The World Bank has upheld its economic growth forecast for Cambodia this year at 5.5 per cent, supported by the resurgence of the services sector, particularly tourism, following the post-pandemic recovery.

This projection is in contrast with the Asian Development Bank (ADB), which revised its growth forecast downward from 5.5 to 5.3 per cent on September 20, citing slower industrial growth in the first half of the year. However, the ADB report retained the country’s 2024 growth outlook at 6.0 per cent.

As per the World Bank’s East Asia and Pacific Economic Update released on October 2, Cambodia’s economy is projected to accelerate to 5.5 per cent in 2023. This boost is attributed largely to the rejuvenation of the services sector and advances in agricultural production. The growth for 2024 is anticipated at 6.1 per cent, buoyed by expected improvements in goods exports, diversification and an uptick in foreign direct investment (FDI) catalysed by the new Law on Investment.

Aaditya Mattoo, chief economist of the World Bank’s East Asia Pacific Region, highlighted the potential benefits of the Regional Comprehensive Economic Partnership (RCEP) for Cambodia in a recent video press conference. He noted that the RCEP could enhance market access predictability and encourage reforms in policy. This has the potential to boost trade and investment flows, assisting in the country’s plan to diversify its economy, which has largely depended on the garment industry.

“I’m pleased to see Cambodia venturing into the electronics sector,” he said, “However, [Cambodia] must strengthen its fundamentals, particularly in skills and connectivity. These are reforms that don’t require trade agreements but domestic reform,” he said.

Highlighting this, Mattoo referenced a recent report from the World Bank, which found that 90 per cent of Cambodian 10-year-olds struggle to comprehend age-appropriate text.

“For Cambodia to engage in more advanced sectors, reforms of its education system are imperative, not just supplementary, to its growth objectives. The resurgence in services, notably tourism, and improvements in agriculture underscore this. It’s evident that [Cambodia] continues to maintain its export drive,” he said.

“Anticipated global growth is set to bolster Cambodia’s prospects in 2024. Additionally, the recent introduction of a new investment law is poised to attract more FDI,” he noted.

The World Bank’s report indicates that while merchandise exports fell due to diminished external demand, services exports saw a robust recovery.

In the first seven months of 2023, international tourist arrivals to the country surged to 3.0 million, a significant jump from the 0.7 million in the same period last year. This represents a rapid bounce-back for the tourism sector, with the 2023 arrivals accounting for 80 per cent of the 2019 figures. In comparison, Thailand and Vietnam registered 66.6 and 58.5 per cent of their 2019 tourist numbers, respectively.

Despite erratic weather patterns hampering agriculture, cultivation expanded by 24.5 per cent year on year to 1.5 million hectares by July. Conversely, the first seven months of the year saw a 3.7 per cent contraction in goods exports, reflecting the weakened state of Cambodia’s merchandise exports, which also experienced heightened volatility.

The downturn in gold imports led to a moderation in merchandise imports, narrowing the current account deficit.