Average year-on-year inflation for the second half (H2) of 2022 will fall below five per cent, on the back of improvements in economic activity, as gross domestic product (GDP) grows around five per cent over the period, National Bank of Cambodia (NBC) governor Chea Chanto reiterated last week.

The central bank boss confirmed these figures at a September 7 meeting with an International Monetary Fund (IMF) Article IV Consultation Mission team led by the Washington-based multilateral lender’s country director for Cambodia, Alasdair Scott.

Inflation in Cambodia averaged at 6.5 per cent in the first half of 2022 compared to 3.5 per cent in the corresponding period last year, the NBC’s mid-year report showed. Chanto affirmed that the inflation rate would remain “controllable” in the second half.

An NBC statement issued in conjunction with the meeting quoted Chanto as saying: “Cambodia’s international reserves continue to be adequate, equivalent to about seven months of imports of goods and services, which is higher than the minimum level that developing countries should have at three months.

“As for the value of the riel currency, the exchange rate of the riel against the US dollar has stabilised, with an average level similar to the same period in the first eight months of 2021, under the context of which economic activity gradually rises.

“Exchange rate stability has made a significant contribution to protecting the purchasing power of people’s incomes as well as mitigating the effects of rising inflation. The banking system, banking and financial institutions continue to be healthy and resilient, as well as contributing to mitigating the effects of the Covid-19 crisis and supporting economic activity in the recovery phase,” he said.

The IMF’s Scott commended the Cambodian government for its effective control of Covid-19, which he cited as a key factor in supporting the Kingdom’s economic recovery.

The Article IV Consultation Mission is the IMF’s annual economic monitoring and evaluation mission to provide policy recommendations to member states aimed at supporting economic growth and maintaining financial stability.

Ky Sereyvath, a senior economist at the Royal Academy of Cambodia, told The Post on September 13 that inflation in the Kingdom has been tempered by food surpluses and ensuing price drops, coupled with government fuel subsidies despite rising global oil rates.

Sereyvath shared that the prices of milled rice and other essential commodities have shown no signs of an uptrend, “because Cambodia has produced more than it needs”, which he stressed is a significant factor in measuring inflation rates.

Similarly, the government sets the retail fuel prices lower than had they been freely determined by market forces, he said. “This is a positive thing for the government to lead the country, and lead the economy to greater prosperity.”

Sereyvath commented that local production has seen a meaningful recovery, with industry once again booming, and that the agricultural sector remains on a growth trajectory, with a pick-up expected from the National Policy for Agricultural Development 2022-2030 that was approved by the Council of Ministers on September 9.

The draft national policy will now be sent to the National Assembly (NA) for discussion and a vote. If approved, the document will be forwarded to the Senate for review, after which it will be returned to the NA to proceed with a signature from the King – or acting head of state – to become effective.

Meanwhile, in a report released on September 13, Moody’s cautioned that “inflation and supply chain disruptions are the biggest risks over the next 12-18 months in Emerging Asia”, followed by “the potential impact of rising interest rates and slower economic growth”, citing an audience poll at the Emerging Market Summit Asia 2022 organised by Moody’s Investors Service on September 6.

Moody’s senior vice-president Jacintha Poh added: “Given the supply chain disruptions, multinational corporations [MNC] have indicated a rising intention to relocate more manufacturing away from China. Still, we agree with panellists that China will remain embedded in many supply chains due to its comparative advantages.

“Nevertheless, Southeast Asian economies will increasingly benefit from supply chain diversification as more MNCs adopt the ‘China Plus One’ strategy,” she said, referring to the business model of extending supply chain networks developed in China to nearby countries.