 1 0 0 2 2 8 8 5 5 3 3 3434 3232 Electricity Electricity 2828 2 2 3 3 2 2 4 4 5 5 2626 Unskilled Unskilled workforce workforce 6 6 1212 0 0 2424 1212 9 9 Labor Labor regulations regulations 3 3 1 1 0 0 3838 2 2 4 4 1717 Political Political instability instability 9 9 1616 0 0 0 0 4 4 5 5 Informality Informality 1313 2828 4242 4 4 2222 1919 88 88 99 99 66 66 66 55 Tax Tax administration administration 0 0 1 1 9 9 2 2 5 5 3 3 11 33 44 Tax Tax rates rates 1212 6 6 3232 5 5 9 9 1111 00 Transport Transport 2 2 7 7 6 6 6 6 6 6 6 6 Informal Tax Informal Tax rates rates Tax Tax Transport Crime,theft Transport Crime,theft economy economy administration administration and and disorder disorder Sources: Enterprise surveys, the World Bank. Note: EAP = East-Asia and Pacific Region; KH = Cambodia; SG = Singapore; VN = Vietnam. Figure Figure Cambodia 1 1 3 .3Update Economic 2023 .2023 Enterprise Enterprise June Survey 2024Survey Regional s s- - Regional Figure Figure . Enterprise 1 1 4 .4 Enterprise Surveys Surveys for for Cambodia Cambodia 15 Compariso n n Compariso Top Top 10 10 business business environment environment constraints constraints (%(% firms ofof firms ) ) Cambodia is emerging as a major Despite progress, subsistence farming remains a large part of Cambodia’s agriculture sector. agricultural exporter According to the Cambodia Agricultural Survey Cambodia’s agricultural exports continued to conducted in 2021, an estimated 63 percent of all increase, reaching US$4.0 billion in 2023 (figure households are involved in agricultural production. 11). Agricultural exports increased almost fourfold Home consumption was reported as the main during the past decade. Unlike other economic agricultural product destination by 58 percent of sectors of the economy, agriculture continued to be household agricultural holdings in Cambodia, while resilient during the pandemic. In 2022, Cambodia 42 percent reported that agricultural production ranked among the top nine rice producers in the was mostly for sale. Approximately 94 percent of the world.11 Thanks partly to the newly signed free 2 million household agricultural holdings cultivate trade agreements, Cambodia is now emerging as a crops, indicating relatively slow progress on high value- major exporter of agricultural products. As a share added livestock production.12 While aromatic rice of total goods exports, agricultural exports rose to accounts for 80 percent of Cambodia’s total milled rice 20.4 percent during the first quarter of 2024, up exports, the country produces mostly non-aromatic from 6.3 percent in December 2013 (figure 12). paddy, which accounts for 59.1 percent (2.1 million Table Table B.2.1. B.2.1. Enterprise Enterprise surveys’ surveys’ fi findings ndings B.2 .B.2 Figure Figure 5 c5onstraints . 1. Top 1. Top c onstraints in 2023 in 2023 During the first quarter (% of(%fiof rms)of firms)2024, the country’s hectares) of total planted (% of(% area, and 59.2 percent (2.08 of firms) firms) agricultural commodity exports grew at 28.1 percent million hectares) of total harvested area in 2023, as 71 y/y, Constraints Constraints reaching KH16KH16 KH13KH13 KH23KH23SG23 SG23VN23VN23EAP23EAP23 producing71 high-quality rice seeds remains a challenge. AccessAccess to to finance US$1.1 finance 1 billion 1 8 8 0and 321 2121 21for 0 3 accounting 17.4 topercent AccessAccess land License to land and permit of total4 goods 4 5 0 3 exports, 51 31 1 1 1 7 second 13 75 3 4 5 3 only 4 3 Small In addition, agricultural Small Medium Medium Large commodity LargeAll All exporters License and permit 0 to garment Corruption Corruption exports, 13which 13 7 amounted 70 0 1 1 0 to 0 US$2.0 3 3 47 mentioned 47 challenges in exporting Cambodia’s Courts 6 1 11 1 0 00 0 1 1 billion. Courts Crime, Crime, The theft theft and major and disorder disorder traditional 6 2 2 2 24agricultural 4 0 03 products 3 3 3 38 42 38 42 agricultural commodity products, in particular, 34 34 are rice, CustomsCustoms cassava, andregulation trade regulation 1 and trade rubber, and 1 0 wood 02 23 2 8 3 2 products. 85 24 5 3 4 5 Their 3 5 fresh 26 fruits,32 32 due to the lack of a cold chain. Electricity Electricity 28 28 2 26 combinedUnskilled Unskilled workforce workforce exports account 6 612 for12 0about0 24 80 2412 percent 12 9 9 of Developing a cold chain will enable Cambodia to Labor Labor regulations 3 1 10 0 38 38 2 2 4 4 17 17 total Political agricultural regulations Political instability instability exports. 3 9 In addition 916 16 0 0 0 to 04 exports 4 5 5 of participate in the global perishable products market as 9 9 Informality agricultural traditional Informality 13 products, 1328 28 42 42exports 4 422 of cashew 2219 19 8 8 8 6 8 9 6 an exporter. The lack of cooling 9 systems, 3 cold 4storage, 6 6 6 65 5 3 Tax administration Tax administration 0 0 1 19 9 2 25 5 3 3 4 1 nuts Tax Tax ratesandrates fresh fruits, 12 especially 12 6 6 bananas 32 32 5 and 5 9 mangos, 911 11 and cold transport makes 1 transporting 0 0 temperature- 6 Tax rates Tax Tax Transport InformalTax rates Informal Transport Crime,theft Crime,theft are Transport also Transport emerging, accounting 2 2 7 76 for 6 6 about 16.06percent 66 6 economy products sensitive economy along a supply administration administration andchain and disorder disorder through of total agricultural exports, in spite of Cambodia’s thermal and refrigerated packaging methods a high transport and logistics costs. daunting challenge. The lack of cold chain logistics in Figure Figure Figure 1 3 13. 1 3 2023 . 2023 . 2023 Enterprise Enterprise Enterprise Surveys Survey Survey s -regional – Regional s - Regional Figure Figure Figure 1 4 14. Enterprise 1. Enterprise 4 . Enterprise Surveys Surveys forSurveys for Cambodia for Cambodia Cambodia Compariso comparison Compariso n n Top Top Top 10 10 business business 10 business environment environment environment constraints constraints constraints (% of(% (% of of firms firms firms) ) ) Annual Annual sales sales growthgrowth (%) (%) Business Business licenses licenses and permits and permits Access Access to land to land Annual Annual employment employment (%) (%) growth growth Singapore Singapore Indonesia Indonesia Courts Courts 2013201320162016 time time Sr. mgmt Sr. mgmt govt govt with with regulations regulations (%) (%) Cambodia VietnamCambodia Vietnam 20232023 Customs Customs and trade and trade regulations regulations Number Number of days of days to obtain to obtain importimport license license Electricity Electricity Number Number of days of days to obtain to obtain thief,thief, Crime, Crime, and disorder and disorder operationg operationg license license Transportation Transportation days days Average Average to clear to clear imports imports Tax administration Tax administration days days Average Average to clear to clear exports exports Tax rates Tax rates Electrical Electrical outages outages in a typical in a typical month Informal Informal competitors competitors month -5 -50 05 10 10 5 20 20 15 15 30 30 25 25 0 0 10 1020 2030 3040 4050 50 Source: Cambodian authorities. Sources: Enterprise Surveys, World Bank. Note: YTD = year-to-date. 11 Food and Agriculture Organization 2022. 12 Figure Ministry Figure 1 5. 5. Imports 1Imports of Planning of consumer 2021. of consumer improved goodsimproved goods Figure Figure 16. 16. Inflation Inflation dipped dipped y/y y/y (YTD, (YTD, percent percent change) change) Contribution Contribution to 12-month to 12-month inflation inflation (percentage (percentage points) points) 16 Cambodia Economic Update June 2024 140 140 10 10 Others Others FoodFood subindex subindex 120 120 Q1 2020 Q1 2021 Q1 2019 Q1 2020 Q1 2019 Q1 2021 Transport subindex HeadlineHeadline inflation 8 8 Transport subindex inflation (y/y)(y/y) Q1 2023 Q1 2024 Q1 2022 Q1 2023 Q1 2022 Q1 2024 Housing & utilities subindex Accessto Access land toland 44 55 11 11 33 44 Small Small Medium Medium Large Large All All Licenseand License andpermit permit 00 33 11 77 55 33 Corruption Corruption 13 13 77 00 11 00 33 47 47 Courts Courts 66 11 11 00 00 11 42 42 Crime,theft Crime, theftand anddisorder disorder 22 22 44 00 33 33 38 38 Customsand Customs andtrade traderegulation regulation 11 00 22 88 55 33 34 34 32 32 Electricity Electricity 28 28 22 33 22 44 55 26 26 Unskilledworkforce Unskilled workforce 66 12 12 00 24 24 12 12 99 Labor regulations Laborregulations 33 11 00 38 38 22 44 17 17 Cambodia reportedly results in wasteful perishables Politicalinstability Political instability 99 16 16 00 00 44 55 constraints, may be due to 9 9 improved compliance as Informality Informality 13 13 28 28 42 42 44 22 22 19 19 8 8 8 86 99 negatively impacting the incomes of both fruit famers Taxadministration Tax administration 00 11 99 22 55 33 the authorities strengthened 6 tax 6 6 1 1 administration 6 6 5533 4 4 to 00 and exporters. Taxrates Tax rates Transport Transport 12 12 22 6 7 6 7 32 32 66 5 6 5 6 9 6 9 6 11 11 66 curb tax Informal evasion. Taxrates Informal Tax rates Tax Tax Transport Transport Crime,theft Crime,theft economy economy administration administration anddisorder and disorder The business environment needs to be The fourth biggest constraint on business in the 2023 Enterprise Surveys for Cambodia is further improved transportation. This has changed only slightly since The 2023 2016, when the surveys found that transportation 1 Enterprise Survey indicated Surveys that 13 Figure1 Figure 3 2023Enterprise 3.. 2023 Enterprise Survey ss -- Regional Regional Figure1 Figure 1 4 EnterpriseSurveys 4.. Enterprise forCambodia Surveysfor Cambodia the time required to Compariso obtain an import license is was among the top two constraints. Issues related Compariso n n Top10 Top businessenvironment 10business constraints environmentconstraints as long as 28 days in Cambodia, compared to 11 to transportation, as (% it was (%of firms offi persistently rms )) perceived as days in Vietnam, 9 days in Indonesia, and 7 days an obstacle to firm operations, likely include high Annualsales Annual salesgrowth growth(%) (%) in Singapore. Similarly, the time required to obtain costs and Business Business the low licenses licenses and reliability of Cambodia’s logistics andpermits permits a business operating license performance. In addition, the reliability of electricity (%) is as long as 30 days, Accessto Access land toland Annualemployment Annual employment growth growth (%) compared to 13 days in Vietnam, 9 daysSingapore in Indonesia, remains a key constraint, with 43 percent of surveyed Courts Courts and 17 days Sr. Sr.mgmt mgmttime withgovt timewith Singapore inregulations govt (figure Singapore 13). Delays Indonesia Indonesia in firms having experienced electrical2013 2016 2013 2016 outages. Losses regulations(%) (%) Vietnam Vietnam Cambodia Cambodia 2023 2023 obtaining licenses can be costly to entrepreneurs as due to and Customs Customs electricity and traderegulations trade (power) outages worsened, as regulations Numberof Number daysto ofdays toobtain obtainimport import rose associated costs Electricity from 0.3 percent of annual sales they add uncertainty and license license additional costs to much Electricity needed business transactions. The 2023 Enterprise in 2013 to 1.1 percent in 2023, well above Indonesia Numberof Number daysto ofdays obtain toobtain Surveys indicated operationg operationg that license license the top three business (0.2 Crime, Crime,thief, percent), anddisorder thief,and disorder Vietnam (0.2 percent), and Singapore environment constraints are practices of the informal (zero percent). Low reliability (and high costs) of Transportation Transportation Averagedays Average days toclear to imports clearimports sector, tax rates, and tax administration (figure 14). 14 electricity Taxwas Tax earlier reported by firms as one of the administration administration While improving Averagedays Average daysto tax to administration clear clear exports exports helped boost tax reasons preventing Cambodia from transitioning to Taxrates Tax revenue collection during the past decade, it may have and participating in rates a more advanced stage of global Electricaloutages Electrical outagesin ina typical atypical resulted in an increased tax administration burden month month value chains, Informal which include motor vehicle parts competitors Informalcompetitors on the private sector, especially -5 0 -5 0 5 5formal 10 15 10 15enterprises. 20 25 20 25 3030 and components, electronics 00 10 10 assembly, 20 20 and 40 30 30 medical 40 50 50 Officially, tax rates have not been changed since devices manufacturing. 15 See box 2 for more details 2013. Tax rates, perceived as being in the top two on the findings on the 2023 Enterprise Surveys. Figure 15. Figure Figure 1 5. 1 5. Imports Imports Imports ofof of consumer consumer goods goods improved consumer goods improved improved Figure 16.In 16. Figure Figure16. Infl ation dipped flation dipped Inflation dipped (YTD, (YTD, (YTD, y/yy/y y/y percent percent percent change) change) change) Contribution Contribution Contribution to12-month to to 12-month inflation 12-month in infl flation ation (percentage (percentage points) points) (percentage points) 140 140 10 10 Others Others Foodsubindex Food subindex 120 120 Q12019 Q1 2019 Q1 2020 Q12020 Q12021 Q1 2021 Transportsubindex Transport subindex Headlineinflation Headline (y/y) inflation(y/y) Q12022 Q1 2022 Q12023 Q1 2023 Q12024 Q1 2024 8 8 100 100 Housing& Housing utilitiessubindex &utilities subindex 6 6 80 80 60 60 4 4 40 40 2 2 20 20 0 0 0 0 -2 -2 -20 -20 -4 -4 -40 -40 Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15 Jul-16 Feb-17 Sep-17 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Oct-21 May-22 Dec-22 Jul-23 Feb-24 el cs e ts ks ff in ies en stu ni in ol tro m dr D od as ar G ft ec Fo G So El Source: Cambodian authorities. Source: Cambodian authorities. Note: YTD = year-to-date. Note: y/y = year-on-year. 13 World Bank 2023a; https://www.enterprisesurveys.org/en/data/exploreeconomies/2023/cambodia. 14 When firms are formally registered, they are required to abide by rules and regulations, which are commonly set by governments. Paying taxes is usually the most tangible consequence of becoming part of the formal private sector. Some firms try to avoid these consequences by not registering their business and thereby remaining in the informal sector. A large informal sector may represent a challenge to competing formal firms as informal firms are able to engage in practices that can provide an unfair advantage over formal firms, which must comply with the prevailing rules and regulations. 