Country Risk Rating

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

The business environment is mediocre. The availability and the reliability of corporate financial information vary widely. Debt collection can sometimes be difficult. The institutional framework has a few troublesome weaknesses. Intercompany transactions run appreciable risks in the unstable, largely inefficient environments rated B.


  • Vibrant textile industry
  • Dynamic tourism sector with strong potential
  • Offshore hydrocarbon reserves (oil and gas)
  • Financial support from bilateral and multilateral donors
  • Integrated into a regional network (ASEAN)
  • Young population (50% of the population under 22)


  • High share of agriculture in employment and GDP makes the economy vulnerable to weather conditions
  • Underdeveloped electricity and transport networks
  • Lack of skilled workforce
  • Dependent on concessional financing due to weak fiscal resources
  • Significant governance shortcomings, high levels of corruption
  • Poverty rate remains high, low levels of spending on health and education

Current Trends

Economic recovery is expected

Although not severely affected by the pandemic healthwise, Cambodia has been hard hit economically. Growth is expected to rebound in 2021, after an unprecedented contraction in 2020 that drove the country into recession. Cambodia is highly dependent on its exports of goods and services (about 60% of GDP in 2019) such as textiles-clothing and travel goods (75% of the total). These have declined (-13% in 2020 year-on-year, according to Asian Development Bank estimates) due to the twin supply and demand shock caused by the pandemic. Tourism, another mainstay of the Cambodian economy (about 18.7% of GDP), has also been severely affected by travel restrictions resulting from the crisis. This sector is expected to recover timidly and gradually in 2021 as a result of the second wave. In this context, the current account deficit widened dramatically in 2020 but is expected to narrow in 2021 as exports recover. Furthermore, the Cambodian economy has been affected by a decline in FDI, 40% of which comes from China. Indeed, construction, worth one-third of GDP, is driven by FDI, which has seen a significant decline (49% year-on-year over the first semester of 2020) and is uncertain to recover in 2021. The downturn in FDI might also impact the current account deficit, which it largely finances. To finance this deficit, Cambodia may need concessional external financing, particularly from China. Finally, domestic demand, primarily household consumption, has declined sharply because of the measures taken to combat the pandemic and the decline inactivity. In 2021, it is expected to show a gradual and timid recovery. Public investment will continue to focus on education but will be at a lower level than in the previous year amid an across-the-board reduction in public investment in Cambodia.

Public deficit and public debt increased by the crisis

The government began taking action in February 2020 to support the economy. These measures were aimed at helping key sectors such as tourism, textiles, and aviation, as well as businesses. In addition, a budget of USD 400 million was released for social assistance, including USD 300 million for cash transfers to the poorest and most vulnerable households. Difficulties in the textile and construction sectors have impacted government revenue, while the financial support package estimated at more than USD 800 million (3.2% of 2019 GDP) has increased spending, widening the public deficit. Public debt is expected to rise to finance the deficit, despite increased multilateral and bilateral aid. The public deficit and public debt are expected to shrink slightly in 2021, but will not return to pre-crisis levels. Private-sector indebtedness, especially household indebtedness, is extremely high, including among low-income people using microfinance and informal lenders. Moreover, mounting unemployment, rising poverty rates, and waning activity in construction and real estate, where credit is concentrated, could affect the stability of the financial sector in 2021. This could lead to payment defaults, as well as a decline in deposits, which are mainly in dollars.

Social unrest and trade sanctions

Prime Minister Hun Sen has led the country for 35 years. His Cambodian People's Party (CPP), a right-wing conservative party, has all the seats in the National Assembly. The government is facing increasing protests against corruption and arrests of opponents. Discontent has been exacerbated by the severe enforcement of anti-pandemic measures and a decline in economic activity, which has led to increased unemployment and poverty. In response, the government is stepping up its repression. This could have a serious impact on the country's social and political stability. Relations with traditional Western partners, the EU and the United States, have deteriorated since flawed national elections in 2018 when repression of the political opposition and local media drew international criticism. In May 2020, the EU implemented trade sanctions, reversing Cambodia's preferential access to the European market under the Everything But Arms (EBA) program. Some of the country’s exports are now subject to common EU customs duties. This poses a risk to the Cambodian economy, which shipped 26.8% of its exports to European markets in 2019, of which more than 90% were exempt from customs duties. The United States also threatened a series of sanctions against government officials and threatened to withdraw its preferential trade agreements with Cambodia. In response, Cambodia redoubled its efforts to strengthen ties with China, which is now its largest trading partner. The two countries signed a free trade agreement (RCEP) on the 15th of November 2020. However, in the short term, Cambodia is expected to remain highly dependent on its main customers, namely the European Union and the United States.


Coface (02/2022)