Cambodia’s economic growth is expected to remain stable this year and the next, but structural reforms and a rebalancing of the budget is critical in the medium term to sustain economic growth, the Asean+3 Macroeconomic Research Office (AMRO) said yesterday in a report.

According to the report, which comes following AMRO’s annual consultation visit that ended in June of this year and collected data up until mid-September, Cambodia’s economy is expected to grow at 6.9 percent in 2017 and 6.8 percent in 2018, buoyed by the tourism and construction sectors despite a slowdown in the garment sector.

Meanwhile, the regional think tank projected that headline inflation may increase further to 3.3 percent in 2017 from 3 percent in 2016, driven largely by increasing global oil prices. Inflation is expected to stabilise at around 3.5 percent in 2018, the report added.

‘Vulnerable to shocks’

While AMRO said that Cambodia’s “overall fiscal position remains strong, with continued high tax revenue collection”, it added that a larger fiscal deficit is planned in 2017 due to higher government spending to support the economy.

However, the report noted that Cambodia’s economic risks stem mainly from the rising cost of labour, the strengthening of the US dollar and a potential loss of preferential treatment in trade and external financing.

“The domestic financial system is vulnerable to shocks from the global financial market with its heavy dependence on external funding,” the report said.

It added that while Cambodia’s wage increase should be in line with underlying productivity growth, the Kingdom could offset the delay

in productivity if it enhanced its trade facilitation, improved logistics and reduced persistently high costs of electricity.

Nevertheless, AMRO urged that the Cambodian government needs to spend more of its budget on properly improving public sector capacity by “rebalancing budget allocation towards more capital investment”, which is essential to enhance growth prospects.

“Authorities should also consider diversifying financing sources to sustain infrastructure spending and boost spending efficiency,” the report said.