IMF Lowers Cambodia's 2026 Growth Forecast to 3%, Cites Inflation Concerns

The International Monetary Fund (IMF) has lowered its 2026 economic growth forecast for Cambodia to 3 per cent, down from the 4 per cent projection it made in mid-April. Addressing a July 8 press conference at the IMF Resident Office in Cambodia, IMF mission chief Kenichiro Kashiwase, who led an IMF mission to Cambodia from June 24 to July 8 as part of the 2026 Article IV Consultation, noted that despite facing multiple external and domestic shocks, Cambodia’s economy has remained resilient, although growth has weakened compared with 2025. He said Real GDP growth, supported by external demand, foreign direct investment and infrastructure spending, slowed to 5.3 per cent in 2025 from 6.0 per cent in 2024. Domestic demand, construction and real estate remained subdued. “Growth is projected to slow further to 3 per cent in 2026 before recovering in 2027, as higher energy prices, softer external demand and reputational damage associated with scam activities weigh on economic activity and weaken tourism and pose risks to financial stability,” the IMF explained, in a July 8 statement. The IMF also noted that Inflation averaged 2.5 per cent in 2025 but rose sharply in May and is projected to average 5.6 per cent in 2026, reflecting the pass-through of higher energy prices. Inflation is projected to moderate in 2027. The riel has remained broadly stable, serving as a nominal anchor for the economy. The IMF said Cambodia’s external position weakened in 2025 as the current account shifted from a small surplus to a deficit as imports grew faster than exports. Remittances from overseas Cambodian workers also declined after the return of many migrant workers. Nevertheless, foreign direct investment remained strong, while international reserves stayed at an adequate level, equivalent to approximately eight months of imports. “Risks to the outlook are tilted to the downside for growth and to the upside for inflation. Higher or more volatile energy prices, economic impacts of El Niño, trade policy uncertainty and weaker tourism demand could weigh on activity,” it said, adding that “Domestically, financial sector vulnerabilities, real estate weakness and asset-quality deterioration remain key risks.” The IMF also offered several policy recommendations. In this environment, fiscal policy should cushion near-term shocks while preserving fiscal discipline, it suggested, while support should be temporary and targeted to vulnerable households and affected firms and avoiding adding to inflation pressures. Broad fuel-related support is regressive and should be unwound to safeguard fiscal revenues as conditions permit. Over the medium term, it noted that a credible revenue mobilisation strategy is essential to sustain priority spending and allocate budget for realisation of the country’s development objectives, while preserving debt sustainability. This should include stronger tax compliance, improved governance of tax exemptions, and efforts to broaden the tax base. The IMF noted that the National Bank of Cambodia (NBC) implemented early supervisory intervention and should continue to ensure timely recognition of losses and adequate provisioning. Crisis management and bank resolution frameworks should be fully operationalised, it added, with emergency liquidity assistance available only to solvent institutions and with appropriate safeguards. The IMF stressed that structural reforms are critical to strengthen Cambodia’s growth model and resilience, particularly as the country prepares for graduation from Least Developed Country status. Among the priorities it outlined were improving the business climate, strengthening governance and the rule of law, enhancing skills and labour market absorption, supporting export diversification and attracting higher-quality investment. Improved energy security and efficiency, greater climate resilience and reforms to support renewable energy would also improve competitiveness.