Cambodia's economic growth is expected to remain stable this year with inflation rising slightly on increases in the costs of global fuel and food prices, the Asean+3 Macroeconomic Research Office (AMRO) concluded following its annual consultation visit to the Kingdom.
“Cambodia’s economy is expected to grow strongly at 6.9 percent in 2017 with inflation reaching around 4 percent,” AMRO lead specialist Seung Hyun Hong said yesterday in a press release.
“Despite sustained growth in the garment, construction, and tourism sectors, headwinds to growth emanate from rising labour costs and ongoing adjustments in the real estate sector.”
The release followed an annual consultation visit by AMRO in June in which a team from the regional think tank visited the Ministry of Economy and Finance (MEF) and the National Bank of Cambodia (NBC) to study near-term growth prospects, financial stability, policy development and efforts to promote industrial diversification.
In its report, AMRO recommended that the Cambodian government enhance labour quality, improve trade facilitation and reduce logistics and electricity costs to mitigate the adverse effects of continued rises in the cost of labour.
“As [the] manufacturing industry started to show early signs of diversification, [a] broadening economic base is essential for long-term sustained growth,” it said.
The report added that with the Kingdom’s monetary policy constrained by high dollarisation, the NBC should adopt risk-management strategies to enhance financial stability through a “forward-looking” approach that regularly stress tests banks and enhances interconnectedness.
On the infrastructure front, AMRO said the national budget should be rebalanced to allocate for more capital investment.
“In the face of rising labour costs and [a] relatively large infrastructure gap, fiscal policy needs to be more supportive of much needed infrastructure investment and structural reforms to enhance productivity and support growth,” the report said.
AMRO applauded the government’s prudent strategy to enhance tax-revenue collection that has contributed to a decline of the Kingdom’s deficit, giving Cambodia space to continue to borrow in the short term and help build fiscal space to support economic growth.
However, the report advised that over the medium term, the government should pursue additional sources of funding by supporting the domestic capital market and increasing its collaboration with the private sector.