| 53 Country Pages and Key Indicators REMAINING RESILIENT 54 | COUNTRY PAGES AND KEY INDICATORS CAMBODIA first half of 2012 (compared to 18 percent of the same period last year), while apparel exports to the EU expanded by only 29 percent (compared to 61 percent of the same period last year). The overall impact on the industry sector is somewhat mitigated by the strong performance of the construction sector in the first half of 2012, witnessing a three- fold growth (in dollar terms) of new projects approved in Phnom Penh and 36 percent growth of projects approved nationwide. The industry sector growth (which includes construction) is, therefore, estimated to slow down to 9.7 percent for 2012 Population 14.3 million (against 14.5 percent last year). In the meantime, a Population growth 1.2 percent stronger than expected service sector cushions the GDP (PPP, int’l US$ billions) 33.9 GDP per capita (PPP, int’l US$) 2,372 economy and is projected to expand by 6.8 percent Surface area 181,040 sq. km. this year (against 5.0 percent in 2011). The strength Capital Phnom Penh of the service sector is led by booming tourism and Source: World Development Indicators. financial sector. The arrival of international tourists jumped up by 27 percent in the first half of 2012 (against 14 percent of the same period last year). The Recent Economic Developments country is expected to welcome 3.4 million visitors this year, representing an increase of 18 percent. Cambodia recorded very strong economic growth At the same time, the financial sector became last year (2011), reaching a four-year high of very vibrant with deposits estimated to increase by 7.1 percent, which resulted from a strong recovery 24 percent to $6.4 billion50 and lending projected to of the agricultural sector and expansion of an go up by 34 percent to $5.7 billion by the year-end increasingly diversified export portfolio, private and 2012. public investment, and consumption. The growth for 2012 is projected to continue its strong trajectory Despite experiencing some sporadic drought and but at a slower pace with an estimated rate of seasonal floods, the agricultural sector is anticipated 6.6 percent (the same projection World Bank did in to remain unfaltering with a forecasted growth of April 2012). However, the country’s future prospect 3.0 percent in 2012. The dollar value of milled rice is seen to remain healthy with forecasted medium- exports increased by 15 percent compared to the term growth averaging about 7.0 percent per annum first half of 2011, even though lower quantity of over the next five years. milled rice exports was recorded in the first half of 2012 (76 thousand tons in first half of 2012 against An expected slower merchandise export mainly to 85 thousand tons during the same period of 2011). the U.S. and EU markets mainly explain the slower Being able to penetrate such new markets as China growth pace of 2012. Country merchandise exports (Cambodia exported nearly 1,300 tons during the are estimated to expand by about 11 percent this year first six months of 2012) andA frica provides potential (against 34 percent in 2011). The projected slower opportunities for Cambodia’s rice market to develop. merchandise export is based on the slowdown of France, by far, remains the single most important export growth to the U.S. and EU markets over the destination market, absorbing nearly a third of the first six months being expected to continue over the rest of the year. Garment exports to the United States actually grew by 2.0 percent only during the 50 All dollar amounts are U.S. dollars unless otherwise indicated. WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE 2012, VOL.2 COUNTRY PAGES AND KEY INDICATORS | 55 country total milled rice exports in the first half of price inflation, which cooled down during the first 2012. half of 2012, is estimated to shrink slightly to around 4 percent by year-end 2012 (from 4.9 percent last An important part of Cambodia’s growth, private year), on the back of relatively stable foods—which consumption continued to expand, representing account for nearly half of Cambodia’s consumer 87 percent of gross domestic product (GDP) by 2011 price inflation basket—and energy prices. (up from 84 percent of GDP in 2010). Cambodia’s real private per capita expenditure rose by 9 percent over The nominal exchange rate in the meantime has these two years and nearly doubled, if compared to remained stable, appreciating by 1.3 percent against the past decade, reflecting strong private activities. the U.S. dollar in June 2012 (end-of-period rate). Similarly, Cambodia‘s real effective exchange rate The external sector is expected to slightly also appreciated by 3 percent against a basket of nine deteriorate for 2012 owing to weakening exports. other garment exporters, posing risks of weakening Current account balance deficit is projected to