Cambodia’s Economic Growth Set to Reach 5.5% in 2025 and 2026: A Promising Projection

Cambodia’s economy is poised for a gradual uptick, with the World Bank projecting the country’s Gross Domestic Product (GDP) to grow by 5.5% in both 2025 and 2026. This outlook, detailed in the World Bank’s latest report, Cambodia Economic Update: From Recovery to Resilience – Harnessing Tourism and Trade as Drivers of Growth, underscores the nation’s steady recovery while pointing out challenges that still linger.

A Recovery with Caveats

The World Bank highlights that domestic demand is anticipated to improve over the next two years, bolstered by a stronger job market and stable inflation. However, the road to full recovery remains incomplete.

A significant factor is the limited rebound in domestic consumption, which constitutes nearly two-thirds of Cambodia’s GDP. This is due to sluggish domestic credit growth, attributed to ongoing difficulties in the construction and real estate sectors. Additionally, falling house prices and high household debt—where debt servicing consumes close to 50% of household income—are likely to hinder consumer spending further.

Pathways to Growth

Tania Meyer, the World Bank Country Manager for Cambodia, emphasized the importance of enhancing trade diversification and productivity to sustain growth.

“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 said.

Government’s Optimistic Projections

Contrasting the World Bank’s forecast, the Ministry of Economy and Finance projects a higher economic growth trajectory. Deputy Prime Minister and Minister of Economy and Finance Aun Pornmoniroth recently outlined a more ambitious target, predicting GDP growth of approximately 6% in 2024 and 6.3% in 2025.

This optimistic outlook is driven by the sustained momentum in export-oriented sectors, particularly the garment industry. Furthermore, the Deputy Prime Minister highlighted the recovery in tourism and hospitality, which are steadily returning to pre-pandemic levels. Emerging industries, including automotive assembly and food and beverage production, also show resilience and promise.

Inflation, another critical metric, is projected to stabilize at 2.7% in 2024 and 2.5% in 2025, though current trends suggest it could be even lower in 2024.

Building Investor Confidence

According to Sam Seun, a policy analyst at the Royal Academy of Cambodia, fostering trust among foreign investors is vital for sustaining economic growth. “While it is easy to talk about building trust, implementing measures to gain it is equally important,” he said.

Seun elaborated that factors like production costs, electricity costs, transportation efficiency, and competitive staff salaries significantly influence investment decisions.

“Investors aim to profit when they invest in a country. A convenient and favorable investment environment is essential. Increased investment translates into more job creation and greater economic profitability,” he noted.

Role of Agriculture in Economic Resilience

In addition to trade and industry, Seun highlighted the agricultural sector’s potential to boost the economy. “If farmers are able to secure good prices in the market, the Cambodian economy could grow even further,” he said.

A Foundation for Growth

The government continues to emphasize Cambodia’s strong foundation of peace, social order, and political stability as pillars of its economic success. These factors have enabled the country to achieve significant milestones, including attaining lower-middle-income status in 2015.

As Cambodia looks toward 2025 and beyond, the blend of steady growth, strategic reforms, and diversified industries positions the country as a resilient player in the global economy. Yet, addressing challenges such as high household debt and creating a more investor-friendly environment will be crucial in ensuring sustainable growth.

What are your thoughts on Cambodia’s economic projections? Share your opinions below!

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Why Preah Sihanouk is the Key Engine for Cambodia’s Economic Growth?

Preah Sihanouk province, often referred to as the “Rising Star of the Southwest,” is emerging as a key driver of Cambodia’s economic growth. The Royal Government of Cambodia is actively transforming this coastal province into a vibrant hub for investment, development, and innovation. With its strategic location, advanced infrastructure, and growing industrialization, Preah Sihanouk is poised to become a leading economic engine within Cambodia and the broader ASEAN region. Let’s explore the reasons why this province holds the key to Cambodia’s economic future.

1. Strategic Location and Infrastructure Development

Preah Sihanouk’s geographical advantage plays a pivotal role in its transformation. Situated along Cambodia’s southwestern coast, the province is connected to Phnom Penh via the modern Phnom Penh-Sihanoukville Expressway – a 187-km high-speed route that reduces travel time between the two cities to just two hours.

The province is also home to the Sihanoukville Autonomous Port, Cambodia’s only deep-water port, which serves as a crucial gateway for international trade. This port is a cornerstone for maritime trade and logistics, providing opportunities for businesses to import and export goods efficiently.

Adding to its strategic importance is the Sihanoukville Special Economic Zone (SSEZ), a flagship project under China’s Belt and Road Initiative (BRI). The SSEZ hosts over 170 enterprises from various countries, contributing significantly to Cambodia’s industrial growth and creating thousands of jobs.

2. A Beacon for Foreign Investment

Preah Sihanouk has become a magnet for foreign investors, thanks to the government’s efforts to attract high-value investments. The recent Special Program to Promote Investment in Preah Sihanouk Province 2024, spearheaded by Prime Minister Hun Manet, has set ambitious targets to accelerate the province’s development.

