World Bank Report 2024: Diversifying Trade and Boosting Productivity to Drive Growth in Cambodia.
Economic activity in Cambodia held steady in 2024, marked by a notable revival in exports and a partial recovery in tourism. The World Bank’s latest Cambodia Economic Update, titled From Recovery to Resilience: Harnessing Tourism and Trade as Drivers of Growth, released on December 12, 2024, highlights that economic growth is projected to reach 5.3 percent this year, up from 5.0 percent in 2023. At the heart of this recovery lies a significant emphasis on trade and productivity as essential levers for sustainable growth.
Export Surge and Tourism Recovery
Cambodia’s economic momentum has been fueled by a robust rebound in manufacturing exports, particularly in garments, travel goods, and footwear (GTF). These sectors continue to serve as pillars of the country’s economic performance. Additionally, the tourism sector showed promising signs of recovery, with international arrivals returning to pre-pandemic levels. However, challenges remain as tourist spending has yet to recover fully, largely due to a decline in high-spending visitors.
Tania Meyer, World Bank Country Manager for Cambodia, emphasized the importance of leveraging this recovery to address structural challenges. “Cambodia can further boost its growth by diversifying trade and improving productivity. Investing in human capital, particularly education, and deepening reforms to improve the business environment will be key to enabling the private sector to create more and better jobs,” she stated.
Domestic Consumption Under Pressure
While the export and tourism sectors paint an encouraging picture, Cambodia’s domestic consumption tells a different story. High household debt, subdued credit growth, and a prolonged downturn in the property sector have constrained consumer spending. These factors collectively dampen the overall pace of economic recovery.
Nevertheless, the outlook remains cautiously optimistic. The manufacturing and services sectors are expected to sustain positive growth, supported by foreign direct investment (FDI) inflows and infrastructure development. The World Bank forecasts that real GDP growth will reach 5.5 percent in 2025 and 2026, buoyed by continued improvements in both tourism and manufacturing.
Fiscal Reforms and Revenue Mobilization
To ensure long-term fiscal sustainability, the World Bank underscores the need for comprehensive fiscal reforms. While Cambodia has made strides in fiscal management, boosting domestic revenue mobilization remains a priority. Enhanced tax reforms, discontinuation of pandemic-related fiscal measures, and more efficient governance of tax incentives are crucial steps to minimize revenue losses and support public investment.
Additionally, diversifying exports—particularly in processed agricultural products and services such as travel and hospitality—is vital. Reducing reliance on a narrow export base will help mitigate vulnerabilities to external shocks, including global economic slowdowns and geopolitical tensions.
Enhancing Productivity Through Business Reforms
Improving productivity is essential for Cambodia to achieve its ambition of becoming a high-income country by 2050.
The report outlines several reforms to drive this transformation:
- Structural Transformation: Shift towards higher value-added products and services.
- Business Modernization: Promote the adoption of digital technologies and modern management practices.
- Rural Development: Invest in rural infrastructure to connect businesses to markets.
- Ease of Doing Business: Simplify registration processes and reduce costs for small firms.
- Institutional Strengthening: Enhance regulations around business insolvency and market competition to create a stable business environment.
Outlook and Key Risks
The World Bank’s projections for Cambodia remain cautiously positive. With real GDP growth expected to reach 5.5 percent in 2025 and 2026, the country has a window of opportunity to build on its current momentum. However, significant risks persist, including:
- Weak global demand and geopolitical uncertainties.
- Rising household and public debt levels.
- Banking sector vulnerabilities tied to the property market downturn.
Addressing these risks will require continued fiscal consolidation and deepening structural reforms. By diversifying its economy, improving the business environment, and investing in human capital, Cambodia can pave the way for sustained growth and resilience. With strategic actions, the country is well-positioned to achieve its long-term development goals and emerge as a high-income economy by 2050.
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