15 World Bank 2019; https://www.worldbank.org/en/country/cambodia/publication/cambodia-economic-update-december-2019-upgrading-cambo- dia-in-global-value-chains. Cambodia Economic Update June 2024 17 Private consumption marginally While nondurable consumer goods imports recovered, durable consumer goods imports improved remained subdued. During the first quarter of 2024, Private consumption, which significantly eased imports of all kinds of motor vehicles, which include in 2023 when one-off pent-up domestic demand motorcycles, passenger cars, trucks, buses, tractors, and ran out of steam, marginally picked up in 2024. other vehicles, declined, contracting by 3.5 percent y/y. As discussed, Cambodia’s manufacturing exports Despite a decent expansion of manufacturing jobs, have started to recover since the fourth quarter of households that still face slow wage growth, with 2023, adding jobs and earnings. The manufacturing only a 2 percent increase in the minimum wage of the sector alone created a net 50,500 new jobs, or a 5 manufacturing export sector and slack growth in the percent y/y increase. This has supported consumer labor market, caused largely by stalled construction spending. Thanks to the central bank’s monetary activity, take a cautious approach toward purchasing policy accommodation, market liquidity improved, durable consumer goods, especially when borrowing despite elevated interest rates (see discussion under costs remain high. An in-depth analysis cannot be the monetary section below). In addition, the services conducted due to the nonavailability of actual data exports, especially tourism receipts, expanded as on personal consumption expenditure on durable and international arrivals picked up. Given that domestic nondurable goods and services, especially retail sales consumption accounts for about two-thirds of GDP, data, to gauge consumer demand for finished goods. its partial recovery has started to support retail and wholesale activities as reflected in improved consumer Inflation declined to zero over the 12 goods imports. months ending March 2024 As a result, imports of nondurable consumer As food prices decelerated caused by the easing goods inched up. During the first quarter of 2024, of domestic demand, Cambodia’s Consumer top ticket items of imported nondurable consumer Price Index (CPI) dipped in March 2024 to 0.0 goods, which include diesel, electronics, gasoline, percent y/y, a 15-year low (figure 16), down foodstuff, garments, and soft drinks, expanded by from 0.7 percent during the same period in 2023. 17.1 percent, 42.5 percent, 28.7 percent, 6.1 percent, During the post-pandemic period, inflation peaked 8.4 percent, and 26.9 percent, respectively (figure in June 2022 at 7.8 percent, a 13-year high, caused 15). However, the initial revival of domestic demand, largely by rapidly rising prices of food and petroleum which helped boosted goods imports, is not likely products resulting from the global food and oil price to be sustained due to the marked slowdown of shock. The easing of food prices, particularly of rice, domestic credit growth. meat, fish, and vegetables, subdued inflation, given Figure 1 7 . The current account surplus was Figure 18. The riel appreciated against regional Figure 1 7 . The current account surplus was Figure 18. Figure 17. The current account surplus unprecedented was Figure 18.The The riel appreciated against riel appreciated against regional currencies regional unprecedented currencies unprecedented (percent of GDP) currencies (percent of GDP) (percent of GDP) Riel per baht Riel per thousand dong (RHS) 20 Riel per baht Riel per thousand dong (RHS) 20 10 140 185 10 140 185 0 1.7 0 1.7 135135 180 130 180 -10 130 -10 175 -20 125 175 -20 125 120 170 -30 120 170 -30 Net income 115 Net income 115 165 -40 Net services 165 -40 Net services 110 Trade balance 110 160 -50 Trade balance 105 160 -50 Current accounts balance 105 -60 Current accounts balance -60 100 155 100 155 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Sources: Cambodian authorities. Source: Cambodian authorities. Note: RHS= right-hand scale. Figure B.3 .1. The current accounts Figure B.3.2 . Gold trade, net Figure B.3 .1. The current accounts Figure B.3.2 . Gold trade, net 18 (% of GDP) (% of GDP) GDP) (% ofCambodia (% of GDP) Economic Update June 2024 20 20 5 5 10 10 0 Box 3. The 2023 current account surplus During 2010–19, Cambodia persistently ran a large current account deficit, averaging at 9.0 percent of GDP annually (figure B.3.1). Although a current account deficit in itself is neither good nor bad, it is likely to be unsustainable and lead to harmful consequences when it is persistently large, fuels consumption rather than investment, occurs alongside excessive domestic credit growth, follows an overvalued exchange rate, or accompanies unrestrained fiscal deficits.a For several years before the pandemic, the current account had been increasingly volatile, impacted by the trade imbalances, which were largely driven by rising imports of construction materials and consumer goods, especially vehicles, petroleum, and electronics fueled by construction and consumption booms. The deficits had been largely financed by capital inflows, especially FDI and rapid domestic credit growth. Can Cambodia’s large current account deficit be sustained? No. The empirical literature considers persistent deficits above 5 percent of GDP to be unsustainable in the long run.b Deficits in the external current account are the result of the accumulation of net claims of foreigners on residents. Since the pandemic hit in 2020, gold appears to have been used by traders as a hedge against inflation, and gold trade has become a main factor contributing to increased volatility of the trade and current account balances, while imports of construction materials (and consumer goods) softened as real estate and construction activity stalled (and credit growth plummeted). Gold trade has since been significant and unpredictable. According to the Observatory of Economic Complexity, in 2022, Cambodia became the 12th largest gold importer in the world and traded gold primarily with Singapore; Thailand; Switzerland; Hong Kong SAR, China; Australia; and Japan. The net gold trade (gold exports minus gold imports) widened quickly to -3.8 percent of GDP in 2020 and peaked at -21.5 percent of GDP in 2021 before marginally easing to -14.3 percent of GDP in 2022 (figure Figure 1 7B.3.2). accountthe current As a result, . The current account surplus was deficit significantly Figure 18. widened to 40.4 percent against of GDPregional The riel appreciated in 2021 GDP in 2022. As depicted in figure B.3.1, while substantial FDI and 26.0 percent ofunprecedented inflows continued, financing currencies (percent deficits the large current account of GDP) did entail corresponding declines in gross international reserves. During 2020–22, the deficits worsened due partly to severe disruptions in tourism receipts and workers’ remittances due to the adverse Riel per baht Riel per thousand dong (RHS) impacts 20 of the COVID-19 pandemic, leading to negative implications on the service and secondary income accounts. 10 Overinvestment in the property sector ended the bustling 140real estate and construction activity, followed by 185 the 0 property market correction. A marked slowdown in private 1.7 135 consumption ensued. In 2023, customs data showed 180 that -10 goods imports declined by 18.5 percent, while central 130 data indicated a significant deceleration of domestic bank credit growth to 4.1 percent, down from 18.9 percent in 2022. 125As a result, the current account balance recorded an 175 -20 unprecedented surplus of 1.7 percent of GDP in 2023. In addition 120 to the decline in goods imports, relatively resilient 170 goods exports also -30 income Cambodia’s strategic endeavors to diversify helped. Net its export portfolio beyond conventional sectors 115 like textiles and tourism -40 yielded favorable outcomes. The country managed to broaden its trade spectrum by cultivating Net services 165 110 industries such as balance bicycles, and agricultural products, thereby contributing to offsetting the country’s trade electronics, Trade 160 -50 105the net service balance also exhibited a surplus of 4.1 by the accounts deficit impacted Current slowdown in GTF exports. In addition, balance -60 percent of GDP in 2023, marking a significant enhancement from 100 the 1.5 percent deficit recorded in 2022. This positive 155 shift can be attributed to the burgeoning tourism sector, highlighted by the substantial rise in tourist arrivals from Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2.3 million in 2022 to 5.4 million in 2023. Noteworthy improvements were also seen in the primary income account, transitioning from a deficit of 5.3 percent of GDP in 2022 to a deficit of 3.0 percent in 2023, principally owing to reduced reinvested earnings in the financial sector. Furthermore, the secondary income account showcased a surplus of 10.0 percent of GDP in 2023, predominantly propelled by the influx of remittances from abroad. Sources: a. Devadas and Loayza 2018. b. Carranza 2002. Figure B.3 .1. The current accounts . 1.The Figure B.3.2 . Gold trade, net Figure B.3.1. current account Figure B.3.2. Gold trade, net (% of GDP) (% of GDP) (% of GDP) (% of GDP) 20 5 10 0 0 -5 -10 -10 -20 Gold, net -30 -15 Current accounts Goods, net -40 FDI Changes in reserves -20 Current accounts Goods, net -50 (excl. gold) (excl. gold) -25 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Cambodia Economic Figure 19. Update BroadJune 2024 money growth recovered 19 Figure 20. I nterest rate s remained elevated Contribution to broad money growth Domestic interest rates (percentage points) (percent per annum) the fact that the food component (subindex) captures caused by the slowdown in global demand, exports a 43 percent weight of the inflation basket. of non-GTF products, which include electrical and vehicle components, bicycles, and agricultural The contribution of the food subindex to products, accelerated. As a result, goods exports rose inflation shrank to zero percentage points in by 5 percent y/y in 2023, while goods imports shrank, March 2024, down from 1.3 percentage points contracting by 18.5 percent y/y, caused by subdued during the same period in 2023, thanks to private consumption as domestic credit growth subdued prices of rice, meat, fish, and vegetables. plummeted, with stalled construction activity (see also Similarly, during the same period, the contribution of box 3 for more discussion on the current account). In the housing and utilities subindex remained subdued addition, import substitution is growing, with several at zero percentage points, up from -0.4 percentage global vehicle brands such as Ford, Toyota, and Isuzu points, owing to the relatively subdued costs of setting up vehicle assembly and production facilities maintenance and repairs of dwellings, while the in Cambodia. contribution of the transport subindex was also zero percentage points, up from -0.5 percentage points. Last year’s unprecedented current account Cambodia’s CPI, excluding food, rose to zero percent surplus indicated a marked improvement of y/y in March 2024, up from -0.6 percent during the Cambodia’s external sector performance after period in 2023. Although global rice prices have the current account deficit hit rock bottom at recently inched up, domestic rice prices remained 40.4 percent of GDP in 2021. Boosted by travel and contained as Cambodia is emerging as an agriculture tourism receipts, net services improved, registering commodity exporter exporting several agricultural 4.1 percent of GDP in 2023, while net income rose commodities beyond rice. This, together with the to 7.0 percent of GDP, according to the central highly dollarized economy, seems to indicate that bank’s quarterly balance-of-payments data. The net short- to longer-term inflation expectations continue services started to record a surplus in 2023, thanks to to be well anchored. rising travel and tourism receipts after international arrivals recovered during the post-COVID-19 period. Subdued inflation in Cambodia’s main import Similarly, net income expanded, thanks to improved partners, Thailand, Vietnam, and China, which, investment incomes and continued strong worker respectively, reached -0.8 percent, 4.0 percent, remittances, which remained at 7.5 percent of GDP, and 0.7 percent y/y in February 2024, helped reaching US$2.5 billion in 2023. Net FDI rose to 12.0 contain domestic price pressures. Among other percent of GDP (US$3.8 billion) in 2023, up from ASEAN members, only Lao PDR, which is not 11.6 percent (US$3.4 billion) in 2022. As a result, Cambodia’s main import partner, continued to gross international reserves rose, reaching US$19.9 experience high inflation of 25.4 percent in February billion – an 11.7 percent y/y increase in 2023. The 2024. Inflation rates in Malaysia were 1.8 percent country’s gross international reserves are estimated to y/y and in Singapore 3.4 percent y/y, in February be equivalent to about seven months of prospective 2024. In addition, the relatively stable Cambodian imports. This helped ease pressures on the exchange riel compared to the U.S. dollar exchange rate closely rate, while inflation remained contained as food and maintained by the central bank helps promote overall oil prices moderated. Continued FDI inflows and price stability. concessional financing largely cover external financing needs (see more discussion on concessional financing- An unprecedented current account debt disbursement under the fiscal section, below). surplus was recorded in 2023 The riel appreciated against regional The decline in the trade deficit, together with rising remittances and tourism receipts, helped currencies improve the current account balance, which The current account balance, which improved registered an unprecedented surplus of 1.7 owing primarily to the narrowing trade deficit, percent of GDP in 2023 (figure 17).16 While helped ease pressures on the riel. As the U.S. exports of garment, travel goods, and footwear Federal Reserve (Fed) has held the federal funds rate (GTF) manufacturing products were subdued, 16 National Bank of Cambodia 2024; www.nbc.gov.kh/english/economic_research/monetary_and_financial_statistics_data.php. 20 Cambodia Economic Update June 2024 unprecedented unprecedented currencies currencies (percent (percent of GDP) of GDP) Riel perper Riel baht baht Riel thousand perper Riel dong thousand (RHS) dong (RHS) 20 20 10 10 140 140 185 185 unchanged 0 0 at a target range of 5¼ to 5½ 1.7 percent, 17 1.7 135 Fed’s 135 interest rate hikes to keep rapid inflation 180 from 180 23-year a -10-10 high at its peak for the current monetary becoming 130 130 entrenched (see the monetary section 175175 tightening -20-20 cycle since July 2023, the U.S. dollar below, 125125 for more discussion on rising interest rates), appreciated against major currencies. The dollar 120 riel-U.S. dollar exchange rate has been under the 120 170170 -30-30 appreciated against Net income Netthe incomeJapanese yen, Korean won, increased 115115 pressure. Given that the economy is highly 165165 -40-40 Net services Net services Chinese yuan, Taiwanese dollar, and Australian dollarized, 110110 targeting exchange rate stability helps Trade balance Trade balance dollar. -50-50 18 As a result, the riel, which is pegged to the Current Currentaccounts balance accounts balance maintain 105105 the purchasing power of those who160 160 earn -60-60dollar, has also appreciated against regional U.S. income 100100 in riel, while preventing full dollarization. 155155 currencies, especially the baht and the dong (figure Jan-19 May-19 Jan-19 Sep-19 May-19 Jan-20 Sep-19 May-20 Jan-20 Sep-20 May-20 Jan-21 Sep-20 May-21 Jan-21 Sep-21 May-21 Jan-22 Sep-21 May-22 Jan-22 Sep-22 May-22 Jan-23 Sep-22 May-23 Jan-23 Sep-23 May-23 Sep-23 Jan-24 Jan-24 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 18). While Thailand, Vietnam, China, and Japan are Money supply marginally increased Cambodia’s main export markets outside the U.S. and EU markets, the riel-baht, riel-dong, riel-yuan, There has been a recent uptick in money supply. and riel-yen exchange rates appreciated, reaching 113 Incoming data show that broad money growth riel per baht, 0.165 riel per dong, 565 riel per yuan, recovered as foreign currency deposits picked up. and 26.99 riel per yen, Indicating an improvement in capital inflows, broad Figure Figure B.3B.3. in 1.. 