Abstract/Summary

Economic growth path

• Since 1998, Cambodia has transitioned from an agrarian-based economy to one driven by industry and services, achieving robust growth of over 7 percent annually from 2000 to 2019. This progress led to Cambodia attaining lower middle-income status in 2015, setting the stage for long-term quality growth with ambitions of achieving sustainable, inclusive, and resilient development.
• The share of agriculture in GDP dropped from 35.5 percent in 2000 to 16.5 percent in 2022, while the industrial sector’s share increased to 41 percent. The services sector maintained a steady contribution, though slightly reduced from 38 percent to 36 percent due to the COVID-19 pandemic’s impact.
• Key sectors such as textiles, construction, real estate, and food and beverage industries drove economic growth, supported by foreign investment and integration into regional and global markets. This growth pattern reflects a narrow economic base, which could pose challenges to long-term sustainability and resilience.
• Despite challenges from the 2007-2008 global financial crisis and the 2020 COVID-19 pandemic, Cambodia’s economy showed resilience, rebounding strongly after each crisis.

Drivers of economic growth

• Analysis using the Growth Accounting Framework revealed that Cambodia’s economic growth from 2000 to 2022 was largely driven by private capital, bolstered by strong foreign direct investment (FDI)and progressive reforms and improved investment climate. Key sectors such as manufacturing, real estate, and construction saw substantial investments, fuelling rapid economic expansion.
• Total Factor Productivity (TFP) played a significant role in enhancing the efficiency of labour and capital use, although it experienced fluctuations during periods of economic disruption like the global financial crisis and COVID-19. Public capital investments, while smaller than private, were essential for developing infrastructure, laying a solid foundation for sustained private sector growth.
• Labour and human capital contributions to growth were relatively modest, reflecting underinvestment in workforce development. The limited impact of human capital underscores the need for improved education and skills training to better meet the evolving demands and structure of Cambodia’s growing economy.

Challenges and policy directions

• Cambodia’s economic growth is constrained by a reliance on low-complexity industries, low labour market efficiency, and a less dynamic and underdeveloped business environment, all of which hinder progress toward achieving greater economic progress.
• To sustain growth and realise its vision of achieving long-term quality growth, Cambodia must focus on developing human capital through increased investment in education and skills training, diversify its economy to mitigate vulnerability to external shocks, and strengthen its business environment by reducing bureaucratic barriers, improving regulatory frameworks, and enhancing infrastructure. Furthermore, enhancing governance and institutional capacity through comprehensive public sector reforms and effective policy implementation will be essential for achieving long-term economic objectives.