[{"bbox": [82, 118, 1170, 173], "category": "Text", "text": "equitable outcome distribution and acceleration of economic growth, to large-sized and high-value investments aimed at ensuring the quality, economic-social effectiveness, environmental sustainability, and resilient to climate changes."}, {"bbox": [82, 185, 1170, 241], "category": "Text", "text": "**In conclusion, the policy is sufficiently relevant and credible for budget support contract objectives to be largely achieved. Therefore the policy can be supported by the Commission with the proposed budget support contract.**"}, {"bbox": [147, 264, 457, 294], "category": "Section-header", "text": "### 2.3.2. Macroeconomic Policy"}, {"bbox": [82, 328, 1146, 515], "category": "Text", "text": "The economy of Cambodia has started recovering in 2021, albeit relatively weakly because of Covid-19 resurgence in the second and third quarters of the year. Following a sharp contraction in 2020 (3.1%), growth reached 2.2% in 2021, underpinned by manufacturing exports (garments, footwear, bicycles) and agriculture. The other two traditional growth drivers, tourism and construction, remained sluggish. Inflation remained relatively low at 2.9% in 2020, it increased to 3.2% in 2021 due to strong growth in gasoline prices and it is expected to remain contained in the medium term (3% in 2022). The economy is expected to continue to recover amid a rollback of COVID-19-related restrictions. Real GDP growth is projected to reach between 4.5% (WB) and 5.1% (IMF) in 2022."}, {"bbox": [82, 528, 1146, 768], "category": "Text", "text": "The current account deficit has sharply widened in 2021 to 26.9% of GDP (from 9.9% in 2020 and 9.7% in 2019), due to the collapse of tourism revenue and remittances. It was still fully financed by FDI inflows, representing 13.7% of GDP, and other investment flows. Gross international reserves declined only marginally to USD 19.3 billion in September 2021, from 21.2 billion at the end of 2020. The current account deficit is expected to narrow gradually from 2022 as external demand recovers with improvement in tourism and benefits from the newly signed Cambodia-China Free Trade Agreement (CCFTA), Regional Comprehensive Economic Partnership (RCEP) and FTA with South Korea. A new Investment Law was introduced in October 2021 to attract more FDI with further Corporate Income Tax (CIT) exemptions, and to improve productivity with a number of incentives for staff training, R&D and innovation, machinery modernization, and others."}, {"bbox": [82, 783, 1146, 1048], "category": "Text", "text": "On the fiscal side, slower revenue collection in 2021 combined with expanded economic and social support programmes is driving the fiscal deficit up to between 5.1% (IMF projections) and 6.1% (WB projection), from 4.5% in 2020. Expenditure remained contained despite increased Covid-related fiscal interventions, with public sector wage being frozen. While total capital expenditure remained moderate, domestically financed capital spending surged by 42%, thus exceeding externally financed capital spending. Sustained implementation of the Domestic Revenue Mobilisation Strategy 2014-2018 has resulted in remarkably strong domestic revenue performance, reaching over 24.8% of GDP in 2019. However, with expenditure at 26.7% of GDP (down from 28.4% in 2020) and revenue falling to 21.5% of GDP in 2021 (from 22.5% in 2020), the authorities have drawn down on their reserves in the banking system, which declined to 17.6% of GDP in September 2021 from 23.7% at 2020 end. Public debt-to-GDP ratio rose to 36% in mid-2021 (or USD 9.1 billion) from 28% in 2019, but the risk of debt distress remains low (IMF)."}, {"bbox": [82, 1062, 1146, 1224], "category": "Text", "text": "Thanks to improved confidence in the banking system and continued capital inflows, broad money growth recovered in 2021 and was strong at 15.3% y/y as of September 2021. Domestic credit growth recovered thanks to improved demand, and grew at 24% y/y in September 2021 compared to 27% in December 2019. The National Bank of Cambodia's (NBC) Financial Stability Review for 2020 indicated that financial and banking sectors remained resilient due to strong capital and liquidity positions and to implementation of micro prudential regulations in the past decades coupled with the intervention measures by the NBC that have built up the resilience of the banking system."}, {"bbox": [82, 1237, 1146, 1397], "category": "Text", "text": "Cambodia's economy is expected to continue recover, following a new trajectory expanding rather moderately in the short term as the economy is tourism dependent. The IMF foresees that the economy will grow gradually to pre-crisis rates of around 6.5% in the medium term. Growth forecasts for 2022 range from 4.5% (WB), to 4.8% (Government) and 5.1% (IMF). Public debt is projected to stabilize at under 40% of GDP over the medium term, which would be consistent with the authorities' own debt limit. This would also avoid monetary financing of the deficit, which should be a last resort for a highly dollarized economy with fixed exchange rate."}, {"bbox": [82, 1402, 1146, 1644], "category": "Text", "text": "**Macroeconomic policy:** The authorities have responded to the crisis with a package of countercyclical measure, combining fiscal stimulus and accommodative monetary policy in line with global IMF recommendations. The government rapidly redirected resources to healthcare and social protection while rationalizing other current spending. It implemented a system of cash transfers to vulnerable households (as of October 2021, 678,459 households or 19% of all households received an average of 45$ per month cash transfer). Loans and guarantees, tax breaks, wage subsidies, and support for retraining were extended to affected businesses and workers whose contracts were suspended. The NBC introduced measures early in the crisis to improve liquidity in the banking system and issued guidance to banks to facilitate loan restructuring. These support programmes have been made possible by the large fiscal space available and by support provided by the EU and other development partners and the resulting boost"}, {"bbox": [1040, 1663, 1157, 1687], "category": "Page-footer", "text": "Page 10 of 31"}]