Global rating agency Standard & Poor (S&P) forecasts Cambodia’s gross domestic product (GDP) to expand to 6.3 per cent this year, higher than projections made by the World Bank, International Monetary Fund and Asian Development Bank.

The international institutions predicted GDP growth to be around 4.5 per cent to six per cent, due to rising global prices of oil and other commodities.

S&P’s report Global Banking Outlook Midyear 2022 stated that economic recovery is underway in Cambodia.

The market consensus is that its economy rebounded to three per cent in 2021, after contracting by 3.1 per cent in 2020.

“The country’s vaccination programme was a notable success, which facilitated its reopening and reinvigoration of foreign investments,” it said.

However, external headwinds and geopolitical risks would make it challenging for the Kingdom to achieve an average annual growth of eight per cent seen over the past two decades.

“But we believe Cambodia’s long-term growth story remains intact, given its competitive cost structure and young population, making it one of the fastest-growing economies in the world,” said primary credit analyst Ivan Tan.

Meanwhile, National Bank of Cambodia (NBC) governor Chea Chanto said the world is facing new problems after the Covid-19 crisis, such as higher inflation, fluctuations in capital flows and currency pressures, slowing down global economic growth.

Speaking at a July 20 conference to reveal the results from the first half of 2022, Chanto reiterated that the protracted Russia-Ukraine conflict and subsequent sanctions on Moscow have raised world oil and food prices as the two Eastern European countries are both “leading exporters of raw materials such as fuel, gas, fertiliser and agricultural products”.

In Cambodia, the government has achieved great success in controlling the spread of the novel coronavirus, he said. As of July 20, over 15.11 million people – aged 3 and up – had received at least a first Covid-19 dose, representing 94.45 per cent of the estimated 16 million population, according to the health ministry.

The infection rate is lower compared to other parts of the region, Chanto said, adding that this has steadily boosted domestic economic activity.

In the manufacturing sector, export-oriented manufacturing products continued to grow, while manufacturing products serving the domestic market increased rapidly. The tourism sector has recovered positively after the government lifted health regulations for international visitors to Cambodia, increasing the number of international tourists, albeit at a slower pace.

The agricultural sector, meanwhile, continues to grow at a slower pace and has contributed to easing pressure on food prices and supporting economic growth.

“Under the influence of rising global oil and food prices, inflation in Cambodia continued to rise to 7.2 per cent in May, the highest level in more than a decade,” said Chanto.

In this situation, the NBC has come up with monetary policies to control inflationary pressures and support the recovery of economic growth.

“To control inflationary pressures, the exchange rate has been maintained to protect the purchasing power of the riel currency as well as the income of vulnerable people,” he said.

In the meantime, S&P pointed out that at the end of 2021, total restructured loans formed about 12.9 per cent of banking system loans.

A significant proportion of restructured loans were in stressed sectors affected by the pandemic, such as garment, tourism, construction, transportation and logistics.

Tan added: “We expect the banking sector’s non performing loan [NPL] ratio to marginally increase in 2022 to 2.5 per cent, given the extension of the restructuring scheme.

“We estimate about one-tenth to one-eighth of restructured loans are weak and borrowers may not be able to resume repayment after the moratorium has expired, particularly if the recovery in tourism and property sectors is delayed, which could lift the NPL ratio to three to four per cent in 2023,” he said.