A stronger domestic recovery supported by the rollback of mobility restrictions will help Cambodia register a 4.5 percent economic growth in 2022, the World Bank said in its Macro Poverty Outlook (MPO) for East Asia and the Pacific.

While it downgraded the GDP growth prospects for other Asean countries this year, the bank retained its October 2021-projection of 4.5 growth for the Kingdom of Cambodia.

“Under the baseline scenario, the growth projection for 2022 remains at 4.5 percent, as a stronger domestic recovery supported by the rollback of mobility restrictions is offset by worsening global demand and rising commodity prices,” the report, which analyses the macroeconomic and poverty developments in 23 developing countries in East Asia and the Pacific, pointed out.

It observed that the economy is expected to trend back to potential over the medium term, growing at around six percent.

“The new Law on Investment, the Cambodia-China and Cambodia-Republic of Korea free trade agreements and the Regional Comprehensive Economic Partnership are expected to help boost investment and trade in the coming years.

On the upside, a less persistent global shock could improve the outlook for Cambodia.”

Sok Chenda Sophea, Cambodia Minister Delegate to the Prime Minister, and Secretary General of the Council for the Development of Cambodia (CDC), told Khmer Times: “The perceived risk and lack of confidence brought on from global shocks, such as the one we are seeing in Ukraine, has been offset by our newly promulgated investment laws and regulations that create a much safer environment for international business and investors alike.”

The report indicated the significance of implementing structural reforms embedded in the economic recovery plan to improve Cambodia’s external competitiveness.

It said domestic economic activity and agricultural commodity exports are expected to boost the recovery. However, the report observed that the country’s export-oriented manufacturing is likely to face headwinds.

“Inflationary pressures are projected to increase, led by rising food and oil prices triggered by the war in Ukraine. Risks to baseline forecast are broadly balanced and Cambodia maintains policy space that it could deploy should these risks materialise,” the report, which is released twice annually for the Spring and Annual Meetings of the World Bank Group and the International Monetary Fund, noted.

It also pointed out that the Kingdom’s “living with Covid-19” strategy helped make an economic revival.

“Covid-19 infections have resurged since February 2022, caused primarily by the Omicron variant. About 83 percent of the population have received two doses of the coronavirus vaccine.

However, the MPO cautioned that the general slowdown in global demand could worry several nations, including Cambodia.

“Financial market tightening in the United States, changes in the growth and composition of economic activity, especially in China, and the war in Ukraine, will negatively affect the external environment. In addition, an unmanageable resurgence of Omicron or new variants could disrupt economic recovery. Rising energy and food prices could dampen consumer confidence and worsen people’s welfare, negatively impacting poverty reduction,” it warned.

The report reiterated that high credit growth and concentration of domestic credit in the construction and real estate sector remain a key risk to the country’s financial stability.

The report also mentioned that the traditional growth drivers, especially garment, travel goods, footwear, bicycle manufacturing industries, and agriculture, have fully recovered.

However, it said the travel and tourism sector, one of the main growth drivers, accounting for about 2 million jobs and a quarter of GDP during the pre-pandemic period for Cambodia remained subdued.

“Labour market pressures have been magnified by an increased number of migrant workers who have returned home from abroad.”

However, there is a good improvement in exports for the country. Cambodia’s total goods (excluding gold) exports accelerated to 22.8 percent in 2021, driven mainly by surging goods exports to the United States which expanded 42.4 percent.

“The trade (and current account) deficit, however, significantly widened, largely caused by rising imports of a few major items, especially gold used as a hedge against volatility,” it pointed out.

It also said that the official poverty rate measured at the national poverty line declined by 1.6 percentage points per year over the period 2009-2019/20, driven substantially by rising labour (especially wage) earnings.