A special budget package has been allocated to mitigate inflationary pressure and challenges that might affect the Cambodian economy due to the rising oil and food prices tied to the Russia-Ukraine conflict.

Speaking at a press conference on the achievements of the Ministry of Economy and Finance over the past five years, its spokesman Meas Soksensan said that based on the mid-2022 assessment, the economy is projected to grow at 5.4 per cent.

He said this is higher than the 4.8 per cent forecast during the drafting of the Law on Financial Management for 2022 last year, though it is a tad lower than 5.6 per cent, which was estimated earlier this year.

He maintained that the inflation rate in Cambodia was within “manageable” levels, with the average annual inflation rate expected to be five per cent this year, noting that the rate has been revised from an earlier forecast of three per cent.

Achieving high economic growth and macroeconomic stability with low inflation has improved the people’s livelihoods at all levels.

He said that the ministry would continue to monitor and evaluate the condition on a regular basis and be prepared to implement timely intervention measures.

“External risks and domestic factors require the government to be ready to avoid and mitigate any pressure and challenges by introducing or implementing policy measures that respond to macroeconomics and public finance,” he said.

At the conference to review the outcome of the first half of 2022, National Bank of Cambodia (NBC) governor Chea Chanto said the Russia-Ukraine conflict and sanctions on Moscow has pushed up global fuel and food prices as the two Eastern European countries are big exporters of raw materials such as oil, gas, fertilisers and agricultural products.

Due to rising global oil influences and food prices, inflation in Cambodia also rose steadily to 7.2 per cent in March, the highest in more than a decade.

“In this situation, the NBC has implemented monetary policies to control inflationary pressures and support economic recovery. The exchange rate continues to maintain stability and aims to protect the purchasing power of the riel, as well as the income of vulnerable people,” he said.

Ky Sereyvath, economics researcher at the Royal Academy of Cambodia, noted that the government has allocated a budget for inflation but said that if oil prices continued to rise, it would be difficult to keep up with inflation, which is a result of high fuel prices.

Granted, the price of fuel has fallen slightly, but if it rises again in future, it is clear that the government might not be able to hold out for a long time.

As such, Sereyvath, who is also director-general of the academy’s Institute of China Studies, urged that there should be more strategies to raise domestic production to accommodate the price of imported goods.

“Increasing domestic production will drive supply volume. At that time, the price of goods may fall, which is a good solution as well as a long-term solution to boost economic growth and curb inflation,” he said.

The World Bank’s latest Cambodian economic update entitled Weathering the Oil Price Shock noted that despite a strong economic recovery, the process has been slow due to the slowdown in global demand.

“The relentless rise in fuel and food prices in world markets is driving inflation higher, and in Cambodia, poor and vulnerable households with limited savings are likely to suffer the heaviest hardships due to the rising oil crisis.

“The fiscal deficit is expected to widen to 6.3 per cent of gross domestic product [GDP] as the government needs to continue spending on programs to help the poor,” it said in June.