During the recent investment summit titled “Preah Sihanouk Province: Cambodia’s Rising Star,” Hean Sahib, Secretary of State at the Ministry of Economy and Finance, highlighted the province’s remarkable achievements. Over $6.03 billion in investment capital was approved, far surpassing the initial target of $1 billion. This massive influx of investment has led to the approval of 213 projects, creating nearly 40,000 jobs in diverse sectors, including real estate, tourism, and industrial development.

This impressive growth reflects the province’s evolving role as an attractive destination for both local and international investors from countries such as China, South Korea, the United States, and the European Union.

3. Robust Industrialization and Job Creation

Preah Sihanouk’s industrial sector is a major contributor to Cambodia’s economic growth. With projects spanning manufacturing, logistics, and technology, the province is becoming a hub for industrial activity. Key highlights include:

• Real Estate Development: 86 projects (40% of total) have been approved, with investments totaling $215 million.
• Tourism Sector: 60 tourism-focused projects worth $218 million aim to boost the province’s hospitality and travel infrastructure.
• Industrial Sector: 35 projects, representing $1.19 billion, have established manufacturing and production facilities, further driving industrialization.

These initiatives are not only creating jobs but also promoting sustainable economic growth. For instance, aluminum production plants and facilities for manufacturing household appliances for export to Europe and the Americas demonstrate the province’s potential to become a global manufacturing hub.

4. Tourism: A Pillar of Economic Development

Preah Sihanouk’s pristine coastline, beautiful beaches, and vibrant cultural scene make it a key destination for tourism. The province attracts both domestic and international travelers, with projections indicating it will welcome 5.4 million tourists annually by 2038. This influx of visitors is expected to significantly boost the local economy and create thousands of jobs in hospitality, entertainment, and related industries.

The government’s investment in modern infrastructure, including upgraded airports, luxury hotels, and eco-friendly resorts, is setting the stage for sustainable tourism development.

5. Vision for a Smart, Sustainable Future

One of the most exciting aspects of Preah Sihanouk’s transformation is its commitment to becoming a model green, sustainable city. Under current development plans, the province is rebranding itself as a smart city with modern infrastructure, renewable energy initiatives, and technological innovations.

Projections suggest that by 2038, Preah Sihanouk will become a high-income region 12 years ahead of the rest of Cambodia. The province’s gross domestic product (GDP) is expected to contribute 10% of Cambodia’s national economy.

This vision is supported by projects like the Smart City initiative, which focuses on environmental sustainability, cultural preservation, and technological innovation to improve residents’ quality of life and attract global investors.

6. ASEAN Integration and Regional Connectivity

Preah Sihanouk’s strategic role within the ASEAN framework further enhances its economic potential. As a key player in regional trade and investment, the province facilitates seamless connectivity between Cambodia and its ASEAN neighbors.

High-level international summits, such as the recent Preah Sihanouk Investment Summit, showcase the province’s commitment to fostering collaboration and partnerships. Government officials and business leaders from China, South Korea, the US, and Europe actively engage in discussions to unlock the province’s economic opportunities.

7. Government Commitment and Policy Support

The Royal Government’s unwavering commitment to transforming Preah Sihanouk into an economic powerhouse is evident through its proactive policies and initiatives. Programs like the Special Investment Incentives and Procedural Simplification have created a favorable business climate for investors.

Key achievements over the past 11 months include:

• 213% increase in approved projects, exceeding the target by 113 projects.
• Creation of nearly 40,000 jobs, surpassing initial projections of 5,000 jobs.
• Development of multi-purpose buildings, tourism projects, and industrial zones that support economic diversification.

8. A Diverse, Growing Population

Preah Sihanouk’s growing population and cultural diversity further contribute to its economic transformation. By 2038, the province is projected to house nearly 1 million residents, accounting for 5% of Cambodia’s total population. This demographic growth supports increased consumer demand, business expansion, and workforce availability, making the province an ideal location for investment.

Preah Sihanouk’s Bright Future

Preah Sihanouk province is undeniably the key engine for Cambodia’s economic growth. Its strategic location, advanced infrastructure, robust industrialization, and booming tourism sector are driving its transformation into a dynamic economic hub. With the government’s strong commitment to sustainable development and investment promotion, Preah Sihanouk is well on its way to becoming a high-income, smart ASEAN metropolis.

The impressive achievements, such as attracting $6 billion in investments and creating 40,000 jobs, demonstrate the province’s economic potential. As Preah Sihanouk continues to evolve, it will play a central role in shaping Cambodia’s future economic success and regional prominence.

What do you think about Preah Sihanouk’s transformation into Cambodia’s economic powerhouse? Share your thoughts and let us know how this development can benefit Cambodia’s economy and its people!

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The World Bank has outlined four reform priorities to help Cambodia transition to more productive growth that can achieve high-income status by 2050 — as South Korea did over 25 years in the late 20th century.

“Productivity growth has not been a major driver of growth  historically,” the bank says in its annual Cambodia Economic Update released last week.

“Cambodia’s levels of labour productivity are very low compared to its peers across all sectors of the economy.”

