World Bank Cuts Cambodia’s GDP Growth Forecast to 4% for 2025
The World Bank has cut Cambodia’s GDP growth forecast for 2025 to 4%, noting various economic vulnerabilities including weak external demand and high non-performing loans. The country’s export sectors showed some growth, but broader economic challenges remain. The Bank recommends significant reforms, including support for SMEs and diversification away from low-value exports to strengthen the economy.
The World Bank has made considerable cuts to Cambodia’s GDP growth forecast for 2025, slashing it to 4%, down from an earlier estimate of 5.5%. This downward revision, reported in their June analysis, reflects ongoing worries about diminished external demand, the unpredictability of trade policies, and increasing macro-financial risks. A key concern remains the high levels of non-performing loans (NPLs), suggesting vulnerabilities within the financial system.
Looking beyond 2025, the World Bank now projects a slight increase to about 4.5% for 2026, emphasizing the economy’s susceptibility to changes in global trade. The garment, travel goods, and footwear (GTF) sectors in particular rely heavily on foreign investment. This detail, reported by Kiripost, underscores the challenges Cambodia may face in coming years.
Despite the dimming forecast, Cambodia did see a notable 11.6% year-on-year rise in exports of GTF products and bicycles to the US and EU during the first quarter of 2025. Unfortunately, experts believe this growth will not be sufficient to counter the anticipated slow down for the rest of the year.
The World Bank’s revision aligns with other institutions that reevaluated their outlook for Cambodia. Back in December, they had predicted 5.5% growth for both 2025 and 2026. According to their latest assessments, over 40% of Cambodia’s economic activity is derived from export-driven manufacturing, which also accounts for about 19% of formal employment.
The US has been the leading export market for Cambodia, taking in 37.2% of goods, while supporting nearly 31% of the country’s formal manufacturing jobs. On the other side of the coin, China remains the major player in foreign direct investment (FDI), making up an impressive 65.5% of net inflows.
Agriculture, employing close to one-third of the Cambodian labor force (around 3.1 million individuals), had a successful 2024 dry season rice harvest. Still, the sector contributed a mere 0.2% to GDP growth. Structural challenges, such as dependence on weather and price instability, continue to hold back its potential for expansion.
Regarding the financial landscape, the World Bank sounded alarms about stability, noting significant private sector debt and rising NPLs — now at 7.9% among traditional banks and 9% within the microfinance sector as of 2024. Additionally, there are indications of a decline in property-related lending as well.
Imported inflation, especially from the United States, poses further threats to Cambodia’s GDP growth and hinders poverty alleviation efforts. On a more upbeat note, tourist revenues and remittances are proving beneficial, helping to offset a considerable trade deficit. Cambodians’ gross international reserves reached $24.7 billion in March 2025, marking a 26.4% increase from the previous year and covering roughly seven months’ worth of imports.
In light of these issues, the World Bank has called for Cambodia to hasten regulatory reforms and bolster the development of small and medium-sized enterprises (SMEs). Lowering trade costs while enhancing logistics and connectivity are highlighted as necessary actions. To strengthen financial resilience, it has urged urgent strategies for addressing distressed assets, which includes loan restructuring and asset liquidation.
The report underlines the need for improving the legal framework regarding insolvency and bank resolution to facilitate better management of troubled financial institutions. Furthermore, diversifying the economy is essential; moving focus away from mere construction, real estate, and low-value exports toward higher-value manufacturing, services, and enhanced agricultural productivity.
Lastly, the recommendations center on enhancing revenue mobilization to enable development in crucial sectors like healthcare and education. Current expenditure levels in Cambodia lag behind those of numerous other middle-income countries. Increased public revenues could fuel investment in public services, infrastructure, and climate resilience, ensuring Cambodia reaps the full benefits from its existing bilateral and regional trade agreements, the World Bank concluded.
The World Bank’s downward revision of Cambodia’s GDP growth forecast highlights serious concerns about external demand and financial stability. While the country recorded growth in GTF exports during Q1 2025, it faces significant challenges including high NPLs, dependence on limited sectors, and the effects of imported inflation. Urgent reforms and diversification are essential for Cambodia’s long-term growth and resilience in an unpredictable economic climate.
Original Source: www.intellinews.com
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