Cambodia’s economy will grow by an average of 7 percent in each of the next five years, the World Bank said yesterday in a report on the country’s economic outlook.
In its periodic update on economies in the region, the World Bank predicted gross domestic product would grow 6.6 percent this year, a slight dip from the 7.1 percent growth recorded in 2011.
The decline in economic growth this year, the report said, is due to a slowdown in demand for garments from markets in the U.S. and Europe.
“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 threefold growth (in dollar terms) of new projects approved in Phnom Penh and 36 percent growth of projects approved nationwide,” the report says.
“[T]he country’s future prospect is seen to remain healthy with forecasted medium-term growth averaging about 7 percent per annum over the next five years,” it adds.
Foreign direct investment into Cambodia was predicted to fall only slightly from the $1.332 billion seen last year to $1.3 billion this year.
But the World Bank—recording 72 new projects launched by mainly Chinese and Korean companies in the first half of this year—predicts foreign investment in the country to edge up to $1.4 billion in 2014, or almost double the amount received in 2010 during the global financial crisis.
The World Bank also reported strong growth in the banking sector this year.
“Bank lending growth averaged 34 percent per month over the past six months…reflecting continued strong growth of private sector, but also pointing to potential financial risks and supervisory capacity changes,” it said.
The report also noted that the National Bank of Cambodia adjusted the amount banks have to keep in reserve from 12 percent of bank deposits to 12.5 percent in September to address the quick rate at which loans are being disbursed.
Chan Sophal, president of the Cambodian Economic Association, said the sharp increase in lending was not a concern as Cambodia is rising from such a low base.
“I would be more concerned about the quality of lending. Lending is a serious business. It has to be done in a very careful manner,” he said.
The World Bank report said the new Credit Bureau in Cambodia, launched in March, “will play an increasingly important role in helping safeguard and reduce credit risk and support growth of the banking system.”