1.February The current The 2024, accounts current up from accounts Figure Figure B.3.2 B.3.2. Gold trade, . Gold netnet trade, 115 riel per baht, 0.17 riel money once again expanded, growing at 14.9 percent (%per (% GDP) and 581 riel per ofdong, of GDP) of GDP) (% (% of GDP) yuan, and 29.69 riel per yen, during the same period over the 12 months ending in February 2024, up 20 20 in 2023. Pegging the riel to the strong U.S. dollar, from 56.85 percent during the same period in 2023, 10 10 therefore, hurts Cambodia’s export competitiveness owing 0 improved foreign currency deposits (figure 0 to 0 0 for both goods and services (tourism). 19). Given the economy is highly dollarized, foreign -5 -5 deposits contribute the most to broad currency -10-10 The riel-U.S. dollar exchange rate also money growth. Of the 14.9 percent broad money -10-10 -20-20 marginally appreciated, reaching 4,062 riel per growth, the contributions Gold, netnet of foreign currency Gold, -15-15 U.S. dollar in April 2024, down from 4,115 riel -30-30 deposits (and other deposits) accounted for 13.3 Current Currentaccounts accounts Goods, Goods,netnet per -40 dollar U.S. -40 FDIFDIduring the same Changes Changesperiod in reserves in 2023. in reserves percentage -20-20 points, transferrable deposits for 1.2 The central -50-50 bank, Current Current the National accounts accounts Bank Goods, Goods,netnetof Cambodia, percentage points, and currency in circulation 0.4 (excl. gold) (excl. gold) -25-25 targets the riel exchange rate (excl. gold) at(excl. gold) 4,000 riel per U.S. percentage points in February 2024, up from 9.1 2010 2011 2010 2012 2011 2013 2012 2014 2013 2015 2014 2016 2015 2017 2016 2018 2017 2019 2018 2020 2019 2021 2020 2022 2021 2023 2022 2023 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 dollar. The exchange rate policy is one of the key tools percentage points, negative 2.3 percentage points, in the central bank’s monetary policy. The objective and negative 0.1 percentage points, respectively, is to achieve price stability.19 Since the start of the during the same period in 2023. The positive growth Figure 19.19. Broad Figure money Broad growth money recovered growth recovered Figure 19. Broad Contribution Contribution money to broad growth money to broad growth money recovered growth Figure Figure 20.20. 20. Figure Interest I nterest I nterest rate rates rate remained s remained s remained elevated elevated elevated Contribution to broad (percentage money growth points) (percentage points) Domestic Domestic Domestic interest interest rates interest rates rates (percentage points) (percent (percent perper (percent per year) annum) annum) 60 60 Foreign currency Foreign currencydeposits deposits U.S. dollar U.S. denominated dollar term denominated deposit term rate deposit rate (other deposits) (other deposits) 6.56.5 14 14 50 50 U.S. U.S. dollar dollar denominated denominated term term lending lending rate rate (RHS) (RHS) Transferable Transferabledeposits deposits 6.06.0 12 12 Currency Currency in circulation in circulation 40 40 5.55.5 M2 M2 y/y, y/y, percent percent change change 10 10 30 30 5.05.0 8 8 4.54.5 20 20 6 6 4.04.0 10 10 4 4 3.53.5 0 0 3.03.0 2 2 2.52.5 0 0 -10-10 May-19 May-19 May-20 May-20 May-21 May-21 May-22 May-22 May-23 May-23 Jan-19 Jan-19 Jan-20 Jan-20 Jan-21 Jan-21 Jan-22 Jan-22 Jan-23 Jan-23 Jan-24 Jan-24 Sep-19 Sep-19 Sep-20 Sep-20 Sep-21 Sep-21 Sep-22 Sep-22 Sep-23 Sep-23 Jul-15 Jul-15 Jul-16 Jul-16 Jul-17 Jul-17 Jul-18 Jul-18 Jul-19 Jul-19 Jul-20 Jul-20 Jul-21 Jul-21 Jul-22 Jul-22 Jul-23 Jul-23 Jul-13 Jul-13 Jul-14 Jul-14 Jan-13 Jan-13 Jan-14 Jan-14 Jan-15 Jan-15 Jan-16 Jan-16 Jan-17 Jan-17 Jan-18 Jan-18 Jan-19 Jan-19 Jan-20 Jan-20 Jan-21 Jan-21 Jan-22 Jan-22 Jan-23 Jan-23 Jan-24 Jan-24 Source: Cambodian authorities. Source: Cambodian authorities. Note: RHS = right-hand scale. 17 United States Federal Reserve 2024. 18 See https://www.nbc.gov.kh/english/economic_research/monetary_and_financial_statistics_data.php. 19 The National Bank of Cambodia’s Exchange Rate Policy; https://www.nbc.gov.kh/english/monetary_policy/exchange_rate_policy.php. Cambodia Economic Update June 2024 21 rate of currency in circulation reflected an injection average interest rates of U.S. dollar-denominated of local currency by the central bank to the market. term loans rose to 10.34 percent per year, up from Although Cambodia’s highly dollarized economy 8.4 percent per year during the same period. High limits the ability of the country’s central bank to interest rates reduce the overall level of domestic influence the money aggregate, the recent decrease in demand, while encouraging domestic saving as the reserve requirement ratio, one of a few monetary consumers can receive higher returns on their savings. policy instruments available to influence the money The negative impact on economic activity of the supply, may partially support market liquidity. current monetary policy tightening cycle has started The central bank reintroduced its accommodative to materialize. As discussed, the demand for durable monetary policy by lowering its reserve requirement consumer goods remained subdued and domestic ratio to support economic growth. The central bank credit growth plummeted, indicating investment and cut the foreign currency reserve requirement ratio by consumer spending are being harmed by the current 2 percent, the largest cut during the post-pandemic monetary policy tightening cycle (see the domestic period, to 7 percent in December 2023.20 credit section below). Domestic interest rates remained Credit sharply decelerated as housing elevated development activity stalled Upward pressure on domestic interest rates Domestic credit growth has experienced a continued, due to elevated interest rates in the significant slowdown since mid-2023. While United States. Cambodia “imports” U.S. monetary a tightening of credit conditions, caused by rising policy as the economy is highly dollarized. Since the interest rates, may also play a role, weaker credit beginning of the current tightening cycle started in demand may account for the bulk of the slowdown. mid-2022, the Fed’s action to tame inflation has put First, the demand for domestic credit by the real pressure on domestic interest rates, which remain estate and construction sector plummeted. With an elevated (figure 20). There have been rising funding overinvestment in the property market, the housing costs for banks and microfinance institutions in market correction continued, resulting in a decline in Cambodia, as they need to increase interest rates on the demand for bank credit. Second, higher interest deposits to attract depositors. This has pushed up rates, low consumer confidence, and falling real their operating costs, squeezing their profit margins. disposable income resulting from lasting scars of the The high interest rates squeezed the returns on assets COVID-19 pandemic21 have also contributed to the of the banking and microfinance institution (MFI) weak credit demand by households and firms. As a sectors, which halved to 0.7 percent and 1.5 percent result, credit sharply decelerated to 4.6 percent y/y, a in 2023, respectively, down from 1.4 percent and 3.0 14-year low in February 2024, down from 14.8 percent percent in 2022, respectively. Similarly, the returns during the same period in 2023 (figure 21). The rate on equity of the banking and MFI sectors declined of credit growth is the slowest since late 2009, when to 3.8 percent and 6.0 percent in 2023, respectively, the economy was hit by the global financial crisis. down from 7.0 percent and 13.6 percent in 2022, respectively. Credit is rotating from the real estate In parallel, the nonperforming loan ratios rose to trade and agriculture sectors to 5.4 percent for banks and 6.7 percent for Despite the overall slowdown in credit growth, MFIs, up from 2.2 percent and 2.6 percent, the share of domestic credit financing the respectively, partly reflecting the end of the retail, wholesale, and agriculture sectors forbearance measures introduced during the combined increased, reaching 35.5 percent pandemic and the decrease in domestic credit of total outstanding credit (US$52 billion) in growth. In January 2024, the weighted average February 2024, up from 34.7 percent during interest rates of U.S. dollar-denominated term the same period in 2023 (figure 22). As a result, deposits rose to 5.83 percent per year, up from 4.1 since September 2023, the share of domestic credit percent per year in June 2022. Similarly, the weighted financing the retail, wholesale, and agriculture sectors 20 National Bank of Cambodia 2023. 21 World Bank 2020. 22 Cambodia Economic Update June 2024 combined has exceeded the share of domestic credit percent during the same period in 2023. After a going to the construction, real estate, and mortgage rapid recovery in 2022, in part reflecting a one-time sectors. This indicates a gradual shift in domestic consumption boom after lifting COVID-19-related credit provision to the economy’s main productive mobility restrictions, growth in government revenue (services and agriculture) sectors away from the collection has slowed. Cambodia continues to rely on property sector. The share of domestic credit going taxes on goods and services (indirect revenue) (figure to the construction, real estate, and mortgage sectors 23). Its direct revenue, which includes largely profit declined to 33.3 percent of the total in February 2024, and income taxes, remains relatively small, accounting down from 34.6 percent during the same period in for about one-third of total tax revenue, as the country 2023, caused by a slowdown in the demand for credit has not yet introduced a personal income tax. resulting from an overinvestment in the property market. Since 2023, Cambodia’s indirect revenue, which consists mainly of consumption taxes such as the The slowdown in credit growth led to a decline value-added tax and excises, has been affected by in the credit-to-GDP ratio, which shrank to sluggish private consumption, as domestic credit 166.2 percent in February 2024, down from growth significantly slowed. In addition, taxes 171.8 percent during the same period in 2023. on international trade, consisting mostly of revenue Private sector deposit growth, however, accelerated from import tariffs, are also being hit by slow imports to 15.7 percent y/y in February 2023. This likely and newly signed free trade agreements. As a result, indicates improved confidence in the financial sector, taxes on goods and services declined to 8.8 percent attracted by elevated deposit interest rates as well as of GDP and on international trade to 2.0 percent the ability of households and businesses to save. The of GDP in 2023, down from 10.5 percent and 2.1 slowdown in credit growth and the pickup in deposit percent, respectively, in 2022. While recovering owing growth helped reduce the loan-to-deposit ratio, which to the revival of the tourism sector, nontax revenue stood at 127.9 percent in February 2024, down from amounted to 1.9 percent of GDP in 2023, well below 141.5 percent during the same period in 2023. its pre-pandemic peak of 3.0 percent. Domestic revenue collection remained In addition, its corporate income tax is increasingly constrained by generous tax sluggish incentives under the new Law on Investment. Incoming data showed that in January 2024, Nevertheless, owing to efforts to strengthen tax domestic revenue collection barely increased, revenue administration, gradual achievements in growing at 0.2 percent y/y, down from 11.3 improving direct revenue collection continue. A Figure Figure Figure 21. 21. 21. Domestic Domestic Domestic credit credit growth credit growth plummeted growthplummeted plummeted Figure Figure Figure 22. 22.Domestic 22. Domestic Domestic credit credit allocation credit going to to going theis the main to shifting main Credit Credit Credit growth growth growth sectors sectors finance trade and agriculture (y/y (y/y (y/y percent percent percent change) change) change) (percent (percent ofof of (percent total) total) total) 60 60 60 60 Construction, Construction, real real estate estate and mortgage and mortgage 50 50 Retail, Retail, wholesale wholesale andand agriculture agriculture 50 50 40 40 40 40 30 30 30 30 20 20 10 10 20 20 0 0 10 10 -10-10 Credit Credit to CRM to CRM Domestic Domestic credit credit 0 0 2007 2008 2007 2009 2008 2010 2009 2011 2010 2012 2011 2013 2012 2014 2013 2015 2014 2016 2015 2017 2016 2018 2017 2019 2018 2020 2019 2021 2020 2022 2021 2023 2022 2023 2024 (Feb) 2024 (Feb) -20-20 Jul-09 Jul-09 Dec-09 Dec-09 May-10 May-10 Oct-10 Oct-10 Mar-11 Mar-11 Aug-11 Aug-11 Jan-12 Jan-12 Jun-12 Jun-12 Nov-12 Nov-12 Apr-13 Apr-13 Sep-13 Sep-13 May-15 May-15 Oct-15 Oct-15 Mar-16 Mar-16 Aug-16 Aug-16 Apr-18 Apr-18 Sep-18 Sep-18 Feb-19 Feb-19 Jul-19 Jul-19 Dec-19 Dec-19 May-20 May-20 Oct-20 Oct-20 Mar-21 Mar-21 Aug-21 Aug-21 Jan-22 Jan-22 Jun-22 Nov-22 Jun-22 Nov-22 Apr-23 Apr-23 Sep-23 Sep-23 Feb-14 Feb-14 Jul-14 Jul-14 Dec-14 Dec-14 Feb-24 Feb-24 Jan-17 Jan-17 Jun-17 Jun-17 Nov-17 Nov-17 Sources: Cambodian authorities. Sources: Cambodian authorities. Note: CRM = construction, real estate, and mortage. Note: CRM = construction, real estate, and mortgage; RWA = retail, wholesale, and agriculture. Figure Figure 23. 23. Domestic Domestic revenue eased revenue eased Figure Figure 2 4. 2 4. E xpenditure E xpenditure remained remained contained contained Cambodia Economic General Update General June 2024 government government domestic domestic revenue revenue General General government government expenditure expenditure 23 (percent (percent GDP of of ) ) GDP (percent (percent GDP of of GDP) ) Other Other revenues revenues Non-tax Non-tax revenues revenues Other Other expenditure expenditure Capital Capital expenditure expenditure new 2024–28 revenue mobilization strategy is to be 2024, reflecting volatility of budget expenditure, introduced this year. central government expenditure quickly accelerated, expanding at 62.6 percent y/y, up from negative 13.0 Budget expenditure expanded percent during the same period in 2023. Cambodia moderately continues to implement the across-the-board public sector wage increase and social assistance program. In 2023, owing to an estimated decline of capital It is boosting technical and vocational education expenditure, thanks to budget consolidation and training (TVET) and healthcare. The 2023–28 efforts, government outlays remained Pentagonal Strategy aims at training 1.5 million contained, despite rising current expenditure caused TVET trainees, targeting universal health coverage, by reintroduction of the across-the-board public boosting agricultural extension activity, and more. sector wage increase (frozen during 2021–22 to save budgetary resources to finance to COVID-19-related The overall fiscal deficit widened spending), introduction of social security benefits Figure Figure 21. 