AKP Phnom Penh, January 28, 2025 --

The International Monetary Fund (IMF) says Cambodia can achieve annual growth of around 6 percent by 2030 – and potentially almost 8 percent if it follows the historic examples set by China, Japan and South Korea.

"Cambodia’s economy is at a crossroads,” says the IMF’s annual staff report on Cambodia released in Washington Monday.

"While the economic recovery continues, its pace remains uneven,” the report says.

"The sharp slowdown in credit growth has exposed the economy to increased financial sector vulnerabilities.

“Policy formulation must ensure a durable and inclusive recovery in the near term and achieving development goals over the medium term."

REFOCUSING GROWTH DRIVERS

With Cambodia expected to graduate from the status of Least Developed Country (LDC) in 2030, "the path forward will require a refocus on more resilient and diversified growth drivers.”

To forecast medium-term growth in 2030, the IMF uses a new machine-learning technique that leverages historical growth trajectories of other countries with similar economic conditions.

The economies examined at different periods are India, Indonesia, Laos, Sri Lanka, Japan, Bangladesh, South Korea, Poland, the Philippines, Bolivia, Djibouti, China, Vietnam, Peru, Morocco, Thailand and Uzbekistan.

‘DYNAMIC TIME WARPING’

The technique, known as dynamic time warping. identifies episodes in the other countries whose economic indicators closely mirror the target country – in this case, Cambodia.

These episodes – at various times from the second half of the 20th century to the early 21st century – resemble Cambodia’s experience from 2015 to 2019.

Growth in these periods is then used to project the potential growth path for the target country.

Aggregating the episodes for Cambodia in 2030 yields an average forecast of 5.8 percent and a median forecast of 6.3 percent.

If Cambodia’s economy outperforms, forecasts point to potential growth of 7.5 percent to 7.9 percent for 2030.

But the IMF says that such outperformances “tend to face slower growth in subsequent periods” and are “statistically unlikely to maintain the same performance ranking over extended time.”

CHINESE, JAPANESE AND KOREAN EXCEPTIONALISM

The report nevertheless notes exceptional ‘outlier” economies that sustained high growth – including Japan (1956-1967), South Korea (1971-1986) and China (1996-2002).

Common features included export-oriented industrialisation policies and strategic integration into global value chains as key drivers of rapid and sustained growth.

“Additionally, high investments in human capital through education and health infrastructure have been cited as critical factors that allow these countries to continuously step up into higher tiers of global value chain," the report says.

"Institutional reforms that improved governance, protected property rights, and fostered an enabling environment for private-sector development have also been identified as important enablers of sustained growth.”

CAMBODIA’S POTENTIAL FOR SUSTAINED HIGH GROWTH

Although "Cambodia is lagging in terms of human capital accumulation and labour productivity,” the IMF sees potential through the examples set by China, Japan and South Korea.

Factors behind their past performances “are strategies that could potentially increase the likelihood for Cambodia to become a sustained high-growth outlier,” it says.

In the shorter term, the IMF identifies reforms to diversify growth and improve productivity – notably upgrading and expanding Cambodia’s export base, the country’s global positioning in supply chains, and its ability to produce more complex items and services.

“Promoting investment in higher-value-added industries, production networks and logistics, and low-cost renewable-energy generation among other critical infrastructures will improve competitiveness,” it says.

“Integrating productivity gains in agriculture is also indispensable to the macroeconomic transformation, requiring promotion of agro-processing industries for growth in value-added production.”

OBSTACLES TO DOING BUSINESS

The report highlights that the high cost of electricity is often cited by foreign investors as “one of the most significant obstacles of doing business” – with Cambodia’s rates nearly double those of neighbouring Vietnam.

“Developing a comprehensive energy strategy to reduce costs and improve reliability is essential for boosting competitiveness,” it says.

“In addition, uncertainty regarding enforcement and interpretation of laws and governance-related issues are also concerns often reported by foreign businesses.”

“Targeted reforms would significantly enhance governance frameworks, improve transparency, and bolster investor confidence.”

By Sao Da