Headline inflation for the first half of 2023 has been forecast to be 1.2 percent lower than 4.1 percent recorded as of December 31, 2022 resulting from easing fuel prices and a basket of goods, the National Bank of Cambodia (NBC) said.

International reserves have also risen to $18.4 billion in that period, or 3.2 percent more than $17.8 billion as at end-December 2022, guaranteeing seven months of imports for Cambodia.

Kimty Kormoly, NBC technical director-general, who presented their first half performance report last week, pointed out that the balance sheet would remain in surplus, although net inflows have dipped.

Focus on increasing investment in green and environmental, social and governance (ESG) bonds issued by major international financial institutions in China, South Korea, Japan and Europe are expected to continue.

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According to Kimty, the Cambodian economy expanded as of June 30, 2023, driven mainly by tourism and agricultural growth.

Note that NBC has forecast gross domestic product growth to be 5.5 percent this year with inflation moderating to two percent.

“Tourism continued to make good progress with 2.6 million international visitors, up 5.1 times from the corresponding period in 2022, but the amount was still lower than before Covid-19 when 3.3 million visitors arrived in Cambodia.

“Domestic tourism recorded 11 million visitors, improving 73.2 percent year-on-year (YoY) and doubling from pre-pandemic,” he said.

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Amid this, the construction sector has seen a slight recovery as reflected by the marginal rise YoY in construction material and equipment imports to $911 million.

Kimty also shared that the housing price index was up, with the average housing price in Cambodia at 6.4 percent higher YoY.

“In that, house prices in Phnom Penh grew 6.9 percent while prices in the other provinces went up 5.3 percent from a year ago,” he said.

The manufacturing sector, on the other hand, continued to contract on declining external demand.

The banking sector’s credit to key economic sectors rose 11.9 percent YoY to 118 trillion riel, with the highest growth registered for manufacturing activities (22.2 percent), home ownership (17.7 percent), real estate (13.6 percent) and agriculture (13.4 percent).

Similarly, microfinance institutions provided financing to small and medium enterprises and rural populations, with loans up 14.8 percent at 40 trillion riel from a year ago.

The highest growth sectors are manufacturing (30.8 percent), household units (18.4 percent), trade and commerce (15 percent), construction (14 percent) and agriculture (13.2 percent).

It counts Cambodia’s geographical location in Southeast Asia, regional investment recovery, the banking sector’s potential in responding to crisis financing needs, open, integrated economy, political macroeconomic and financial stability, and demographic dividend as favourable factors for Cambodia.

However, Kimty said lower-than-expected global and regional growth, rising inflation, uncertainty over capital flows and constraints on international financial markets and climate impacts on agriculture pose a challenge to Cambodia's growth.

Continuing austerity policies, which are adopted by advanced economies could lead to capital inflow uncertainties to emerging and developing countries.

The mutation of the Covid-19 virus could also affect the supply chain, particularly if re-packaging measures are implemented, he added.

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