Cambodia is set to receive a $274 million credit from the World Bank (WB) “to promote a resilient recovery from the recent economic shocks” stemming from ongoing geopolitical competition among major powers and the Covid-19 crisis, more than two years on from the start of the pandemic, according to the Washington-based organisation.
In a December 20 statement, the WB confirmed that its Board of Executive Directors had given the nod to the financing, which it said would be provided by its “fund for the poorest countries”, the International Development Association (IDA), and aimed to “support reforms that will boost growth and strengthen Cambodia’s resilience”.
“The operation supports reforms that will streamline the business registration processes, promote competition, and expand access to finance for small and medium enterprises. Other reforms will enhance fiscal resilience, including by improving the management of public private partnerships and facilitating the issuance of government debt in the domestic market.
“The operation will also facilitate the timely provision of relief to a broader set of vulnerable households in the event of a natural disaster or economic shock,” it said.
Speaking in the statement, WB country manager for Cambodia, Maryam Salim, commented that while a ‘living with Covid’ approach has underpinned efforts to shore up the economy, the Kingdom “remains vulnerable to downturns in external demand and disruptions in global supply chains.
“This new operation will help Cambodia boost private sector competitiveness, strengthen its fiscal position, and provide assistance to its most vulnerable people,” she said.
The WB stated that Cambodia’s 3.1-per-cent gross domestic product (GDP) contraction in 2020 marked the Kingdom’s “first recession in 30 years”, as Covid weighed heavily on economic activity.
“Simulations show that the poverty rate increased by 2.8 percentage points, pushing about 460,000 individuals into poverty. The government responded quickly and effectively to the pandemic, assisting business and vulnerable families, but the associated rise in spending has meant that fiscal consolidation will be required in the period ahead.
“While the economy has recovered in 2021 and 2022, the weakening external environment means that returning to the strong rates of growth seen prior to the pandemic will prove challenging.
“The ongoing war in Ukraine, economic slowdown in the United States – Cambodia’s largest export market – and slower growth in China will all affect Cambodia’s trade prospects,” the statement said.
For context, in January-November 2022, the US bought $8.218 billion worth of Cambodian merchandise, equivalent to a 40.17 per cent share of the Kingdom’s total exports, while mainland China accounted for the lion’s share of Cambodia’s international trade, at 21.95 per cent or $10.579 billion, according to the General Department of Customs and Excise.
The WB added that Cambodia “is also highly vulnerable to the impacts of climate change, with high exposure to floods and drought.
“The operation is anchored in the government’s post-pandemic Economic Recovery Plan, which has three broad objectives of recovery, reform, and resilience, and builds on the $200 million Cambodia Relief, Recovery, and Resilience Development Policy Financing operation approved in 2021.
“The financing provided by this operation will help to alleviate some of the fiscal pressures that the government is now facing, having run relatively large deficits in recent years.”
On December 7, the WB announced that it had maintained its 2022 economic growth forecast for Cambodia at 4.8 per cent, citing strong post-pandemic economic recovery bolstered by a tourism rebound.
Cambodian economic growth is projected to improve to 5.2 per cent next year “as increased hiring supports rising domestic consumption and as inflation recedes”, the bank added.
