Cambodia’s economic growth will remain on course this year but will likely slow in the coming years to 6 percent as investment tapers off and credit growth tightens, according to an updated note by the International Monetary Fund (IMF) released on Friday.
While the report did not predict economic growth figures for 2018 and 2019, it did say that over the medium term the Kingdom’s current growth rate of 6.9 percent was not sustainable as private sector investment is expected to moderate and public spending increases.
“Looking ahead, the outlook is positive, although challenges remain,” the IMF said. “Growth is expected to slow over the medium-term to around 6 percent, due to moderation in the credit and real-estate cycles and ongoing challenges in improving economic diversification and competitiveness.”
The IMF added that the Kingdom’s garment sector is expected to grow at a slower pace due to increasing competition from neighbouring countries and higher minimum wages. However, preferential trade access given to Cambodia last year by the US for specific travel-related items could boost manufacturing and export diversification.
The IMF highlighted that credit growth has slowed to about 15 percent year-on-year as of May, quelling concerns over credit growth that previously averaged 30 percent. The IMF attributed this moderation to policy measures by the central bank, as well as lower demand for credit owing to election related uncertainties.
The report noted that construction and real estate remained strong and was supported by domestic demand.
The country’s inflation rose to 3.5 percent in the first half of 2017, up from 3 percent in 2016, mainly driven by higher food and energy prices.