Previous Quarterly Editions
Expropriation Risk: 63 62 63 63 ►Political Violence Risk:57 57 51 51 ►Terrorism Risk:27 25 23 21 ▼Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ►Sovereign Default Risk:57 65 65 65 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: Low Food/fuel policy protests: Medium
At the beginning of 2023, the IMF forecast the growth rate of Cambodia’s GDP would reach 5.5%, up from 4.8% in 2022. While the Cambodian government quietly, took that figure on board, Prime Minister Hun Sen continues to insist the country will see GDP growth of 6.6% this year. He reminds the public of his government’s targets to shed Cambodia’s Least Developed Country designation by 2027 and to achieve upper-middle-income status by 2030 and high income by 2050.
This discrepancy in growth rate forecasts is largely due to general elections, scheduled for July 23, and Hun Sen’s determination the ruling Cambodian People’s Party will emerge with a strong majority. This has invariably been the case in the past two decades, since Hun Sen has methodically moved to quash political opposition, but he hopes this year to pass the mantle of prime minister to his son, army commander General Hun Manet, and so launch a political dynasty.
Cambodia has made progress in its economic recovery from the COVID-19 pandemic. Although international tourism still lags behind 2019 figures, Cambodia attracted 1.9 million foreign tourists since November 2021, when the government initiated the Living With COVID-19 strategy. The country’s traditional manufacturing sectors, particularly the garment trade and footwear industry, have also proved to be resilient.
Cambodia’s growing middle class, although strained by the pandemic, has stimulated consumer markets and raised levels of domestic tourism, up 60% compared to 2019 levels. The outlook for continued growth in the tourism sector is relatively bright. The government plans to improve air routes into Cambodia and is strengthening eco-tourism with support from the World Bank and the Asian Development Bank.
However, Cambodia’s economic fate is largely out of its own hands. As a small, poor country with a relatively open economy, it is vulnerable to rising inflation, slower global economic growth, and shortages and supply chain disruptions in energy and food supplies. These risks are exacerbated by continued recovery from the pandemic and the Russian/Ukraine crisis from 2022.
However, in contrast to most other South-east Asian nations, which attempt to distance themselves from the situation in Ukraine and avoid antagonising the West, Russia or China, Phnom Penh has been outspoken against Russian aggression. This is both idealistic and pragmatic. Cambodia was itself prey to aggression from its larger neighbours, but it also counts the United States and the
European Union as its largest exports markets. China is Cambodia’s largest source of foreign direct investment but, given Beijing’s plans to establish a strategic outpost on the Gulf of Thailand from Cambodia’s coast, Phnom Penh’s position on Ukraine is of little concern.
In an uncertain global security and economic environment, Cambodia is particularly subject to high energy prices, which dampens foreign investment, particularly in the manufacturing sector. The country depends upon coal and imported energy for 65% of its energy supply, 30% on hydroelectricity, and 5% on solar energy.
Attracting foreign investment remains a top priority for Cambodia, and the pandemic spurred the government to pass two laws – the Competition Law and the Public-Private Partnership Law – intended to clarify and strengthen the regulatory framework. The government will also focus on frameworks for the most promising sectors; for example, to buttress tourism, this year the legislature will likely act on laws to regulate the alcohol trade and reduce illicit trade.
That said, Cambodia is likely to remain largely reliant upon China for foreign investment, although Phnom Penh views the debt crisis in Laos as a cautionary tale. Although the country made impressive reforms in labour law in the early 2010s, in an attempt to attract Western investment, foreign direct investment from the U.S. is particularly lacking, due primarily to Cambodia’s small market size and rampant corruption.
China’s stake in foreign direct investment and trade will likely grow. In 2022 both the Regional Comprehensive Economic Partnership and the China-Cambodia Free Trade Agreement came into force. To date, Cambodia (along with Laos and Myanmar) has been excluded from the U.S.-centric Indo-Pacific Economic Framework, although there is increasing pressure on Washington to admit Cambodia and Laos.
The government issued a warning shot to the political opposition in March when it sentenced Kem Sokha, former leader of the opposition Cambodia National Rescue Party, to 27 years under house arrest, on charges of treason that international rights groups claimed were fabricated. The government also shut down the last independent media outlet, the Voice of Democracy. With most senior opposition leaders by now prosecuted or forced into exile, the July elections will be under tight government control and a substantial victory for the ruling party is anticipated.
However, the rumoured prospect of Hun Sen’s handing power to Hun Manet after the election – although he is likely to remain as a senior Cambodian People’s Party official – opens new possibilities for political instability. Notwithstanding his authoritarianism, Hun Sen has ruled Cambodia for three decades and is credited with helping to rebuild the country after the devastation of the Khmer Rouge era. Hun Manet does not have his father’s popular appeal and, as a career military officer, has no experience in economic policy. Hun Manet may improve relations with the U.S. – he is a graduate of the U.S. West Point military academy – but that will carry little weight with the Cambodian public if he cannot deliver economic progress.
TREND ▼
Cambodia continues to receive low rankings in terrorism threats, but it also continues to be a source of concern and criticism for human trafficking. This has traditionally been trafficking in forced prostitution and manual labour, but in late 2022 Cambodia – along with Laos and Myanmar – was found to be complicit in the trafficking of IT workers (primarily from China, Indonesia, and Thailand) who are held on campuses in these three countries and forced to work in internet scams organised by Chinese criminal gangs. As a result, Cambodia has attracted increased scrutiny and criticism from the larger South-east Asian countries, the West and Interpol.
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
The Cambodian government’s long-term strategy to ‘de-dollarise’ the Cambodian currency landscape remains in place but continues to be tempered by the more immediate need to attract foreign tourists, particularly from the West. However, Phnom Penh will likely receive greater pressure from China for increased use of the renminbi (RNB) in some transactions. When China’s President Xi Jinping visited Moscow in March, he and Russia’s President Vladimir Putin announced they would promote ‘RNB zones’ in smaller, poorer Asian countries, making Cambodia a likely prime location.
The Cambodian ruling party’s repressive tactics in the lead-up to the July elections will draw Western criticism but they are unlikely to spark a major tranche of new sanctions. This is due to several factors: the government’s authoritarian tactics have been fairly constant, sanctions appear to have had little impact, and concern in the West is growing over China’s increasing influence on mainland South-east Asia.
Cambodia has the lowest debt-to-GDP ratio among the ten countries in the Association of Southeast Asian Nation, compared to at the end of 2022 when the ratio was 34%. Debt will increase in 2023 with growing demand for public spending to boost economic growth and the approval of several large-scale physical infrastructure projects. However, public debt is not estimated to exceed 40% of GDP into the mid-term.
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