LOW PRODUCTIVITY COMPARED TO VIETNAM AND THE PHILIPPINES

In 2023, for example, 39 percent of Cambodian firms surveyed cited an “inadequately educated workforce” as an obstacle to business.

This may be an improvement from 49 percent in 2016 but Cambodia ranked lower than the Philippines (44 percent) and Vietnam (43 percent).

“Cambodia will need to significantly improve its productivity performance in the coming decades to sustain high rates of economic growth and realise its vision of rapidly becoming a high-income country,” the bank says.

To achieve this, Cambodia — currently ranked as a lower middle-income country — will have to boost income per capita to around US$13,800, a six-fold increase from around US$2,200 today.

That means avoiding the “middle-income trap” — when GDP per capita gets stuck at the middle-income level and does not develop further.

In a separate report in August, the World Bank warned that more than 100 countries—including China, India, Brazil, and South Africa—face serious obstacles that could hinder their efforts to become high-income countries over the next few decades.

SOUTH KOREA’S MIRACLE ON THE HAN RIVER

To avoid the middle-income trap, the bank says Cambodia will “likely” have to match the rapid post-war growth of South Korea, often referred to as the Miracle on the Han River.

In 1968, it recalls, South Korea was at the same level of development as Cambodia is now. Over the next 25 years, the bank says, growth in the country’s total factor productivity — its ability to generate more income from fewer inputs— was 2.2 percent a year.

The rate in South Korea — which the World Bank calls a “growth superstar” — was almost twice as high as Cambodia’s average of 1.3 percent between 2000 and 2019.

For Cambodia, the bank says, better performance requires moving towards higher value-added products, value-chains and activities while addressing specific structural barriers and disincentives faced by some firms.

At the same time, Cambodian firms also need incentives to modernise, digitalise and internationalise their operations more rapidly as well as measures to address obstacles to doing business.

HIGHER VALUE-ADDED

The bank says Cambodia should move toward higher value-added activities — both within sectors and to more productive industries — as well as from rural to urban areas.

“This is aligned with a broader need to pursue greater economic diversification in Cambodia to reduce the risks associated with the high concentration of products and markets,” it says.

Possible measures include making it easier for new firms to open and for weak ones to close, encouraging new industries and making existing ones more value-added.

STRUCTURAL BARRIERS AND DISINCENTIVES

The bank finds lower productivity among Cambodian firms that are medium-sized and located in mountainous regions — and, to a lesser extent, those around the Tonle Sap. These firms also seem to face a more challenging business environment.

Moreover, frontier firms — the top 10 percent in terms of labour productivity — “are lagging far behind their regional peers and operating significantly below the regional productivity frontier.”

The bank recommends greater government support to help medium-sized firms navigate obstacles and build capabilities, along with targeted infrastructure investment and government programmes for service extension in rural areas.

It also suggests reforms to increase competition — especially in the services and digital sectors — and incentives for frontier firms to invest in advanced technologies, skills development and global networks.

DIGITALISATION, MODERNISATION AND INTERNATIONALISATION

The bank notes higher labour productivity among Cambodian firms with more modern personnel practices. These include firms that have independent managers who aren’t owners and formal employee-training programmes.

In these two areas, productivity — as measured by the average improvement in value-added per employee — is 20 percent higher for firms with independent managers and 29 percent higher for those with training programmes. 

At the same time, firms that leverage technology — by having a website or using electronic payments, for example — are also found to be more productive, along with export-oriented firms.

Productivity increases 5 percent for Cambodian firms with websites and 29 percent for those oriented towards export markets.

To help firms access new markets, the bank highlights the importance of addressing infrastructure barriers to trade, reducing customs-clearance times and improving services.

OBSTACLES TO DOING BUSINESS

According to the bank, the most pressing needs to address obstacles to doing business include ensuring that the benefits of registering firms outweigh the costs — especially for small firms — by reducing registration costs and enhancing the associated advantages.

Cambodia also needs to enhance transport and logistics infrastructure, improve investment in skills and the uptake of modern financial instruments among more sophisticated firms, and streamline its “cumbersome and costly” tax regime.

To reduce corruption and informal payments — especially in tax administration — the bank recommends investing in detection, increasing penalties and digitising processes.

Other improvements are recommended for the judicial system, such as setting up specialised commercial courts, and increasing transparency and digitalisation.

Finally, the bank highlights the need for better government services related to business authorisations — including by fully digitising the business registration portal and introducing and implementing risk-based approaches to licensing.

POLAND AND CHILE EMULATE KOREA

In its August report, the World Bank said that South Korea’s success included a government industrial policy that encouraged domestic firms to adopt foreign technology and more sophisticated production methods. 

It recalled how smartphone giant Samsung Electronics Co Ltd — once a noodle-maker — started making televisions by licensing technologies from Japan’s Sanyo Electric Co., Ltd. and NEC Corp, fueling demand for engineers, managers, and other skilled professionals.

Poland and Chile followed similar paths, with Poland focusing on technologies from Western Europe.

Chile also encouraged technology transfers from abroad. “One of its biggest successes involved adapting Norwegian salmon farming technologies to local conditions, making Chile a top exporter of salmon,” the bank said.

This article is firstl published on AKP

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