competitiveness in its exports. The National Bank increase to 10 percent of GDP (up from 8.7 percent of Cambodia’s intervention policy has continued: of GDP last year). Foreign direct investment inflow it injected $117 million worth of local currency into is expected to account for 9.3 percent of GDP for the market during the first half of 2012. The sale 2012. Seventy-two new projects were approved in or purchase of foreign exchange is believed to be the first half of 2012, led by Chinese andK orean efficient in maintaining the riel stability in Cambodia investors (compared to 57 projects approved over given the relatively small amount of riels in the the same period last year). In the meantime, the economy. number of new firms registered at the Ministry of Commerce also increased by 10 percent to 1,712 The financial sector has continued to expand in an new firms approved during the first half of 2012 environment of high dollarization. The euro crisis (compared to 1,563 of the same time last year). appears to have minimally impacted Cambodia’s Gross foreign reserves continue rising, reaching banking system or portfolio investment as the $3.2 billion mark by June 2012 and are projected to country has limited global financial integration. The amount to $3.5 billion by year-end 2012,representing newly run Credit Bureau Cambodia (launched in 4.5 months of imports. March 19, 2012) will play an increasingly important role in helping safeguard and reduce credit risk and The impact of the recent international food price support the growth of the banking system. By June increases on Cambodia’s consumer price inflation 2012, there were 39 commercial banks operating in has been relatively muted. Global food prices rose the country (four new banks entered the market over in the recent months, with the World Bank food the past 12 months) with bank lending continuing its price index—which measures international prices of impressive growth. Bank lending growth averaged a basket of commodities, such as grains, vegetable 34 percent per month over the past six months (nearly oil, and meat—reaching the 2008 food crisis levels half of this lending focusing on wholesale/retail in July 2012. However, the main price increases trade, tourism-related activities, and manufacturing), so far have been on wheat, corn and soya, which reflecting continued strong growth of private sector, do not represent a significant share of the food but also pointing to potential financial risks and consumption basket in Cambodia. Consumer price supervisory capacity challenges. The National Bank stability in Cambodia was maintained during the first of Cambodia (Central Bank) recently has increased half of this year with the price of rice—the main food the rate of reserve requirement from 12 percent to staple—increasing only slightly (averaging 3 percent 12.5 percent, a move to tighten the monetary policy over this period while average rice prices in the and to precautionarily address the credit boom in international market rose by 12 percent). Consumer recent months. July 2008, the Central Bank raised REMAINING RESILIENT 56 | COUNTRY PAGES AND KEY INDICATORS the reserve requirement rate from 8 percent to borrowing, including Chinese credit disbursements. 16 percent to prevent spillover impacts of global The trend of strong capital investment expenditure financial crisis. Later in January 2009, it dropped is expected to continue for 2012 and 2013. In the the rate from 16 percent to 12 percent, to stimulate meantime, domestically financed spending for the economic activities. social sector, namely for the health and education sectors, continues to receive high priority, as well as On the fiscal front, the government continues its timelier disbursements. efforts to strengthen revenue administration and enhance public financial management reform. Prospects for fiscal balance are anticipated to The government’s recent introduction of using the improve this year and the next year, too, as revenue banking system for tax collections, implementing collection has improved. Revenue collection more forcefully the property tax, and expanding the increased by 29 percent in the first half of 2012, customs automation system to cover more customs compared to the same periond last year, which is sites will help revenue collection prospect in the attributed to growth of direct and indirect taxes medium term. The National Assembly on January (35 percent and 28 percent, respectively, over that of 3, 2012 enacted the Public Procurement Law to the first half of 2011).W hile the fiscal management boost the fiduciary administration. The Revenue remains under control, it is increasingly vulnerable Mobilization Strategy has been drafted and expected to unpredictable external financing and increased to be submitted for the government’s endorsement pressure of operation and maintenance budget.