Phnom Penh (FN), Jun. 17 — Cambodia’s economy is gradually recovering and is projected to grow 4 percent in 2021 after contracting 3.1 percent in 2020. However, this recovery remains uneven and volatile, due in part to the reintroduction of a domestic lockdowns to control the spread of COVID-19, according to Road to Recovery, the World Bank’s latest Economic Update for Cambodia.

While some sectors have seen economic gains, others continue to be stifled by the ongoing pandemic. Agriculture has been relatively resilient, due to strong demand that has been boosted in part by the newly signed Cambodia-China Free Trade Agreement. The manufacturing sector has gradually recovered by adapting to changing external conditions and wholesale and retail businesses have also experienced a slow recovery, supported by a gradual revival in domestic economic activity. On the other hand, parts of the services sector - such as accommodation, restaurants, and transport - continue to be hit hard by the slowdown in domestic and international tourism. Foreign Direct Investment inflows remain resilient and are helping sustain the external sector.

Cambodia’s growth outlook remains highly uncertain, with the shape and pace of recovery largely dependent on the course of the virus and the speed at which vaccines can be rolled out. The report also offers a downside scenario, under which the risk of a slow vaccination program is accompanied by frequent, prolonged, and nationwide lockdowns. Under this scenario, the economy is projected to grow by just 1 percent in 2021.

The report recommends that Cambodia take immediate steps to shore up market confidence by urgently accelerating its vaccination program, while simultaneously continuing to take measures to contain infections. Given the country’s relatively wide fiscal space, the government can support relief, recovery, and growth by improving the business and investment climate, providing social assistance programs, and boosting public investment and pro-poor growth. To maintain financial sector stability, it also important for the authorities to closely monitor vulnerabilities that can arise from a prolonged property boom and increased credit provided to the construction sector.

“Like many countries in the region, Cambodia has been hit hard by the global demand shock brought on by COVID-19. But the good news is that Cambodia has now vaccinated more than 3 million people, one of the highest rates in the region,” said Inguna Dobraja, World Bank country manager for Cambodia. “The World Bank is working with Cambodia to provide further support to combat the pandemic and help the country’s resilient economic and social recovery.”

The report includes a special issue looking at lessons learned from Cambodia’s relatively swift introduction, expansion, and deepening of social assistance programs - in particular its cash transfer program. The cash transfer scheme was introduced in June 2020 and by February 2021, more than 688,000 poor families had received a cash transfer from the government - representing 19.5 percent of all households.

The report also highlights key policy recommendations to support recovery, including the introduction of strong post-pandemic social assistance measures to respond to shocks, an increase in the coverage of the IDPoor program, the development of a database of potential beneficiaries for all social programs, and the inclusion of multiple providers to distribute social assistance payments.

The Cambodia Economic Update is a biannual report that provides up-to-date information on short- and medium-term macroeconomic developments in Cambodia.