The world’s Covid-19 recovery continued through the first half (H1) of the year despite myriad other crises such as the Ukraine conflict, high inflation, tightening monetary policy, public and private debt burdens, and climate change.

These issues have all dampened growth worldwide and may erode prospects for long-term economic development as well as initiatives to fight social inequality and poverty. Many countries – particularly developing ones like Cambodia – face formidable barriers to recovery.

Outgoing National Bank of Cambodia (NBC) governor Chea Chanto made these remarks on July 30 during a meeting in the coastal province of Preah Sihanouk to review the central bank’s first-half results.

Despite a reduction in exports, the ASEAN economy maintained modest growth during the period, underpinned by domestic demand and rapid tourism growth, Chanto said.

Cambodia too experienced drops in the export of certain commodities as a result of the global economic downturn, including garments, footwear and travel goods, he said.

On the other hand, Chanto pointed out that the Kingdom shipped greater quantities of other goods abroad such as electronics, natural rubber and milled rice, which he claimed is a reflection of the Royal Government of Cambodia’s (RGC) export diversification ambitions.

Tourism-wise, he maintained that major events held in Cambodia such as the Southeast Asian (SEA) Games and ASEAN Para Games drew considerable numbers of foreign visitors, thereby boosting sales of goods and services, while domestic tourist trips were at least near pre-Covid levels and still growing rapidly.

The agricultural sector kept growing – albeit slowly – supported by the paddy rice, rubber and fisheries sub-sectors, which restrained the rise in food prices, he said.

The construction and real estate sectors, meanwhile, continued to expand at a slower pace, despite rising foreign investment inflows and a greater number of public physical infrastructure projects. These sectors still face a great deal of uncertainty due to their heavy reliance on external variables, he added.

“Taking into account the impact of the slowdown in global economic activity on the Cambodian economy, the NBC has continued to uphold price and financial stability as well as develop the banking and payment systems, which have propped up economic growth and development in numerous sectors,” Chanto said.

In early July, the government confirmed that it had kept its baseline projection for Cambodia’s economic growth this year at 5.6 per cent, which was announced in late January.

This represented a marked drop from the 6.6 per cent proposed in October, as the Ukraine conflict and geopolitical unrest caused regional and global economies to slow down, dented demand and sent inflation spiralling.

The International Monetary Fund (IMF) in April projected that Cambodia’s growth would accelerate from five per cent in 2022 to 5.8 per cent in 2023, and then 6.2 per cent in 2024 while the World Bank has maintained its economic projection for the Kingdom at 5.2 per cent in 2023.

Chanto continued by saying that monetary policy has been applied with “great flexibility and caution” to maintain price stability.

The NBC governor explained that liquidity is injected into the market and absorbed through monetary policy instruments based on changes in actual needs, to ensure that financial institutions have sufficient cash or liquid assets on hand to provide credit at reasonable interest rates and to prevent unwelcome pressure on exchange rates.

Despite recent swings in the US dollar’s value, the riel’s exchange rate to the greenback has been kept relatively steady, to preserve the purchasing power of the local currency, especially for the most vulnerable people, he said. Chanto put the average exchange rate for the first half at 4,094 riel to the US dollar, which he noted was comparable to a year ago.

“Exchange rate fluctuations have a direct and immediate effect on inflation in Cambodia as a result of dollarisation because when the riel depreciates, prices of goods and services increase right away,” he said.

He added that the stabilisation of the riel exchange rate, along with the decline in fuel prices and the slowdown in food price rises, has been key to reducing inflation.

“Increased usage of the riel in the economy may also contribute to higher-than-current levels of international reserves, boosting investor and public confidence in stability,” Chanto said.

A July 31 report from state-run news agency Agence Kampuchea Presse (AKP) cited the NBC as saying that the annual average inflation rate for the first half of this year fell to 1.2 per cent, from 4.1 per cent six months earlier, and that the figure for the entire year of 2023 is predicted to be two per cent.

AKP said foreign reserves stood at $18.4 billion at June 30, equivalent to seven months of import cover – compared to $17.8 billion and seven months at end-2022 and $20.3 billion and 8.1 months at end-2021, as reported by the central bank.