Cambodia’s high private debt, rising non-performing loans ( NPLs ) and governance vulnerabilities could amplify risks to its financial stability, according to a recent report.

As well, economic growth is projected to slow to 4.8% this year and 4.0% next year — down from 6.0% in 2024, warns the International Monetary Fund ( IMF ) in a staff report released in Washington on November 25.

The slowdown reflects a “confluence of shocks” in the second half of this year – trade disruptions, border tensions with Thailand and anaemic credit growth — and represents, the report shares, a sharp reversal from a strong rebound in garment and agricultural exports, along with a first-half recovery in tourism.

The downward revision in the forecast for this year — previously projected at 6.2% — also reflects remittance losses, a tourism slowdown and lower export earnings amid margin pressures for manufacturers squeezed by higher tariffs imposed by the United States.

Uncertainty

“Risks are tilted to the downside, driven by financial sector vulnerabilities associated with the array of shocks,” the report says. “Trade policy uncertainty could further disrupt export growth; renewed border tensions could undermine confidence, amplifying adverse effects on domestic demand, tourism and financial sector stability; [and] elevated private debt, rising NPLs and governance vulnerabilities could further amplify risks to financial stability.

“On the upside, deeper regional trade and investment integration could promote export growth. [And] successful reintegration of returned workers into the domestic labour market could support a stronger recovery in domestic demand.”

Reforms

Financial sector policies “should focus on managing rising risks and reinforcing oversight,” the IMF’s executive directors point out in their assessment of the staff report, and they support “the phase-out of forbearance by end‑2025 to enable timely recognition of distressed assets and recapitalization.”

In addition, the directors: “stressed the need to enhance supervisory capacity, including asset quality reporting, stress testing and early intervention”.

Reforms to insolvency and crisis management frameworks are also urged by the directors, as well as the setting up of a deposit insurance scheme and more anti-money laundering efforts.

“Directors underscored the urgency of accelerating structural reforms to diversify exports, enhance productivity and competitiveness and improve trade facilitation,” the report states. “[As well,] they stressed that governance reforms are essential to enhance business environment, bolster investor confidence and ensure sustainable and inclusive development, and [they] encouraged continued efforts to address data limitations."