21. Domestic Domestic creditgrowth credit growth plummeted plummeted Figure Figure Owing 22. to the credit Domestic 22.Domestic largely credit decline going going in the to to domesticthemain main revenue, for former civil servants and Credit Credit veterans, hosting of the growth growth sectors sectors 32nd Southeast (y/y Asian Games, and election-related the fiscal deficit is estimated to have widened. (y/y percent percent change) change) (percent (percent total) of of total) spending. Thanks to the decline of domestically In 2023, the gap between total revenue (including 60 60 financed public capital investment, capital expenditure 60grants) 60 and expenditure Construction, Construction, under realreal estate general estate andand government mortgage mortgage is50 estimated 50 to have declined to 7.4 percent of GDP in operations is estimated Retail, wholesale Retail, have to and wholesale reached 5.3 percent agriculture and agriculture 50 50 2023, down from 8.7 percent in 2022 (figure 24), as of GDP, compared to 4.4 percent recorded in 2022 40 40 a countercyclical public investment boost introduced 40(figure 40 25). Revenue including grants is estimated to30 30 cushion negative impacts of the pandemic has to have amounted to 21.4 percent of GDP, down 30 30 from 23.4 percent of GDP collected in 2022, while 20 20 withdrawn. However, public expenditure on been wages expenditure marginally declined to 26.7 percent of 10 10 and compensation and on goods and services 20 20 is estimated to have marginally increased, reaching GDP, down from 27.7 percent of GDP during the 0 0 6.8 percent of GDP and 8.1 percent of GDP in 2023, 10 10 period, thanks to budget consolidation efforts. same -10-10 respectively, from upCredit to6.7 Credit CRM percent and to CRM 8.0 percent credit in Domestic Domestic credit 0External 0 funds continued to play a major role in -20-20 respectively. Other expenditures, which cover 2022, 2007 2008 2007 2009 2008 2010 2009 2011 2010 2012 2011 2013 2012 2014 2013 2015 2014 2016 2015 2017 2016 2018 2017 2019 2018 2020 2019 2021 2020 2022 2021 2023 2022 2023 2024 (Feb) 2024 (Feb) financing the fiscal deficit. Since the pandemic hit Jul-09 Dec-09 May-10 Jul-09 Oct-10 Dec-09 Mar-11 May-10 Aug-11 Oct-10 Jan-12 Mar-11 Jun-12 Aug-11 Nov-12 Jan-12 Apr-13 Jun-12 Sep-13 Nov-12 Apr-13 Sep-13 May-15 Oct-15 Mar-16 May-15 Aug-16 Oct-15 Mar-16 Aug-16 Apr-18 Sep-18 Feb-19 Apr-18 Jul-19 Sep-18 Dec-19 Feb-19 May-20 Jul-19 Oct-20 Dec-19 Mar-21 May-20 Aug-21 Oct-20 Jan-22 Mar-21 Jun-22 Aug-21 Nov-22 Jan-22 Apr-23 Jun-22 Sep-23 Nov-22 Apr-23 Sep-23 Feb-14 Jul-14 Dec-14 Feb-14 Jul-14 Dec-14 Feb-24 Feb-24 Jan-17 Jun-17 Nov-17 Jan-17 Jun-17 Nov-17 subnational budget expenditures, also marginally in 2020, the authorities have been filling the pandemic- increased, and are estimated to have reached 4.0 induced widening financing gap primarily with rising percent of GDP in 2023, up from 3.8 percent in 2022. proceeds from loan disbursements, supplemented by However, spending pressures continue. In January drawdowns of government deposits (fiscal reserves) Figure Figure Figure 23. 23. 23.Domestic Domestic Domestic revenue revenue revenue eased eased eased Figure 2 4. Figure 2 24. Figure 4. EExpenditure E xpenditure xpenditure remained remained contained remainedcontained contained General General government government domestic domestic revenue revenue General government domestic revenue General General government government expenditure expenditure General government expenditure (percent (percent (percentof GDP ofof GDP GDP) ) ) (percent (percent of of (percent GDP of GDP) ) GDP) Other Otherrevenues revenues Non-tax revenues Non-tax revenues Other expenditure Other expenditure Capital expenditure Capital expenditure Taxes on on Taxes international trade international trade Taxes on on Taxes goods and goods services and services 35 35 Goods Goodsand Services and Services Wages and Wages Compensation and Compensation Direct Direct revenues revenues Domestic Domestic revenue revenue Budget Budgetexpenditure expenditure 30 30 29.0 29.0 28.6 28.6 27.7 27.7 30 30 26.7 26.7 25 25 25.5 25.5 3.03.0 20 20 10.5 10.5 9.79.7 20 20 7.77.7 8.78.7 7.47.4 2.92.9 2.62.6 2.02.0 1.91.9 2.12.1 1.81.8 2.12.1 1.91.9 2.42.4 1.91.9 2.02.0 15 15 6.96.9 6.96.9 8.08.0 8.08.0 8.18.1 12.8 12.8 10.7 10.7 10.5 10.5 8.88.8 10 10 10 10 10.9 10.9 9.49.4 5 5 8.18.1 6.16.1 6.06.0 7.47.4 7.27.2 6.86.8 6.86.8 4.14.1 4.64.6 5.55.5 5.45.4 0 0 0 0 2018 2018 2019 2019 2020 2020 2021 2021 2022 2023e 2022 2023e 2019 2019 2020 2020 2021 2021 2022 2022 2023e 2023e Sources: Budget settlement laws and World Bank staff estimates. Sources: Budget settlement laws and World Bank staff estimates. Note: e = estimate. Note: e = estimate. Figure Figure 25. government General 25.General operations government operations Figure Figure 26.General General 26. government surplus/de government ficit surplus/de and ficit and (percent (percent GDP) of of GDP) financing financing 24 Cambodia Economic Update June 2024 (percent (percent GDP) of of GDP) Total Total revenue revenue (and (and grants) grants) Total Total expenditure expenditure Domestic Domestic financing financing Debt Debt amortization amortization 35 35 Overall Overall balance balance Credit Credit growth growth sectors sectors percent (y/y(y/y percent change) change) (percent (percent of total) of total) 60 60 60 60 Construction, Construction, real estate real estate and mortgage and mortgage 50 50 Retail, Retail, wholesale wholesale and agriculture and agriculture 50 50 40 40 (see the public debt section for details). To finance the permanent 40 40 basis. It aims to improve the adequacy of 30 30 estimated 5.3 percent of GDP overall fiscal deficit, social assistance by offering a flat rate unconditional 30 30 20 20 financing, which includes project and budget external cash transfer, together with conditional amounts 10 10 is estimated to have accounted for three-quarters support, tailored 20 20 to each eligible family member (pregnant (figure 26), while the remaining one-quarter is estimated women, children under two, school-aged children, to 0have0 been financed by a drawdown of government 10 10 people with disabilities, people living with HIV/AIDS, -10 -10 (fiscal reserves), deposits Credit Credit which to CRM to CRMstood at 15.4 percent Domestic Domestic of credit credit and 0 0 people aged 60 and older). The FP is expected GDP (20.1 trillion riel) by February 2024, down from to benefit approximately 654,000 households (2.8 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 2024 (Feb) 2024 (Feb) -20 -20 Jul-09 Dec-09 Jul-09 May-10 Dec-09 Oct-10 May-10 Mar-11 Oct-10 Aug-11 Mar-11 Jan-12 Aug-11 Jun-12 Jan-12 Nov-12 Jun-12 Apr-13 Nov-12 Sep-13 Apr-13 Sep-13 May-15 Oct-15 May-15 Mar-16 Oct-15 Aug-16 Mar-16 Aug-16 Apr-18 Sep-18 Apr-18 Feb-19 Sep-18 Jul-19 Feb-19 Dec-19 Jul-19 May-20 Dec-19 Oct-20 May-20 Mar-21 Oct-20 Aug-21 Mar-21 Jan-22 Aug-21 Jun-22 Jan-22 Nov-22 Jun-22 Apr-23 Nov-22 Sep-23 Apr-23 Sep-23 Feb-14 Jul-14 Feb-14 Dec-14 Jul-14 Dec-14 Feb-24 Feb-24 Jan-17 Jun-17 Jan-17 Nov-17 Jun-17 Nov-17 16.3 percent of GDP during the same period in 2023. million individuals or around 18 percent of the population) identified under the Identification of Cash transfer programs continued Poor Households Program (ID Poor). In this regard, 434,600 million riel (US$100 million) has been The COVID-19 cash transfer program, the budgeted for the FP for 2024 and 701,302 million riel largest component of the government’s fiscal (US$170 million) for 2025. intervention during the pandemic, concluded Figure Figure 23. 23.Domestic Domestic revenue revenue eased eased Figure Figure 2 4.2 E E xpenditure 4.xpenditure remained remained contained contained at the General end of March 2024, with the total The incidence of poverty under the national government General government domestic domestic revenue revenue General General government government expenditure expenditure disbursement of(percent US$1,342 of GDP (percent ) ) after being ofmillion GDP poverty line was 17.8 (percent (percent percent of GDP of GDP in 2019/20, ) ) but it is introduced in June 2020. To continue providing anticipated that poverty rates increased in 2021 social assistance to poor and vulnerable households, Other revenues Other revenues Non-tax Non-tax revenues revenues due to the economic impacts of the pandemic and Other expenditure Other expenditure Capital Capital expenditure expenditure TaxesTaxes on international on international tradetrade Taxes on goods Taxes and services on goods and services35 35 Goods and Services Goods and Services WagesWages and Compensation and Compensation the Royal Government of Cambodia approved associated lockdowns. However, with the projected Direct Direct revenues revenues Domestic Domestic revenue revenue Budget Budget expenditure expenditure the Family Package (FP), a permanent program, in 30 economic 30 recovery and moderating inflation, the 28.6 28.6 29.0 29.0 December 30 30 2023. The FP integrates the existing four poverty rate is estimated to have decreased in 2023. 27.7 27.7 26.7 26.7 25.5 25.5 programs: (i) a conditional cash transfer for pregnant 25 25 women and child 3.0 two years old, (ii) a scholarship 3.0under 20 Public 20 debt 10.5stock 10.5 reached 9.7 9.7 35.5 percent 8.7 8.7 20 20 7.4 7.4 program 2.9 primary 2.9for 2.6 2.6 and secondary 2.0 2.0 school students, 1.9 1.9 1.8 1.8 2.1 2.1 1.9 1.9 15 of 7.7 GDP 7.7 2.4 transfer 2.4 2.1 2.1 15 (iii) a cash for people with 1.9disabilities, 1.9 and (iv) 2.0 2.0 6.9 6.9 cash a10 transfer for people aged 60 and older 10 10.9 10.9 12.8 12.8 10.7 10.7 9.4 9.4 10.5 (table 10.5 8.81). 8.8 10 By 10 end-2023, 6.9 6.9 Cambodia’s8.0 8.0 public 8.0 8.0 debt-to-GDP 8.1 8.1 ratio reached 35.5 percent or US$11.2 billion The FP, which was officially implemented in 5 5 in outstanding 8.1 debt, 7.2 which of 99.5 5.5 5.4 5.4 6.1 6.1 6.0 6.0 7.4 7.4 8.1 7.2 6.8 6.8 6.8 or 6.8 percent, April 2024, 4.6 4.6 a 5.5 4.1 4.1 signals major policy shift toward 0 0 0 US$11.19 0 billion, is public external debt, while increased20182018and better 2019 2019 2020targeted social 2020 20212021 2022 assistance 2022 2023e 2023e 2019 public 2019 20202020 domestic 20212021 2022 debt accounted for 2022 2023e2023e the remaining coverage for poor and vulnerable families on a Figure Figure Figure 25. 25.25. General General government General operations government government operations operations Figure Figure 26. 26. Figure General 26. General government General government government surplus/de surplus/de ficitfi and surplus/deficitcit and and (percent (percent of of GDP) (percent of GDP)GDP) financing financing financing (percent (percent of of GDP) (percent of GDP) GDP) Total revenue Total grants) (and(and revenue grants) Total expenditure Total expenditure Domestic financing Domestic financing Debt amortization Debt amortization 35 35 Overall Overall balance balance Foreign financing Foreign financing Financing Financing 30 30 9 9 25 25 7 7 7.0 7.0 20 20 5 5 5.3 5.3 15 15 4.6 4.6 4.4 4.4 3 3 10 10 1 1 5 5 - 0.4 - 0.4 0 0 -1 -1 - 1.5 - 1.5 -5 -5 -3 -3 -10 -10 -5 -5 20182018 20192019 20202020 20212021 20222022 2023e 2023e 2023e 20182018 20192019 20202020 20212021 202220222023e Sources: Budget Settlement Laws; World Bank staff projections. Sources: Budget Settlement Laws; World Bank staff projections. Note: e = estimate. Note: p = projections. Cambodia Economic Update June 2024 25 0.5 percent, or US$52.39 million. 22 Of the total China continued to be Cambodia’s largest official US$11.19 billion public external debt, 64.0 percent creditor. Total debt owed to China reached US$4.11 is owed to bilateral creditors and 36.0 percent to billion. As a share of total outstanding public external multilateral creditors, compared to 67.5 percent and debt, Chinese outstanding debt declined to 36.7 32.4 percent, respectively, in 2022. Triggered by the percent in 2023, down from 40.1 percent in 2022, pandemic, Cambodia’s debt accumulation picked due to rising multilateral debt. Cambodia’s second- up amid slow revenue collection and rising demand largest creditor is the Asian Development Bank, to for health and social assistance spending, resulting which it owed US$2.3 billion, or 23.6 percent of total in a widening financing gap. To finance the gap, the public external debt. country’s public debt, which consists almost solely of external debt, rose by 7.3 percent of GDP, to 35.5 The World Bank is Cambodia’s third-largest percent of GDP by 2023, up from 28.2 percent in 2019. creditor, with a US$1.3 billion debt stock or 11.8 External borrowing remained highly concessional, with percent of total public external debt as of end- a weighted grant element of 44.7 percent in 2023. The 2023. In 2023, the amount of loans signed between weighted average interest rate of contracted loans was Cambodia and the World Bank was the largest, 0.96 percent per year in 2023, down from 1.11 percent reached US$501.3 million, or 27.7 percent of total in 2022, while weighted average maturity declined to public external debt contracted in 2023. Similarly, 24.1 years, down from 26.9 years. the amount of loan disbursements by the World Bank to Cambodia was also the largest, accounting for US$393.6 million or 22.3 percent of total public Table 1. Family Package components external loan disbursements in 2023. World Bank loan disbursements have risen quickly, increasing Benefit # of Amount from US$15.8 million a year in 2017 to meet rising Conditions Types payments (riel) demand for financing priority sectors. A wide- Pregnant ranging area of the priority sectors financed by the Prenatal women and checkups during 4 80,000 World Bank include policy development financing, children pregnancy general and higher education, social and economic under 2 Give birth at land allocation, agricultural diversification, health public health 1 400,000 equity and quality improvement, road connectivity, facilities livelihood enhancement, water supply, and disaster Postpartum management.23 Cambodia’s fourth- and fifth-largest 3 80,000 creditors are Japan and the Republic of Korea, medical checkups Medical accounting for 11.2 percent and 5.1 percent of total checkups, outstanding debt, respectively. Old debt accounted vaccinations, and 7 80,000 for 5.6 percent of the total. immunizations for children Rising external finances by Cambodia’s official Children go to creditors have helped close the pandemic-induced Scholarship 12/year 20,000 primary widening financing gap. Loan disbursements rose Children go to quickly from US$829 million (2019) to US$1,213 12/year 20,000 lower secondary million (2020), US$1,168 million (2021), US$1,345 Children go to million (2022), and US$1,523 million (2023). Of the 12/year 30,000 upper secondary total disbursement of US$1,523 million in 2023, 63.1 Elderly aged 60 percent financed the country’s public infrastructure Elderly (60+) 12/year 28,000 and older sectors (transport, energy, irrigation, water supply, Disability Disability card 12/year 28,000 and others) and 36.9 percent financed non- HIV/AIDS Equity card 12/year 28,000 infrastructure priority sectors (agriculture, health, Basic education, and other priorities). This indicates a Equity card 12/year 34,000 allowance significant shift in government priorities, given that Source: Cambodian authorities. a decade ago, loan disbursements almost entirely 22 Ministry of Economy and Finance 2024a. 23 For detailed sectors and projects, see: https://projects.worldbank.org/en/projects-operations/projects-list?lang=en&countrycode_exact=KH&os=0. 