Robust growth prospects but prominent risks for Cambodia: Moody's

A clothes shop in Phnom Penh, Cambodia.
A clothes shop in Phnom Penh, Cambodia.
MAY 10, 2019 - 2:32 PM

CAMBODIA is expected "to see continued robust growth, although risks are prominent", said Moody's Investors Service in a May 10 update. The country saw real gross domestic product growth of 7.5 per cent in 2018, due to increasing exports, robust tourism and continuing strong foreign direct investment inflows that supported construction and job creation.

Besides robust growth prospects, Cambodia also has "modest and highly affordable government debt", said Moody's. However, it faces financial system and geopolitical risks, as well as a weak institutional framework.

In particular, the potential loss of preferential access to the European Union (EU) and the United States would weigh on exports and GDP growth, noted the report.

Ongoing strong growth in bank lending, of around double the rate of nominal GDP growth, also continues to pose risks to economic and financial stability.

Moody's has assessed the country's economic strength as "low", its institutional strength as "very low", its fiscal strength as "moderate" and its susceptibility to event risk as "moderate".

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In February, the EU started the process that could lead to the temporary suspension of Cambodia's preferential access under the Everything But Arms (EBA) scheme. These preferences can be removed if beneficiary countries "fail to respect core human rights and labour rights".

The process starts with six months of intensive monitoring and engagement with Cambodian authorities and then three months for the EU to produce a report, with any decision on whether to withdraw the preferences coming after a total of twelve months.

In its May economic update, the World Bank estimated if the EBA preferences were suspended, Cambodia's garment exports to the EU could fall by US$320 million to US$381.4 million; footwear exports, by US$128.5 million; and milled rice exports, by US$65.1 million to US$144.1 million.