National Bank of Cambodia: Cambodia's Economy May Face 5 Major Internal Risks

The National Bank of Cambodia predicts that the real estate, tourism, and agricultural sectors will face many changes this year that will hinder Cambodia's economic growth.

This is according to the speech of Lok Chumteav Dr. Chea Serey, Governor of the National Bank of Cambodia, on the occasion of closing the meeting to review the work results for 2023 and the work direction for 2024 of the National Bank of Cambodia recently.

H.E. Dr. stated that Cambodia's economy is optimally projected to grow at around 6.4% by 2024, which is mainly due to the continued growth of the service sector, especially tourism, and the recovery of the manufacturing sector, while agriculture, construction, and real estate continued to experience low growth.

However, Lok Chumteav mentioned five internal risks that could be challenging, including:

I. Weak recovery in the construction sector and declining demand in the real estate sector, mainly due to the real estate crisis and the slowdown in economic growth in China, a major investor for Cambodia. Low inflows of foreign investment into the real estate sector will lead to a decline in income sources, supporting domestic demand for real estate as well.

II. Although the number of tourists has increased significantly, the average tourist spending is estimated to be lower than before the COVID-19 crisis because most of the international tourists came to Cambodia by road from neighboring countries and had a short stay. If the number of tourists entering Cambodia by air continues to grow slowly, it will continue to put pressure on the sectors that benefit from those tourists, especially the hotel and restaurant sector and the souvenir business.

III. Over the last two years, non-performing loans have increased as a result of the COVID-19 crisis and declining credit growth. Although non-performing loans remain manageable, an increase in non-performing loans may lead to a decrease in profitability as well as the consequence of accelerating credit growth to support economic activity.

IV. The COVID-19 crisis has contributed to an increase in private sector debt, especially household debt, but remains manageable. At this point, she pointed out that in the past, an NGO said that most borrowers are heavily indebted and spend more than 70% of their income on repayment of financial institutions. In fact, this NGO report still has many shortcomings, especially since the survey was conducted only in Kampong Speu province with 717 families and the questionnaire did not provide enough options for the respondents. In contrast, based on actual data on more than 40,000 customer accounts extracted from commercial banks' housing loans, the housing price index data from January to November 2022 shows that about 25% of borrowers only used more than 40% of their income to pay off debt, while only 6% of borrowers used more than 60% of their income to pay off debt.

Ⅴ. Agriculture continues to be heavily dependent on climate change, and in 2024 the forecast of unfavorable weather threats due to El Nino is expected to be stronger than in 2023, causing the temperature to rise above 7 degrees Celsius, low rainfall, and severe drought. This effect could affect agricultural and fishery yields, which will put pressure on food prices.