26 Cambodia Economic Update June 2024 financed public infrastructure priorities. In 2013, should support resilience of goods exports. The physical infrastructure priorities received as much as economic recovery, in conjunction with continued 96.6 percent of total loan proceeds, while the non- social assistance programs, should translate into a infrastructure priorities received the remainder. decline in poverty, reversing part of the likely increase in poverty in 2020 and 2021. The pace of poverty U.S. dollar-denominated outstanding public reduction is projected to accelerate this year. external debt remained the largest, rising to 46.0 percent of total debt stock in 2023, Cambodia’s real growth is projected to accelerate followed by Special Drawing Rights (SDR)- further in the short term. Cambodia’s real growth is denominated debt, at 19.2 percent. Although projected to reach 6.1 percent in 2025 and 6.4 percent China is Cambodia’s top creditor, the country’s in 2026. The tourism and hospitality industries are public external debt denominated in Chinese yuan anticipated to continue to expand, with a projected accounted for only 11.3 percent of total debt stock. increase in international arrivals, surpassing the Public external debt denominated in Japanese yen, pre-pandemic levels in the coming years, while euro, and other currencies, accounted for 11.2 goods exports and FDI inflows are expected to be percent, 6.9 percent, and 5.4 percent, respectively. further strengthened by the newly ratified free trade The shares of these currencies of denomination have agreements and a substantial increase in private and remained relatively unchanged for a decade. public investment in key physical infrastructure. Cambodia remained at low risk of external and overall debt distress CHALLENGES AND RISKS The outlook is subject to downside risks, which Cambodia remained at low risk of external and include weaker-than-expected global demand, overall debt distress under the Low-Income global financial stress amid elevated debt and Countries Debt Sustainability Framework, high borrowing costs, and a slower-than- according to the joint World Bank/International anticipated recovery in China. Cambodia’s highly Monetary Fund Debt Sustainability Analysis dollarized economy is affected by the U.S. monetary conducted in 2023. The current debt-carrying policy tightening cycle, while its GTF exports are capacity remains consistent with a medium susceptible to consumer demand in the United States classification. The baseline scenario assumes a steady and EU. In addition, the country is also dependent economic recovery, largely driven by a rebound in on Chinese FDI. In China, further loss of consumer tourism and manufacturing goods exports. The total confidence could hold back spending and weigh on public and publicly guaranteed debt-to-GDP ratio growth, especially as China’s property sector slump is projected to rise by around 4 percentage points continues. Domestically, a faster-than-expected of GDP during the next decade, but its level is set to increase in nonperforming loans could affect macro- remain stable. Moreover, the debt burden indicators financial stability as the housing market correction are projected to remain well below their thresholds continues. High global interest rates and decelerating under the baseline and the shock scenarios. However, credit growth continue to affect Cambodia’s financial stress tests show that debt sustainability remains sector, which is showing signs of deleveraging. vulnerable to shocks in exports and growth. OUTLOOK POLICY OPTIONS Against the backdrop of the ongoing recovery, This year’s economic growth is projected to more efforts are needed to restore fiscal space marginally improve to 5.8 percent (see table 2), as Cambodia’s fiscal buffers have shrunk, after driven mainly by a continued revival of services years of government fiscal intervention. First, and goods exports. Looking ahead, Cambodia’s increasingly generous tax holidays and exemptions improved current account balance, supported by should be reviewed. Second, reforming the corporate some success in diversifying its exported products income tax to broaden the tax base and strengthen beyond GTF products (to agricultural commodities, compliance is a must. Third, introducing a personal solar panels, and electrical and electronic parts) and income tax should be a medium-term objective of the its export markets beyond the U.S. and EU markets next revenue mobilization strategy. (to regional markets, especially the ASEAN market) Cambodia Economic Update June 2024 27 Given high levels of private debt, rising NPLs Therefore, streamlining complex and restrictive and falling returns to banking sector assets, business entry requirements, together with safeguarding financial stability also remains improvements to the functioning of the important. The recent credit boom has resulted in insolvency framework, will help reduce costs relatively high levels of private sector debt, which is of firm entry and exit, while promoting the concentrated in real-estate exposures. To safeguard predictability of the regulatory environment. financial stability, the immediate focus should be Considerable effort is needed to simplify and on intensified bank supervision: stress testing of digitalize business services, especially the issuance individual institutions, systematic onsite inspections, of licenses and permits to reduce the associated further alignment of the regulatory framework with costs. Accelerating full implementation of the final international standards, and thorough assessments of phase of the National Single Window to include the quality of loan portfolios, among others. There was licenses, permits, certificates, and other documents, a rapidly growing number of financial institutions in is necessary. Fast-tracking the implementation of Cambodia until 2022. Therefore, a consolidation of licensed economic operators is also needed. the financial sector through mergers and acquisitions should help preserve profit margins by improving Boosting learning outcomes is fundamental to their efficiency and increasing market share. To develop a “future-ready” workforce and drive prepare for increasing levels of nonperforming loans, Cambodia’s future productivity growth as the it is crucial to ensure that resolution options are now country endeavors to become an upper middle- ready to be deployed as needed, and to strengthen income economy by 2030 and a high-income the country’s insolvency regime. Efforts to prepare economy by 2050. Labor productivity growth legislation on deposit insurance and bank resolution has declined sharply over the past five years. Few must continue. young Cambodian children are being enrolled in early childhood education, while primary schools More effort is urgently needed to create are experiencing a decline in learning outcomes. an accommodating business environment Few students are progressing to secondary school, encouraging firms to operate, innovate, and and those that do are often inadequately prepared increase productivity in an efficient manner. and experience high dropout rates. (See the Special It is necessary to address the top three perceived Focus section for a more in-depth discussion on constraints, which are practices of the informal sector, strengthening Cambodia’s education system for tax rates, and tax administration identified by the future growth.) 2023 World Bank Enterprise Surveys, by promoting business registration, reducing the tax compliance It is also important to improve logistics burden, and reviewing effective tax rates. The 2023 performance, as targeted by the Pentagonal Enterprise Surveys indicate that in Cambodia, 8.2 days Strategy.24 Further efforts must be made to reduce were needed to clear direct exports through customs transport and logistics costs by monitoring the and 9 days were needed to clear imports, compared efficiency of main trade gateways such as ports to 4 days and 8.3 days, respectively, in Vietnam. To and border checkpoints. The Enterprise Surveys reduce time needed to import, there is an urgent reveal that transportation is now the fourth greatest need to accelerate implementation of pre-arrival constraint for businesses. This is consistent with processing electronically, while undertaking complete one of the findings discussed in a policy note that automation of customs clearance procedures to analyzed post-pandemic supply chain disruptions. allow the official use of electronic documents to The findings indicated that the national logistics shorten export time. The 2023 Enterprise Surveys costs in Cambodia are significantly higher than in also revealed that in Cambodia, 28 days were needed comparable ASEAN countries, estimated at 26.4 to obtain an import license and 30 days to obtain an percent of GDP in 2020. To this end, it is necessary operating license, compared to, respectively, 13.2 days to establish a team, and local authorities dedicated to and 10.7 days in Vietnam, and 9 days and 5 days in facilitating trade with hotline support, especially for Indonesia. road transport. 24 The Pentagonal Strategy is a roadmap for transforming Cambodia into a high-income country by 2050. 28 Cambodia Economic Update June 2024 Table 2. The macro outlook indicates continued economic recovery   2019 2020 2021 2022 2023e 2024p 2025p 2026p National Accounts and         Prices       GDP at constant market 7.1 -3.1 3.0 5.2 5.4 5.8 6.1 6.4 prices (% change) Agriculture -0.5 0.6 1.2 0.7 1.4 1.4 1.4 1.5 Industry 11.3 -1.4 9.4 8.3 4.8 7.4 7.7 8.1 Services 6.2 -6.3 -2.7 3.5 8.0 6.1 6.3 6.4 Consumer Price Index 1.9 2.9 2.8 5.5 2.1 2.8 2.7 3.0                   General Government (% of                 GDP) Revenue and grants 27.0 24.1 22.0 23.4 21.4 20.7 20.6 20.3 Expenditure and net 25.5 28.8 29.2 27.7 26.7 26.2 25.0 24.5 lending Overall balance (including 1.5 -4.7 -7.2 -4.4 -5.3 -5.5 -4.4 -4.2 grants) Foreign financing 3.1 4.7 4.2 5.3 5.3 4.3 3.7 3.6 Net domestic financing -3.8 1.1 4.0 0.3 1.2 2.6 2.2 2.2 (from current savings) Amortization -0.8 -1.0 -1.1 -1.2 -1.3 -1.4 -1.5 -1.6                   Money and Credit                 Broad money (% change) 18.2 15.3 20.0 8.2 12.5 13.0 15.1 17.0 Credit to the private sector 27.0 17.7 23.2 18.9 4.1 7.6 10.8 12.6 (% change)                   External Sector (US$m                 unless otherwise) Exports (goods and services) 16,351 16,692 18,566 24,494.7 29,149.5 35,679.0 45,186.1 58,646.5 Imports (goods and 18,198 19,955 29,489 40,467.1 32,125.3 35,953.8 44,126.2 57,068.3 services) Foreign direct investment, 3,561 3,498 3,391 3,425 3,639 4,080 4,351 4,620 net inflows Gross official reserves 18,763 21,334 20,272 17,816.0 19,895.6 23,550.4 26,135.4 28,785.9 (months of imports) 9.7 10.4 8.1 7.0 6.0 5.5 5.0 5.0 Current account (percent -8.0 -7.5 -39.7 -25.5 1.7 2.7 2.6 1.6 of GDP) Exchange rate (riel per US$ 4,070 4,077 4,100 4,150 4,110 4,100 4,090 4,080 average)                   Total public debt (% of 28.1 35.9 36.1 36.7 33.6 35.6 35.5 34.8 GDP)                   Memorandum items:                 Nominal GDP, US$m 27,030 25,972 26,963 29,158 31,662 34,290 37,271 40,559 Sources: Cambodian authorities; World Bank staff estimates and projections. Note: e = estimate; p = projections. Cambodia Economic Update June 2024 29 Upgrading Cambodia’s infrastructure, Enterprise Surveys indicated that in Cambodia, losses particularly its electricity supply, is critically due to electricity outages worsened as associated costs important for moving up to higher-value-added rose from 0.3 percent of annual sales in 2013 to 1.1 manufacturing and agro-processing industries. percent in 2023, well above Indonesia (0.2 percent), While access to electricity has significantly Vietnam (0.2 percent), and Singapore (zero percent). improved, low reliability of power supply remains Large investments are needed in the energy sector to a key bottleneck. The Enterprise Surveys indicate address the dual challenge of meeting rapid growth that 43 percent of surveyed firms experienced in electricity demand while meeting the country’s electrical outages (0.9 outages in a typical month) in climate change commitments. Investments are Cambodia, compared to 12.7 percent (0.2 outages also needed to upgrade basic urban services such as in a typical month) in Indonesia, and 28.6 percent piped water, sanitation, solid waste management, (0.4 outages in a typical month) in Malaysia (2019). telecommunications, and transport, in conjunction Inadequate electricity supply can increase costs, with strengthened urban planning. disrupt production, and reduce profitability. The 30 Cambodia Economic Update June 2024 PART 2. STRENGTHENING CAMBODIA’S EDUCATION SYSTEM FOR FUTURE GROWTH25 25 The Special Focus section is contributed by Lauri Pynnonen. Cambodia Economic Update June 2024 31 Photo: DALL-E 32 Cambodia Economic Update June 2024 Introduction its human capital potential. Improving educational outcomes, starting with foundational skills, is crucial Cambodia has made significant strides in for Cambodia to unlock its full human capital and expanding access to education over the past drive sustainable economic growth. decade. The country’s net enrollment rates have increased steadily, with primary education attendance As Cambodia aspires to become an upper reaching 90 percent in 2019, up from 81 percent in middle-income country by 2030, prioritizing 2009.26 Similarly, enrollments at the lower and upper human capital development through education secondary levels have shown good progress. Despite will be essential. Strong foundational skills serve as these improvements, Cambodia still faces numerous the building blocks for advanced cognitive, technical, challenges in providing quality education to all its and socio-emotional skills later in life. These skills are citizens. The recent COVID-19 pandemic has further critical for fostering a technology- and innovation- exposed the vulnerabilities of the education system, driven economy, enhancing workforce productivity, with prolonged school closures leading to substantial and enabling Cambodia to successfully transition to learning losses.27 Even prior to the pandemic, Cambodia higher-income status. However, achieving this goal already faced high learning poverty rates, with students will require a concerted effort to address the persistent scoring low in both Khmer and mathematics. challenges in the education system, such as uneven Moreover, disparities in access to education, especially resource allocation, limited teacher effectiveness, and at the secondary level, and variations in learning gaps in foundational learning. outcomes, persist across different geographic locations In the past decade, there has been a notable and socioeconomic backgrounds. increase in public expenditure on education, Investing in education is not merely a social particularly on teacher salaries. However, this imperative but also an economic necessity. A surge in resources has not necessarily led to a more well-educated, skilled workforce is the cornerstone effective allocation or better learning outcomes of productivity, innovation, and competitiveness in for students. Cambodia’s relatively low global today’s knowledge-driven global economy. Countries standing in large-scale international assessments that have prioritized educational investment, such as like the Southeast Asia Primary Learning Metrics Finland, the Republic of Korea, and Singapore, have (SEA-PLM) and the Program for International reaped significant economic benefits, transforming Student Assessment (PISA), along with declining themselves into dynamic, high-income economies. learning outcomes, reflect this discrepancy. The rise Conversely, the costs of neglecting education in government expenditure on education primarily can be severe and far-reaching. Low educational stemmed from increased wages for educational staff, attainment and poor learning outcomes perpetuate with wage expenditure constituting nearly 80 percent intergenerational cycles of poverty, diminish of total Ministry of Education, Youth, and Sports workforce productivity, and impede a nation’s (MoEYS) expenditure in 2021. Conversely, capital ability to adapt to technological advancements and expenditure by MoEYS has significantly declined, global market shifts. In Cambodia, where learning plummeting from 27 percent in 2011 to 17 percent poverty rates remain high and disparities in access and of total expenditure in 2021.28 quality persist, the potential economic and societal Of significant concern is the inefficient consequences of inaction are substantial. distribution of teachers, which has led to large Cambodia’s Human Capital Index score of class sizes of 45 to 60 students, with Cambodia 0.49 highlights the urgency of addressing consistently having higher student-teacher these challenges. This score indicates that a child ratios than its ASEAN counterparts.29 From 2013 born in Cambodia today will only be 49 percent to 2018, Cambodia had the highest student-teacher as productive as they could be if they had access to ratio for primary schools, and although the ratio for complete education and full health. In other words, secondary schools is lower, it remains high. Moreover, Cambodia is currently only realizing about half of there is a stark imbalance in the distribution of 26 Cambodia Socio-Economic Survey Reports 2014, 2019/20. 