Cambodia should strengthen its fiscal position against heightened risk, says IMF

23 Oct 17

Cambodia should prepare for greater fiscal risk from a more vulnerable financial sector and weaker-than-expected growth, the International Monetary Fund has said.

While Cambodia outperformed its 2016 revenue target, higher current spending resulted in an increase of fiscal deficit to around 2.8% of GDP, compared to 1.6% the previous year.

“Cambodia’s economic outlook is positive,” an IMF ‘Article IV’ report on Cambodia’s economic state concluded.

But it added: “The outlook is subject to downside risks stemming from elevated financial sector vulnerabilities, as well as the external outlook, including weaker-than-expected growth in Cambodia’s main trading partners.”

Cambodia’s deficit is expected to widen further this year as a result of higher public sector wages and election-related spending.

Local elections were held in Cambodia this summer and the general election is expected to take place in the summer next year.

The IMF also encouraged the authorities to safeguard financial sector stability and implement further reforms to boost competitiveness and the business climate.

Its statement said: “Directors welcomed policy measures to bolster financial stability, which have helped moderate credit growth, and ongoing efforts to address vulnerabilities.

“They considered that further targeted prudential policies will be key to containing macro-financial risks.”

The economy is expected to grow by 6.9% this year but the growth is expected to slow over the medium-term to around 6%.

The tax authorities also made improvements, which had resulted in large revenue increases and the accumulation of government’s deposits and a planned framework for social protection, the IMF said.

The World Bank praised the country’s public finance management system earlier this month, saying it had “substantially strengthened”. 

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