Cambodia’s GDP to grow at 6% in 2023, says NBC

The National Bank of Cambodia (NBC) has forecasted that the country’s Gross Domestic Product (GDP) is expected to grow around 6 percent in 2023, said the latest report released by NBC. The growth would be supported by garment and non-garment manufacturing products that are estimated to grow by 6.9 percent and 14.3 percent respectively.

The Macroeconomic and Banking Sector Development in 2022 and Outlook for 2023 released on Wednesday by NBC shows that the agriculture sector is forecasted to further rise by 1.1 percent on the back of the implementation of the Regional Comprehensive Economic Partnership Agreement (RCEP) and bilateral free trade agreement (FTAs) between Cambodia and other countries such as China and South Korea.

The report also indicates that the tourism sector is estimated to grow by 18.5 percent thanks to the increase in local and international tourist arrivals, while the construction and real estate sectors are expected to continue experiencing slower growth at 1.7 percent and 1.2 percent respectively.

“Flight operations from China to Cambodia have been gradually resumed and the travel restrictions on Chinese people going abroad have been lifted … as well as the withdrawal of the tariff preference for the imports of rice to European markets amid the rising domestic demand in the affordable real estate market segment while the market demand of non-residents for high-end properties will take times to return to pre-crisis levels,” the report pointed out.

The report further says that the prolongation of the Russia-Ukraine war remains the reason behind the highly uncertain inflation in 2023. However, in the scenario of the slowdown in the global economy and declining food prices, inflation in Cambodia is projected to decelerate to 2.5 percent after it peaked at 7.8 percent by the end of the first half of 2022 and has gradually declined in the second half as fuel and food prices subdued.

In Channy, President & Group Managing Director of Acleda Bank Plc—Cambodia’s stock exchange-listed commercial bank, told Khmer Times on Wednesday that the government, as well as the Ministry of Economy and Finance (MEF) and NBC, have managed the inflation effectively, which keeps the inflation at not-very-high level—5.3 percent on average in 2022.

“Fuel is a factor of production and so when fuel prices increase, the prices of other services and products will also increase. For example, when the fuel price goes up, the transportation costs will rise,” said Channy of Acleda Bank Plc that has dominated Cambodia Securities Exchange (CSX) in both overall share price index and full market capitalisation.

Stephen Higgins, Managing Partner of investment and advisory firm Mekong Strategic Partners, also told Khmer Times yesterday that the global inflation has indirect impacts as it has caused the US Federal Reserve to increase rates and withdraw liquidity in the economy is having an impact globally, including Cambodia in both real economy and financial sector.

“The inflation that we’ve seen hasn’t really had much of a direct impact on the finance sector … And that will increase interest rates for both deposits and lending,” said Higgins, who has more than two decades of experience in banking and financial services, adding that the dollar has weakened quite a bit over the last three months.

For example, a ton of rice is being sold to a Singapore buyer at $400/ton. A year ago, that $400 would have been worth SGD540. In October last year that had gone up to SGD580. Today, it is SGD530 so it is actually cheaper than it was a year ago, Higgins explained when asked how the strong US dollar can raise the prices of Cambodia’s exported goods.

Sok Voeun, chairman of Cambodia Microfinance Association (CMA), also told Khmer Times yesterday that somehow inflation contributes to increasing the cost. However, with an interest rate cap, microfinance industry still lends at a similar price within the cap, while rising cost has been absorbed by microfinance institutions by improving their productivity and efficiency.

However, Prime Minister Hun Sen announced at the groundbreaking ceremony for the construction of the Kratie Bridge Across Mekong River from Chetr Borei to Preak Prasab district of the province that Cambodia’s Gross Domestic Product (GDP) grew by 5.5 percent in 2022, while the tax revenue collected from both taxation and customs grew by 122.54 percent to $3.45 billion and 104.94 percent to $2.69 billion respectively.

The GDP growth rate that the Prime Minister announced was 0.1 percent higher than Cambodia’s economic growth rate — 5.4 percent supported by better global demand despite the effects of the war between Russia and Ukraine—that the MEF stated in its macroeconomic and public finance policy frameworks for the preparation of the draft law on the finance for management 2023.

Cambodia is expected to achieve economic growth by 6.6 percent in 2023 thanks to the global demand that is most likely to continue to grow and the confidence in investment, while the NBC report shows that Cambodia’s economy grew to 5.1 percent in 2022, which was driven by manufacturing, hotels and restaurants, transportation, wholesale, retail trades, exports, tourism, remittances and foreign direct investment inflows.

The credit to private sector, which was disbursed to various main economic sectors, increased by 21 percent while consumer deposits rose by 11.3 percent, according to the NBC’s report, adding that prudential regulations have been strengthened gradually in line with domestic economic recovery and its exit strategy.