27 Bhatta et al. 2022. 28 World Bank 2024e. 29 Boy and Water 2023. Cambodia Economic Update June 2024 33 teachers between urban and rural regions as well allocation, limited teacher effectiveness, and gaps in as among provinces. Many rural areas consistently foundational learning, within the broader context of grapple with a severe shortage of teachers, a long- competing priorities for limited resources and limited standing and persistent issue. At the provincial level, implementation capacity at the systemic level, it is there is concentration of teachers in Phnom Penh, more important than ever to ensure that the education while most other provinces face teacher shortages. system is resilient, equitable, and responsive to the needs of its learners. This Special Focus chapter on education delves more deeply into these critical issues. By Access and Equity in Education examining educational access, spending, outcomes, teacher effectiveness, and foundational learning, we Ensuring access to education and promoting seek to provide actionable policy recommendations equity are cornerstones of a well-functioning to strengthen Cambodia’s education system. The education system. Cambodia has made significant chapter will address the following areas: access and progress in expanding access to education, particularly equity in education, with a focus on early childhood at the primary level, over the past two decades. education and primary schooling and an examination However, disparities in educational opportunities of trends in enrollment and learning outcomes and a and outcomes persist across regions, socioeconomic discussion of strategies to enhance access and quality; groups, and gender. Addressing these inequities is trends in education spending and the relationship to crucial for ensuring that all children have the chance learning outcomes and the need to focus on spending to learn, grow, and reach their full potential, regardless better; and the importance of teacher effectiveness of their background or circumstances. and policies to improve teacher recruitment, training, and deployment. The final section summarizes the Over the past decade (2009–19/2020), there key findings and provides policy recommendations have been significant strides in increasing that prioritize spending better, improving teacher enrollment rates across various educational levels, effectiveness, and strengthening foundational particularly in secondary education. Primary school learning. net enrollment saw an 8-percentage-point increase, reaching 90 percent. More notably, enrollment in By addressing these critical aspects of lower secondary schools surged by 16 percentage Cambodia’s education system, the Special Focus points to 47 percent, while upper secondary schools aims to contribute to the ongoing effort to experienced a 13-percentage-point rise, achieving a provide quality education for all Cambodian 30 percent enrollment rate. These improvements are children. Investing in human capital through highlighted in figure S.1, showcasing the encouraging education is not only essential for individual well- progress made in educational access and participation. being but also for the country’s long-term economic Despite progress, however, enrollment in secondary growth and development. As Cambodia continues schools remains low. to navigate challenges such as uneven resource Figure Figure 1 :: Net 1 Net enrollment enrollment rate rate by school level by school level Figure S.1. Net enrollment rate by school level Figure S.2. Reasons for not being enrolled in school 100% 90 100% 12 10 11 81 20 4 5 6 80% 80% 6 12 14 21 16 60% 30 18 60% 47 23 40% 40% 31 31 33 59 59 20% 38 18 20% 11 0% Primary Primary Lower Lower secondary secondary Upper Upper secondary secondary Total Total 0% school age school (6-11) age (6-11) school school age age (12-14) school age (12-14) school (15-17) age (15-17) Primary Lower secondary Upper secondary Economic pesures Economic pesures Poor Poor school school performnace performnace Not interested Not interested 2009 2009 2019 2019 Must Must help help at home at home Other Other Source: World Bank staff estimates based on CSES 2009 and 2019/20. Primary Primary Lower secondary Lower secondary Upper secondary Upper secondary Female Female 90 90 52 52 35 35 Gender Gender Male Male 90 90 43 43 26 26 34 Cambodia Economic Update June 2024 Urban Urban 92 92 52 52 40 40 Location Location Rural Rural 89 89 45 45 25 25 Financial constraints are the primary barrier to The Cambodia Socio-Economic Surveys (CSESs) secondary school enrollment in Cambodia. Fifty- have illuminated the pronounced disparities nine percent of upper secondary school-age children in enrollment rates between urban and rural and 38 percent of lower secondary level students cite areas, particularly in secondary education. In Figure 1 : pressures economic Net enrollment the asrate by reason for not attending school level 2019, urban areas reported a net enrollment rate of school (figure S.2). Economic hardship plays a lesser 92 percent for primary education, slightly higher than role in hindering primary 100% 90 school enrollment. Among the 89 percent observed in rural areas (figure S.3). This 100% Figure 1 : Net enrollment rate by school level 12 10 11 primary school-age 81 children who are not enrolled, urban-rural 20 divide becomes 6 more marked 4 at higher 5 80% 12 leading causes are poor academic performance, the 80% educational 6levels. For lower 21 secondary education,14 16 accounting for 100% 90 33 percent, and a general lack of the 100% net enrollment 60% 30 rate 12 in urban areas10 was 52 percent, 11 18 60% 81 20 interest in education, cited by 47 30 percent. The in contrast to 45 percent 80% 40% 6 6 in rural areas, indicating a 7 23 4 5 80% 12 14 disproportionate 40% impact of financial 31 hardship on percent gap. The disparity 21 is even more substantial at 31 33 16 59 59 secondary 60% education highlights the need for targeted the 60% upper 20% 30 secondary level, 38where urban children18 have 18 23 interventions 20% to alleviate the 47 economic burden on a 60 40% 0% percent 11higher enrollment rate than their rural families, ensuring that children 40% 31 31 their can continue counterparts, 33 Primary revealing Lowerasecondary significant59 gap Upper in accessTotal to secondary 0% 59 education beyond the primary level. 18 education 20% beyond school age (6-11) the38 primary school level. age (12-14) school age (15-17) 20% Primary Lower secondary Upper secondary Economic 11 pesures Poor school performnace Not interested 0% 2009 2019 Primary LowerMust help at home secondary Other Upper secondary Total Figure 0% S.3. Net enrollment rate across gender, location, and socioeconomic status school age (6-11) school by school age (12-14) level, school age 2019 (15-17) Primary Lower secondary Upper secondary Primary Economic pesures Lower Poor school performnace secondary Not interested Upper secondary 2009 2019 Must help at home Other Female 90 52 35 Gender Male 90 43 26 Primary Lower secondary Upper secondary Urban 92 52 40 Female Location 90 52 35 Gender Rural 89 45 25 Male 90 43 26 UrbanTop quintile 92 95 52 65 40 59 Location 92 55 39 Rural 40 quintile th Socioeconomic 89 45 25 30th quintile 92 52 29 status 20nd quintile 90 48 26 Top quintile 95 65 59 Bottom quintile 92 85 28 55 13 39 40th quintile Socioeconomic 30 quintile th 92 52 29 status 0% 20% 40% 60% 80% 0% 20% 40% 60% 0% 20% 40% 60% 20nd quintile 90 48 26 Source: WorldBottom quintile Bank staff estimates based on CSES 2019/20. 85 28 13 0% Primary 20% 40% 60% 80% 0% secondary Lower 20% 40% 60% 0% 20% secondary Upper 40% 60% Figure S.4. Net enrollment rate by location, 92 2009–19 87 89 80% 80 Primary Lower secondary Upper secondary Net Enrollment Rate (%) 92 60% 87 89 80% 80 52 51 Net Enrollment Rate (%) 45 40 40% 38 60% 28 52 25 51 20% 45 40 40% 38 13 0% 28 25 20% 2009 2019 2009 2019 2009 2019 Rural Urban 13 0% 2009 2019 2009 2019 2009 2019 Rural Urban 95and CSES 2019/20. Source: World Bank staff estimates based on CSES 2009 88 85 80% 79 Net Enrollment Rate (%) 95 65 60% 88 85 59 80% 79 54 llment Rate (%) Cambodia Economic Update June 2024 44 35 40% 65 60% 59 54 28 20% 21 44 Rural 89 45 25 Top quintile 95 65 59 40th quintile 92 55 39 Socioeconomic 30th quintile 92 52 29 status 20nd quintile 90 48 26 Bottom quintile 85 28 13 While significant disparities in secondary school households. According to CSES 2019 data, the enrollment between 20% 0% urban 40% and 60% rural80%areas 0% net 20% enrollment 40% 60% rate 0% 20% for primary 40% 60% education was 85 continue to persist, there has been a notable percent among children from the poorest quintile, reduction in these gaps in recent years. For compared to 95 percent for those from the richest Primary Lower secondary Upper secondary instance, the urban-rural gap in lower secondary quintile (figure S.5). These disparities widen further school enrollment was 6 percent in 92 2019, a marked in secondary education, with the enrollment gap 87 89 decrease 80% from the larger gap of 23 percent observed reaching 37 percentage points at the lower secondary 80 in 2009 (figure S.4). This improvement indicates level and an even more pronounced 46 percentage Net Enrollment Rate (%) progress in bridging the educational divide across points at the upper secondary level. Furthermore, 60% regions. disparities 52 in primary and secondary enrollments 51 between the poorest and wealthiest 45 40 groups of Socioeconomic 40% status also plays a crucial students have persisted 38 across the years. This gap role in determining children’s educational 28 in access to education based on 25 household wealth opportunities. 20% Children from the poorest perpetuates intergenerational cycles of poverty households are significantly less likely to be enrolled 13 and inequality, as children from disadvantaged in school0% compared to their peers from the richest backgrounds less likely to 2019 are 2009 acquire the skills and 2009 2019 2009 2019 Rural Urban Figure S.5. Net enrollment rate by wealth quintile (Top and Bottom), 2009–19 95 88 85 80% 79 Net Enrollment Rate (%) 65 60% 59 54 44 40% 28 20% 21 13 7 0% Bottom quintile Top quintile Source: World Bank staff estimates based on CSES 2009 and CSES 2019/20. Figure S.6. Net enrollment rate by gender, 2009–19 Primary Lower secondary Upper secondary 82 90 80% 80 Net Enrollment Rate (%) 60% 52 43 40% 35 33 30 18 26 20% 17 0% 2009 2019 2009 2019 2009 2019 Female Male Source: World Bank staff estimates based on CSES 2009 and CSES 2019/20. 36 Age 3-5 Age 3 Age 4 Age 5 Cambodia Economic Update June 2024 80% 69 70% 60 ) 0% 2009 2019 2009 2019 2009 2019 Female Male knowledge needed to break free from poverty and Figure S.7. Early childhood enrollment by age achieve upward social mobility. Age 3-5 Age 3 Age 4 Age 5 80% While gender parity has been achieved in 69 70% primary education over time, new challenges 60 have emerged at higher levels of education, with Proportion of children (%) 60% males lagging behind females. In 2019, female 50% 43 enrollment was 52% at the lower secondary level, 40 40% compared to 43% for males, resulting in a gap of 9 34 percentage points. This gap is more pronounced at 30% 28 22 the upper secondary level, where female enrollment 20% stands at 35%, while male enrollment is 26%, creating a 12 10% gap of 9 percentage points (figure S.6). Based on 2022 World Development Indicator data, there is a notable 0% 2021 2021 2021 2021 2017 2017 2017 2017 gender disparity in completion rates. Specifically, the completion rate for females stands at 67 percent, 2017 2021 surpassing that of males, which is approximately Source: World Bank 2024f. 57 percent. These data indicate a reversal in the traditional gender gap, with males falling behind females in both enrollment4%and completion rates. 100% in infrastructure, must prioritize investments 1 teacher 2 2 7 14 7 3.4 3.3and training, 3.3learning materials, while 27 27 26 also developing 21 19 19 Early childhood education (ECE) and primary 3 policy80% 17 19 1 a comprehensive 2.8 framework that emphasizes 17 schooling form the foundation 3% upon which2.6 equity, quality, and sustainability in the provision of children’s lifelong learning and development are 2.2 2.3 60% ECE services. built. Investing in these critical 2stages of 1.8 1.8 education 2% 40% 78 79 79 7 yields significant long-term benefits for individuals 73 73 74 75 74 and society. In Cambodia, however, the progress Education Spending and Outcomes 69 20% made in expanding access 1% to ECE and primary Over the past decade, Cambodia has consistently education has been hindered by, among other factors, increased its investment 0% in education, limited resources, uneven quality, and the impact of 2011 2012 2013 2015 2016 2018 2019 2014 2017 0% recognizing the vital role that education plays the COVID-19 pandemic. in fostering human capital development and 2011 2012 2013 2015 2016 2018 2019 2020 2021 2014 2017 Wages Non-wage recurrent Capital, domestically fi driving economic growth. Despite this surge in Despite the recognized importance of ECE, spending, the country continues to grapple with enrollment rates in Cambodia have declined in persistent challenges in improving learning outcomes recent years. The share of children aged three to five across both primary and secondary education levels. enrolled in ECE programs fell from 43 percent in 2017 to 34 percent in 2021, with the most significant drops Chapter 2 of the Cambodia Public Finance observed among three-year-olds, whose enrollment Review, on education,30 underscores the increase rates plummeted from 22 percent to just 12 percent in education expenditure as a percentage of GDP, over the same period (figure S.7). This decline can rising from 2.0 percent in 2011 to 3.0 percent be attributed to a combination of factors, including in 2021 (figure S.8). This growth primarily stems the COVID-19 pandemic; inadequate access to from heightened salaries for the expanding education quality ECE programs, particularly in rural areas; workforce, which grew by 6 percent between 2014 low awareness among parents about the value of early and 2020, reaching 114,170 employees. As a result, education; and financial constraints faced by families. wage expenditure now constitutes nearly 80 percent of total education spending (figure S.9). The COVID-19 pandemic has further exacerbated the challenges in ECE, with prolonged Given that learning is cumulative, when school closures and economic hardships children lack foundational skills, they will have disproportionately affecting young children difficulty making effective use of later learning from disadvantaged backgrounds. To address opportunities and attaining higher education these issues and boost ECE enrollment, Cambodia and technical skills, including digital proficiency 30 World Bank 2024e. Cambodia Economic Update June 2024 37 30 30 18 18 26 26 N N 20% 20% 17 17 0%0% 2009 2009 2019 2019 2009 2009 2019 2019 2009 2009 2019 2019 Female Female Male Male that is increasingly necessary in the modern children achieved proficiency in mathematics, world. This means they will lose out on economic significantly below the regional average of 35 percent benefits and opportunities throughout their lives, (figure S.10, panel A). Similarly, Cambodia lags while Cambodia, more broadly, will continue to behind in reading proficiency, with only 11 percent of face constraints in acquiring skilled workers AgeAge 3-5 and 3-5 Age Agechildren 3 3 reaching Age 4 4 proficiency, Age Age 5 5 well below the regional Age 80%80% improving labor productivity—key factors for average of 29 percent (figure S.10, panel b). 