Strong Fiscal Support, New Trade Opportunities, Growth in FDI are Key Drivers for Cambodia’s Post-Pandemic Recovery

• 12 March 2021
• Local News
• 2081 Views

A special report by DHL researchers has expressed optimism that Cambodia will recover quickly from the pandemic crisis due to three main factors including ongoing fiscal support, new trade opportunities, and expected growth in FDI inflows.

Published in the Business Times in early March, the report stated that the first driver of growth for Cambodia is the strong support from the government through the continuous fiscal stimulus measures and monetary policies.

To date, the fiscal stimulus package has reached US$1.16 billion, almost 5% of GDP and covering different major affected sector bank loans, development spending, tax relief for hard-hit businesses, and more. The tax exemptions for hotels, guesthouses, travel agents and restaurants operating in selected provinces also continues.

On the monetary policy side, the National Bank of Cambodia also reduced interest rates and will continue to provide loan restructuring to commercial banks until mid-2021.

Despite the pandemic, Cambodia remains active in seeking trade partners and business opportunities.

For instance, the kingdom has recently signed free trade agreements (FTA) with China, of which the policy is expected to take effect within this year. Through this FTA, approximately 300 products from various sectors will enjoy being tariff-free or with low tariffs on import and export.

In addition, the Cambodia-South Korea FTA is also in the negotiation stage. If signed, this FTA will boost the kingdom’s economy even more, in particular during the post-pandemic period.

The same report added the Regional Comprehensive Economic Partnership (RCEP) will also be another key factor increasing Cambodia’s exports to major markets such as China, South Korea, Japan and Australia. According to the World Bank, RCEP is expected to boost Cambodia’s exports to China up by 23%.

Last but not least, the article suggested that if Cambodia could reduce the investment red tape, the kingdom will be able to attract more FDI inflows in addition to a large accumulative volume.

To date, China remains the largest share of FDI inflows followed by Japan, Korea, and other development partners. According to the World Bank report in 2019, most Chinese FDI focuses on construction through large infrastructure projects such as the ongoing US$2-billion Phnom Penh-Sihanoukville expressway project.

FDI inflows from China reached US$860 million in the first 11 months of 2020, 70% more compared to the same period last in 2019. Given the strong indications that China is set to grow in 2021, Cambodia will also receive the benefit.

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