Economic activity in Cambodia remains robust, although the pace of growth is expected to ease to around 7 % in 2008 from about 10¼ % in 2007. The moderation mainly reflects slowing garment exports due to weaker external demand and heightened regional competition. Tourism continues to expand at a healthy pace. As a net rice exporter, Cambodia should continue to benefit from higher rice prices, although higher overall food prices will adversely affect the most vulnerable, in particular the urban poor and the landless.

Inflation has increased sharply, the last published data indicate it rose to 18.7 % in January 2008. The increase reflects both external shocks and domestic inflation pressures.

(Source: IMF, June 2008)

Current Challenges

Cambodia faces a formidable array of development challenges. This is a post-conflict country where many of the foundations for growth and development -- physical, social, human and economic – have been shattered and need to be restored. Many parts of the country have only recently become accessible as the security situation has eased.

The government has not had sufficient resources to invest adequately in health and education or basic physical infrastructure. Annual per capital income is US$290. Poverty has declined moderately, from 39 percent of the population in 1993-1994 to about 36 percent. While most poverty reduction has occured in Phnom Penh and other provincial towns, 90 percent of the poor live in rural areas. The highest poverty rates are found among households where agriculture is the primary source of income.

Cambodia’s recent history of conflict has left the country with a legacy of disadvantaged groups, including internally displaced people, former refugees, war widows, orphans, former child combatants, and people disabled during the wars or by land mines. One in every 250 Cambodians is disabled, and the proportion of amputees -- 1 in every 384 people -- is the highest in the world. Women carry a disproportionate burden of caring for the disabled.

The prevalence of child labor, the rapid growth of the commercial sex industry, and the trafficking of women and children illustrate the difficulties that poor and vulnerable groups -- especially women -- face in securing a more sustainable livelihood. In addition, the growing HIV/AIDS infection rate is a serious threat. The poor, particularly those among the most disadvantaged groups, lack a public voice and have little access to services and opportunities. Both human and physical capital have been depleted by decades of conflict, resulting in severe capacity constraints, and social indicators are among the worst in the region.

Attacking Poverty

Cambodia’s leaders have pledged to respond to these challenges and to help improve the lives of the Cambodian people. They are workign to reduce poverty, restore social and economic infrastructure, and build a stable macroeconomic framework. The government has already made encouraging progress in raising revenues. They have launched difficult reforms in the public sector – fiscal management, civil-service restructuring, and military demobilization -- and have agreed to allow the reforms to be closely monitored by local and international donors. Government officials have been willing to engage in this process at the highest levels. For example, the prime minister has begun chairing semi-annual consultations between donors and the government. In addition, the government has contracted with a reputable international non-governmental organization (NGO) to monitor the country’s progress in forestry reforms. Government dialogue with private businesses and civil society is increasing.

Cambodia has the potential to develop diverse sources of economic growth: agriculture, natural resources, light industry, and tourism. The country’s ability to exploit these resources hinges partly on tackling its physical and human resource constraints but primarily on the government sustaining the momentum of the reforms. Although the reforms may take years to accomplish, they are essential for mobilizing investment and savings and putting Cambodia on a sustainable growth path that will help to reduce poverty.