69 69 economic transition. In short, for70% Cambodia to 70% develop a highly skilled workforce, it needs to start This underperformance 60 60in foundational skills Proportion of children (%) Proportion of children (%) 60%60% early by building foundational skills in pre-primary hinders progression in and completion of and primary schools. 50%50% 43 43 secondary education. The share of children that 40 40 40% 40% have completed lower secondary school (typically 34 34 Despite the substantial increase in education those aged 1228to 2815) is among the lowest in Cambodia 30% 30% spending, Cambodia’s learning outcomes remain 22 22 compared to similar countries.31 perform a concern. Primary school students 20% 20% relatively 12 12 poorly in both mathematics and reading At the secondary level, Cambodia continues to 10% compared to 10% their Southeast Asian peer countries. According to trail behind regional counterparts and faces 0%0% the Southeast Asia Primary Learning Metrics (SEA- challenges in achieving satisfactory learning 2021 2021 2021 2021 2021 2021 2021 2021 2017 2017 2017 2017 2017 2017 2017 2017 PLM) 2019 report, only 19 percent of Cambodian outcomes. Despite some progress on PISA scores 2017 2017 2021 2021 Figure S.8. Public expenditure on education Figure S.9. MoEYS spending by category (% of GDP), 2011–21 (% of total MoEYS spending), 2011–21 4%4% 100% 100% 1 1 2 2 2 2 7 7 5 5 3.43.43.33.33.33.3 14 14 7 7 7 7 21 27 27 27 27 26 26 21 19 19 19 19 17 17 19 19 15 15 17 17 3 3 80% 80% 17 17 2.82.8 3%3% 2.62.6 2.22.22.32.3 60% 60% 2 2 1.81.81.81.8 2%2% 40% 40% 73 73 73 73 74 74 78 78 79 79 79 79 75 75 69 69 74 74 77 77 78 78 20% 20% 1%1% 0%0% 2011 2011 2012 2012 2013 2013 2015 2015 2016 2016 2018 2018 2019 2019 2020 2020 2021 2021 2014 2014 2017 2017 0%0% 2011 2011 2012 2012 2013 2013 2015 2015 2016 2016 2018 2018 2019 2019 2020 2020 2021 2021 2014 2014 2017 2017 Wages Non-wage Wages Non-wagerecurrent recurrent Capital, Capital, domestically financed domestically financed Source: World Bank 2024e. Figure S.10. Share of fifth grade students proficient in math and reading, SEA-PLM 2019 Panel A. Children’s math proficiency Panel B. Children’s reading proficiency Viet Viet NamNam 92 92 Viet Viet NamNam 82 82 Malaysia Malaysia 64 64 Lao Lao PDR PDR 60 60 Region Region (Average) (Average) 35 35 Malaysia Malaysia 58 58 Cambodia Cambodia 19 19 Region Region (Average) (Average) 29 29 Phillipines Phillipines 17 17 Myanmar Myanmar 11 11 Myanmar Myanmar 12 12 Cambodia Cambodia 11 11 Lao PDR Lao PDR 8 8 Phillipines Phillipines 10 10 0% 0% 20% 20% 40% 40% 60% 60% 80% 80% 100% 100% 0% 0% 20% 20% 40% 40% 60% 60% 80% 80% 100% 100% Children proficient Children in math proficient (%)(%) in math Children Children proficient proficient in reading in reading (%)(%) Source: World Bank estimates based on SEA-PLM 2019. 31 World Bank 2024e. 6 68 8 12 12 28 28 Math Math Myanmar Myanmar 5 57 7 10 10 25 25 38 Reading Reading Cambodia Economic Update June 2024 11 11 9 9 18 18 39 39 Math Math Cambodia Cambodia 5 65 6 10 10 25 25 Reading Reading from 2017 to 2022, Cambodia remained among the Furthermore, the SEA-PLM 2019 report lowest-performing countries on the latest (2022) highlighted a gender gap in reading proficiency, PISA assessment, ranking as the worst performer with female fifth-grade students significantly across all three tested domains: reading, mathematics, outperforming their male counterparts: 14 and science. This places Cambodia behind peers percent of females were proficient in reading like Guatemala and the Philippines, which also compared to only 8 percent of males. However, participated in the assessment.32 gender disparities were minimal in math proficiency.34 The 2022 PISA assessment also revealed disparities Compounding these concerns are the based on geographic location, with students in urban substantial disparities in learning outcomes schools consistently outperforming their counterparts observed across socioeconomic, gender, in rural schools across reading, mathematics, and and geographic backgrounds, exacerbating science. However, this urban-rural gap has narrowed educational inequality. The SEA-PLM 2019 compared to findings from the 2017 PISA for results underscored significant gaps in learning Development (PISA-D) assessment.35 outcomes among socioeconomic groups. For instance, reading proficiency among children from The COVID-19 pandemic has further the wealthiest households was 25 percent, in stark exacerbated these challenges, underscoring Viet Nam to a mere 5 percent among children from contrast 92 the urgency Viet Nam for strategic education spending. 82 the poorest households (figure S.11). Malaysia 64 Similarly, Lao PDR school closures and the Prolonged 60 adoption of Region while (Average)39 percent of 35 fifth-grade students from remote 58 learning losses, learning have led to significant Malaysia affluent families 19 Cambodia demonstrated proficiency in math, Region particularly among disadvantaged students. One (Average) 29 only 9 percent17from economically disadvantaged Phillipines study 36 Myanmar 11 that the learning-adjusted years of estimates backgrounds Myanmar achieved the same level. Notably, the 12 Cambodia in Cambodia schooling 11 could decrease by 1.3 to 2.3 Lao PDR in learning disparity 8 outcomes across socioeconomic years due to the10 Phillipines pandemic. backgrounds appears to be more pronounced 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% in Cambodia compared to other countries that Children proficient in math (%) Children proficient in reading (%) participated in the SEA-PLM assessment.33 Figures S.11. Percent of fifth grade students proficient in reading and math as revealed in the Socio-Economic Survey (SES) 6 8 12 28 Math Myanmar 5 7 10 25 Reading 9 11 18 39 Math Cambodia 56 10 25 Reading 23 8 23 Math Lao PDR 12 8 Reading 24 31 37 52 Average of Math 19 26 30 43 six countries Reading 0% 10% 20% 30% 40% 50% SES bottom quartile SES second quartile SES third quartile SES upper quartile Source: SEA-PLM 2019. 520 2022. 32 OECD 506 33 SEA-PLM 2019. 496 500 494 34 SEA-PLM 2019. 485 Equated scaled score 480 2022. 35 OECD 464 2022. 36 Azevedo, Hasan, and Goldemberg 460 440 440 Cambodia Economic Update June 2024 39 420 400 Average of Math 19 26 30 43 six countries Reading 0% 10% 20% 30% 40% 50% SES bottom quartile SES second quartile SES third quartile SES upper quartile Figure S12. Student test scores at the national level Although Cambodia has a relatively low (National Learning Assessment, Grade 6), 2013–21 proportion of teachers (0.8 education personnel 520 per 100 inhabitants), it spends a comparatively 506 large share of the education budget on salaries 494 496 500 485 at 80 percent, compared to 69 percent for low- income countries.40 While competitive salaries Equated scaled score 480 464 are essential for attracting and retaining qualified 460 teachers, the high wage bill raises concerns about 440 the sustainability of education financing and the 440 lack of connection between increased spending and 420 improved learning outcomes. 400 One of the critical areas that require attention Khmer Math is the preservice teacher training system. Despite 2013 2016 2021 their best intentions, many teacher training programs in Cambodia struggle to fully prepare prospective Source: Bhatta et al. 2024. teachers for the realities of the classroom. A common The pandemic’s impact on learning outcomes issue is the limited exposure to student-centered is evident in the National Learning Assessment pedagogies during the training process. Often, teacher (NLA) results. Prior to the pandemic, learning candidates enter these programs having experienced outcomes for Grade 6 students, as assessed by the rote learning and teacher-centered approaches NLA in mathematics and Khmer, were on a positive throughout their own education.41 As a result, they trend. However, this trend was reversed due to the may find it challenging to adopt the more modern, pandemic, with scaled scores decreasing by 8 percent interactive teaching methodologies advocated by the in mathematics and 11 percent in Khmer from 2016 new curriculum. Their courses frequently involve to 2021 (figure S.12). This decline was consistently lectures and copying from the board, remaining observed across various demographics, including highly theoretical, with limited practice applying gender, regions, and socioeconomic status.37 Similarly, concepts to the classroom.42 the proportion of Grade 8 students performing below During teaching practicums, a key avenue basic proficiency levels increased for mathematics and for candidates to practice instructional skills, physics between 2017 and 2022.38 trainees may not observe effective practices being modeled, as the in-service teaching of Teacher Effectiveness mentor teachers tends to lack student-centered Improving the quality of teaching is a pedagogical approaches. The MoEYS has increased prerequisite for ensuring access to quality the practicum duration from 14 weeks to 22 weeks education and improving learning outcomes.39 in four-year teacher education programs. However, Cambodia faces significant challenges in ensuring challenges persist, including insufficient training for an adequate supply of well-trained, motivated, and cooperating teachers, communication gaps between equitably distributed teachers across the country. Teacher Education Colleges and practicum schools, Addressing these challenges requires a comprehensive and limited opportunities for observation visits approach to teacher management that encompasses and feedback.43 This lack of consistent support and recruitment, training, deployment, and ongoing feedback during the practicum contributes to a professional development. disconnect that undermines the potential for these experiences to effectively bolster teaching skills. 37 Bhatta et al. 2022. 38 World Bank 2024e. 39 World Bank 2023b. 40 International Monetary Fund 2016. 41 Bremner, Sakata, and Cameron 2023. 42 Lewin 2004. 43 Sok, Gondwe, and Wei 2022. 40 Cambodia Economic Update June 2024 Adding to these challenges is the misalignment a culture of collaboration and peer learning among between the curriculums taught in preservice teachers through professional learning communities, programs and the actual curriculums used in teacher networks, and mentoring programs can schools. The recent reform of the school curriculum provide opportunities for educators to share best was not well-coordinated with teacher training practices, discuss common challenges, and learn from institutions, resulting in a mismatch between what one another. prospective teachers are taught and the content they are expected to teach upon entering the classroom. Alongside these efforts to enhance teacher training and professional development, To address these gaps, a comprehensive overhaul addressing the uneven distribution of teachers of preservice training programs is necessary. across schools and regions is a pressing issue. These programs must be redesigned to provide Particularly concerning is the severe shortage of a solid foundation in subject matter knowledge, teachers in rural areas, especially in primary schools, child-centered pedagogy, and extensive practical due to the concentration of teachers in urban areas classroom experience. Regularly updating teacher (figure S.13). This disparity is evident at the provincial education curriculums to align with national level, with a surplus of teachers in Phnom Penh but standards, emphasizing practice-based learning, persistent shortages in most other provinces, notably and strengthening partnerships between training Siem Reap and Prey Veng.44 institutions and schools can help bridge the gap between theory and practice, better preparing National contribute Several factors Rural to theUrban uneven prospective teachers for the realities they will face. distribution 5000 of teachers, including819limited 589 776 incentives 0 for teachers to work in rural -42 -490 However, effective teacher development does or remote areas, -5000 -2896 insufficient -3486 housing -749 -1149 and -4084 not end with preservice training. Continuous amenities, and teachers seeking opportunities -4833 -10000 professional development is equally crucial for for additional income through private tutoring ensuring that in-service teachers remain up to date -13403 Enhancing in urban areas. -15000 incentives for teachers -12254 on new teaching methods, technologies, and best to work -20000 in underserved areas is crucial for attracting -20356 -19867 practices. Targeted in-service training programs and retaining qualified educators where they are -25000 that address specific skills gaps and cater to the needed most. This could include offering attractive Pre-school Primary Lower secondary needs of teachers in different contexts are essential. compensation packages, housing Upper secondary Total allowances, A comprehensive approach to teacher professional transportation support, and opportunities for development should combine face-to-face workshops, professional growth and advancement. Consistently school-based coaching, and online learning resources. enforcing teacher norms and standards across all Establishing a teacher performance evaluation schools and holding school leaders accountable for system that provides regular feedback and supports compliance can also help ensure a more equitable continuous improvement is also crucial for identifying distribution of teachers. areas of strength and development needs. Fostering Figure S13. Net teacher shortage/surplus by location Figure S14. PISA results by location National Rural Urban 362 362 363 5000 352 776 819 589 351 347 0 -42 -749 -490 340 -5000 -2896 -3486 -1149 -4833 -4084 326 323 321 -10000 310 311 -15000 -13403 -12254 -20000 -20356 -19867 -25000 Urban Rural Urban