Cambodia’s economy has witnessed remarkable growth in recent years, establishing itself as one of the fastest-growing economies in Southeast Asia. Various organizations have projected Cambodia’s GDP growth to be between 5.8% and 6.6% in 2024, indicating a robust economic trajectory for the country. However, despite this positive outlook, the National Bank of Cambodia (NBC) has identified several risks that could potentially hinder the nation’s economic progress in 2024. These risks encompass both external and internal factors. The NBC has outlined the following risks to Cambodia’s economy in 2024 below:
External Risks
On the external front, Cambodia’s economy is susceptible to various risks. Slower-than-expected growth in major trading partners, including China, the United States, and Europe, could have significant implications for investment, exports, and tourism. With these countries being vital contributors to Cambodia’s economic landscape, any downward trend in their growth rates could potentially disrupt the nation’s economic performance.
The slower-than-expected monetary policy normalization in developed countries poses a challenge. This situation could exert pressure on Cambodia’s external borrowing and interest rates, potentially impacting the overall financial stability of the nation. Escalating tensions and geopolitical fragmentation are also identified as potential risks, as they have the potential to disrupt supply chains and hinder export growth and foreign investment.
Furthermore, the adverse effects of climate change, particularly the impact of El Niño, are anticipated to be more detrimental than in previous years. These climatic changes pose a significant threat to agriculture growth, which plays a vital role in Cambodia’s economy. The NBC’s report emphasizes the need for sustainable measures to mitigate the adverse effects and ensure the resilience of the agricultural sector.
The growing threat of cybercrime is another concern highlighted by NBC. The increasing possibility of cyber attacks has the potential to erode public trust in digital payment systems and the banking sector. With the nation’s increasing reliance on digital transactions, addressing this risk is crucial to maintaining the integrity of Cambodia’s financial systems.
Internal Risks
Internally, Cambodia faces distinct risks that could impact its economic stability. The rising threat of non-performing loans poses a significant challenge. If left unchecked, this could dampen both consumption and investment, leading to a slowdown in economic growth. Additionally, the construction and real estate sectors are experiencing weak growth due to low demand, which may have spillover effects on the banking sector.
Persistent Structural Issues
Apart from the aforementioned risks, Cambodia also struggles with major persistent structural issues. Slow progress in economic and export diversification is a concern, as the country heavily relies on a few key sectors. Limited capacity, skills, and productivity further hinder the nation’s growth potential. High transportation and electricity costs compared to other countries competing in similar export sectors also pose challenges. Moreover, the vulnerability of the agriculture sector to climate change remains a pressing issue. Lastly, the prevalence of high dollarization within the economy adds another layer of complexity.
As Cambodia’s economy continues to grow in 2024, it is essential to acknowledge the risks it faces. The NBC’s report sheds light on the external and internal challenges that could potentially impact the nation’s economic stability. Addressing these risks requires proactive measures, including diversification efforts, enhancing skills and productivity, implementing climate resilience strategies, and strengthening cybersecurity measures. By taking these steps, Cambodia can navigate the risks and foster a sustainable and resilient economy for the future.
Source: National Bank of Cambodia (NBC). (29 January 2024). Macroeconomic and Banking Sector Development in 2023 and Outlook for 2024.
Photo by: Bloomberg
