The Cambodia’s economy was hit severely in 2020 by the COVID-19 pandemic and the recovery in 2021 is expected to be moderate and uneven across sectors. The recovery momentum is dampened by the slow return of international tourists, despite easing containment measures.

Amid improvements in the public health system, Cambodia’s high reliance on close contact services sector and a labor-intensive manufacturing sector renders its recovery more vulnerable to COVID-19 outbreaks. Risks in the financial sector may stem from a deterioration in credit quality and possible asset price inflation. The pandemic may leave long-term scars on Cambodia’s growth potential, impeding its quick return to sustainable high growth.

Given the slow and uneven recovery in an environment of high uncertainty, more targeted and flexible fiscal policy support is required. As demand for liquidity remains high, accommodative policy measures should continue while enhancing the monitoring and supervision of the financial system. Moreover, the National Bank of Cambodia should ensure that unwinding of extraordinary measures should be well-communicated to reduce policy uncertainties. Coordinated efforts to address structural constraints should be accelerated to boost competitiveness and resilience of the economy.

In addition to assessments on the Cambodian economy and policy recommendations, the report takes a deep-dive into several important issues confronting the economy: (i) liquidity stress test for Cambodia’s banking sector; and (ii) Cambodia’s economic transformation and industrial diversification.