Rural Pre-school Primary Lower secondary Cambodia PISA-D Cambodia PISA 2022 Upper secondary Total Reading Mathematics Science 44 World Bank 2024e. Cambodia Economic Update June 2024 41 The impact of these challenges on student development opportunities, and ensures an performance is evident in the PISA results efficient and equitable deployment of teachers when comparing learning outcomes between across the country. By investing in these areas, urban and rural learners in Cambodia (Figure Cambodia can build a skilled and motivated S14). In the 2017 PISA-D assessment, urban teaching workforce capable of delivering high- students significantly outperformed their rural quality instruction and fostering meaningful learning counterparts across all subjects, with gaps of 42 experiences for all students. points in reading, 51 points in mathematics, and 28 points in science. The 2022 PISA results show that However, these efforts must be complemented while urban students still perform better, the gaps by broader investments in early childhood have narrowed to 26 points in reading, 36 points in education, primary schooling, and equitable mathematics, and 23 points in science. This suggests access to education. Continuous monitoring and some progress in addressing educational disparities, evaluation are also essential to ensure that reforms but further efforts are needed to close the urban- are effectively implemented and achieving the desired rural divide. impact on student learning outcomes. Ultimately, enhancing teacher effectiveness is not a stand- Improving teacher effectiveness in Cambodia alone solution but rather a critical component of a requires a sustained effort and a multifaceted comprehensive strategy to strengthen Cambodia’s approach that addresses gaps in preservice education system and unlock the full potential of its training, provides ongoing professional human capital. Photo: DALL-E 42 Cambodia Economic Update June 2024 RECOMMENDATIONS Cambodia has made commendable progress in expanding access to education over the past decade. However, significant challenges remain in improving the quality of education and ensuring equitable learning opportunities for all children. To address these challenges and promote a more inclusive, effective, and resilient education system, a comprehensive and strategic approach is necessary. This section outlines key policy recommendations, emphasizing the need for prioritization, evidence-based interventions, and collaborative efforts involving all stakeholders. 1. Prioritize Investment in Early Childhood Education and Primary Schooling. Substantial evidence underscores the importance of early childhood education (ECE) and primary schooling in laying a strong foundation for lifelong learning and future success. Cambodia’s spending on primary education as a percentage of total education spending is lower than its regional peers, such as Vietnam and Thailand.45 Therefore, it is imperative to prioritize resource allocation toward ECE and primary education to ensure all children have access to quality early learning opportunities and can acquire foundational skills in literacy, numeracy, and socio-emotional development. ● Specific actions could include: • Increasing budgetary allocations for ECE and primary education programs • Expanding access to quality ECE services, particularly in underserved areas. This should include more public ECE centers as well as Provincial Teacher Training Centers offering ECE teacher training programs • Implementing targeted interventions to improve learning outcomes in primary grades, such as structured pedagogy programs or teaching at the right level. 2. Enhance Teacher Effectiveness through Comprehensive Teacher Management. Teacher quality is a critical determinant of student learning outcomes. Efforts to enhance teacher effectiveness should encompass a holistic approach to teacher management, including: ● Improving teacher recruitment and deployment: • Enhance incentives for teachers to work in underserved areas, such as attractive compensation packages, housing allowances, transportation support, and opportunities for professional growth • Consistently enforce teacher norms and standards across all schools and hold school leaders accountable for compliance to ensure a more equitable distribution of teachers. ● Strengthening preservice and in-service teacher training programs: • Redesign preservice training to provide a solid foundation in subject matter knowledge, child- centered pedagogy, and extensive practical classroom experience • Implement targeted in-service training that addresses specific skills gaps. This is clear, doable, and rewarding, and provides sufficient in-classroom practice and feedback • Explore innovative teaching models and tools, such as the dual teacher model, structured lesson plans, targeted instruction, and educational technology. ● Establishing a robust teacher performance evaluation system: • Develop a fair and transparent teacher evaluation framework that provides regular feedback and supports continuous improvement 45 World Bank 2023b. Cambodia Economic Update June 2024 43 • Use evaluation results to identify areas of strength and development needs, informing targeted professional development opportunities • Foster a culture of collaboration and peer learning through professional learning communities, teacher networks, and mentoring programs. 3. Ensure Equitable Distribution of Resources across Regions and Schools. Disparities in education outcomes often stem from inequitable resource distribution. To address this, the government could: ● Develop needs-based funding formulas to allocate resources based on school characteristics and student populations ● Provide additional support and resources to disadvantaged regions and schools with high concentrations of vulnerable students ● Implement targeted programs and interventions to support the most marginalized communities, such as scholarships, school feeding programs, and transportation assistance. 4. Prioritize Evidence-Based, Cost-Effective Interventions. Given limited resources, it is crucial to prioritize interventions that have proved to be cost-effective and impactful in improving student learning outcomes. The World Bank report on “Best Buys” in education provides compelling evidence on interventions such as structured pedagogy programs or teaching at the right level, which have demonstrated to be highly effective at relatively low cost.46 By drawing upon such evidence-based “Best Buys” and rigorously evaluating the impact of interventions, Cambodia can ensure efficient use of resources and maximize returns on investment in education. 5. Mitigate Learning Losses from COVID-19 and Enhance Resilience. The COVID-19 pandemic has exacerbated learning gaps and highlighted the need for a resilient education system. Interventions to address learning losses could include: ● Implementing remedial programs and targeted support for students who have fallen behind ● Providing teacher training on effective remote learning practices and leveraging technology for distance education ● Ensuring access to learning materials and digital resources for students in remote or disadvantaged areas. 6. Strengthen Institutional Capacity and Governance. Effective implementation of education reforms requires strong institutional capacity and governance at all levels. Specific actions could include: ● Providing training and capacity building for education authorities on budget planning, execution, monitoring, and data analysis ● Establishing robust accountability mechanisms to ensure efficient and effective use of resources ● Promoting transparency and stakeholder engagement in decision-making processes. 7. Foster Collaboration and Partnerships among Stakeholders. Addressing the multifaceted challenges in education requires collaborative efforts and synergies among various stakeholders. The government should: ● Establish coordination mechanisms and platforms for knowledge-sharing among government agencies, development partners, civil society organizations, and communities ● Leverage the expertise and resources of various stakeholders to support priority interventions and education reform efforts 46 Banerjee et al. 2023; World Bank 2020. 44 Cambodia Economic Update June 2024 ● Promote community engagement in and ownership of education initiatives to enhance sustainability and impact. 8. Implement and Monitor the Five Model Standards for Schools. The Ministry of Education, Youth and Sport’s recent introduction of five model standards for schools (encompassing student education, teaching and learning practices, community participation, operations and administration, and accountability) presents an opportunity to enhance the quality of education nationwide. Effective implementation and monitoring of these standards across all public schools, from kindergarten to the secondary level, will be crucial to achieving the desired improvements in teaching, learning, and student behavior. While all these recommendations are important, a strategic prioritization and sequencing approach is necessary, given resource constraints. Investments in early childhood education and primary education should be prioritized as a foundational step, followed by efforts to enhance teacher effectiveness and ensure equitable resource distribution. Implementing evidence-based, cost-effective interventions and mitigating learning losses from COVID-19 should be parallel priorities. Strengthening institutional capacity, fostering collaborations, and monitoring school standards can be ongoing processes to support overall reform efforts. Achieving Cambodia’s vision of becoming an upper middle-income country by 2030 and unlocking the full potential of its human capital hinges on a well-educated and skilled population. Implementing these policy recommendations will require strong political will, sustained financial commitment, and effective coordination among all stakeholders. However, by prioritizing education reform, investing in quality and equity, and embracing evidence-based approaches, Cambodia can build a more inclusive, effective, and resilient education system that leaves no child behind. Cambodia Economic Update June 2024 45 46 ANNEX. CAMBODIA – SELECTED INDICATORS CAMBODIA SELECTED INDICATORS* 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 E 2024 F INCOME AND ECONOMIC GROWTH GDP growth (annual %) 6.0 7.1 7.3 7.4 7.1 7.0 6.9 7.0 7.5 7.1 -3.1 3.0 5.2 5.4 5.8 GDP per capita growth (annual 4.4 5.5 5.8 5.8 5.7 5.5 5.5 5.6 6.2 5.8 -4.2 1.8 4.0 4.3 4.7 %, real) GDP per capita (US$, nominal) 810.0 889.6 949.4 1030.1 1105.1 1183.2 1281.3 1397.0 1527.3 1667.8 1584.0 1625.3 1738.9 1876.0 2010.6 Private Consumption growth 8.8 10.4 4.6 5.8 4.5 9.4 5.8 3.7 6.8 5.9 -4.0 -0.7 33.0 -16.1 2.2 (annual %) Gross Investment ( % of nominal 16.2 16.0 17.4 18.7 20.9 21.4 21.7 21.9 22.6 23.4 23.5 39.3 53.4 37.3 31.2 GDP) Gross Investment - Public ( % of .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. nominal GDP)² MONEY AND PRICES Inflation, consumer prices (annual 2.9 4.6 2.3 4.5 0.9 2.8 3.8 2.2 1.6 3.1 2.9 3.8 3.0 2.8 .. %, EOP or MRV)¹ Inflation, consumer prices (annual 2.6 5.5 3.0 2.9 3.9 1.2 3.0 2.9 2.5 1.9 2.9 2.8 5.5 2.1 2.8 %, period average) Base Money (% of GDP) 41.6 39.1 50.1 55.5 67.1 72.4 79.2 88.2 100.7 116.3 143.3 130.7 89.7 83.0 84.0 Domestic Credit to the Private 27.6 28.3 38.7 52.0 62.7 74.3 81.7 86.7 99.6 114.2 139.6 166.3 180.0 .. .. Sector ( % of GDP)2 10 year interest rate (annual .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. average)¹ Nominal Exchange Rate (local 4044.0 4016.0 4033.0 4027.0 4030.0 4025.0 4058.0 4062.0 4067.0 4070.0 4077.4 4100.0 4150.0 4110.0 4100.0 currency per USD) Real Exchange Rate Index 97.7 94.9 93.6 92.6 94.9 100.0 101.8 101.7 98.5 99.1 103.5 79.1 55.7 45.8 42.3 (2015=100) FISCAL Revenue (% of GDP) 17.7 17.6 17.7 18.2 20.0 19.7 20.9 21.9 23.8 27.0 24.1 22.0 23.4 21.4 20.7 Cambodia Economic Update June 2024 CAMBODIA SELECTED INDICATORS* 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 E 2024 F Expenditure (% of GDP) 21.0 23.0 21.9 21.4 21.9 20.2 21.1 22.7 23.4 25.5 28.8 29.2 27.7 26.7 26.2 Interest Payments (% of GDP) 0.3 0.3 0.5 0.7 0.7 0.3 0.4 0.4 0.4 0.4 0.6 0.7 0.6 0.6 0.6 Non-Interest Expenditure (% of 20.7 22.7 21.4 20.7 21.2 19.9 20.7 22.3 23.0 25.1 28.2 28.5 27.2 26.2 27.4 GDP) Overall Fiscal Balance (% of GDP) -3.3 -5.4 -4.2 -3.2 -1.9 -0.5 -0.2 -0.8 0.4 1.5 -4.7 -7.2 -4.4 -5.3 -5.5 Primary Fiscal Balance (% of GDP) -3.0 -5.1 -3.7 -2.5 -1.2 -0.2 0.2 -0.4 0.8 1.9 -4.3 -6.5 -3.8 -4.7 -5.3 Cambodia Economic Update June 2024 General Government Debt (% 28.7 29.7 31.6 31.3 31.8 31.2 29.1 30.3 28.3 28.1 35.9 36.1 36.7 33.6 35.6 of GDP) External Public Debt (% of GDP)² 28.7 29.7 31.6 31.7 31.8 31.2 29.1 30.3 28.7 28.1 33.9 35.2 32.5 35.2 35.6 EXTERNAL ACCOUNTS Export growth, G&S (nominal 22.9 11.4 16.0 16.8 10.3 7.5 9.0 9.4 12.3 8.5 2.1 11.2 31.9 19.0 22.4 US$, annual %) Import growth, G&S (nominal 19.1 11.4 14.2 16.9 8.8 7.6 9.0 7.8 9.3 17.4 9.7 47.8 37.2 -20.6 11.9 US$, annual %) Merchandise exports (% of GDP) 38.3 38.8 41.6 44.6 45.4 45.4 45.5 45.2 46.0 46.0 51.8 62.8 71.4 73.7 76.2 Merchandise imports (% of GDP) 50.4 50.5 53.7 57.5 57.5 57.3 56.9 55.6 55.1 54.6 65.7 92.4 93.0 73.9 74.7 Services, net (% of GDP) 6.8 6.3 7.3 7.8 7.7 7.5 7.0 7.0 7.4 1.8 1.4 -10.9 -33.2 -10.2 -1.6 Current account balance (current -1165.3 -1309.3 -1390.7 -1489.3 -1899.7 -1680.6 -1756.6 -1634.4 -1540.5 -2155.0 -1938.3 -10711.1 -7437.5 551.6 924.0 US$ millions) Current account balance (% of -10.0 -10.1 -9.9 -9.6 -11.3 -9.2 -8.8 -7.4 -6.3 -8.0 -7.5 -39.7 -25.5 1.7 2.7 GDP) Foreign Direct Investment, net 11.8 11.8 14.0 13.0 10.6 9.5 12.0 12.1 12.6 13.2 13.5 12.6 11.7 11.5 11.9 inflows (% of GDP) Multilateral debt (% of total .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. external debt) 2 POPULATION, EMPLOYMENT AND POVERTY Population, total (millions) 14.4 14.6 14.8 15.0 15.2 15.4 15.6 15.8 16.0 16.2 16.4 16.6 16.8 16.9 17.1 Population Growth (annual %) 1.5 1.5 1.5 1.4 1.4 1.4 1.3 1.3 1.2 1.1 1.2 1.2 1.1 1.1 1.0 Unemployment Rate² 0.8 0.6 0.5 0.4 0.7 0.4 0.7 0.1 0.1 0.1 0.3 0.3 0.4 .. .. 47 48 CAMBODIA SELECTED INDICATORS* 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 E 2024 F 2 Inequality - Gini Coefficient .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 2 Life Expectancy 67.7 68.4 68.9 69.3 69.7 69.9 70.2 70.5 70.6 70.7 70.4 69.6 .. .. .. OTHER GDP (current LCU, millions) 47047985.2 52068692.7 56616800.5 62219524.1 67740449.6 73422701.6 81241866.0 89830524.8 99544274.8 110014048.2 105899309.1 110548038.2 121006210.9 130652522.2 141145762.6 GDP (current US$, millions) 11634.0 12965.3 14038.4 15450.6 16809.0 18241.7 20020.2 22114.9 24476.1 27030.5 25972.0 26962.9 29158.1 31788.9 34425.8 GDP per capita LCU (real) 2102966.9 2219138.4 2347166.9 2484050.4 2624532.8 2769713.7 2922496.8 3086269.9 3276522.2 3468153.5 3322017.5 3382908.7 3519610.8 3671316.0 3844388.1 Human Development Index 149 150 150 151 151 150 150 149 150 150 149 147 148 .. .. Ranking³ CPIA (overall rating)2 3.4 3.4 3.5 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.4 3.5 3.6 .. .. 2 Economic Management 4.0 3.8 3.8 3.8 3.8 4.0 4.0 4.0 4.2 4.2 4.2 4.2 4.2 .. .. 2 Structural Policies 3.3 3.5 3.7 3.7 3.7 3.5 3.5 3.3 3.3 3.3 3.3 3.5 3.5 .. .. Policies for Social Inclusion and 3.4 3.5 3.5 3.4 3.4 3.4 3.4 3.4 3.4 3.5 3.5 3.6 3.8 .. .. 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