Due to poverty, a historic dependence mindset, and underdevelopment, however, Cambodia has continued to rely heavily on external funding and technical assistance for its national development. The country’s worrying politics, presided over by Hun Sen, prime minister since 1985, are isolating it from the international community. In August, the EU reinstated tariffs on a fifth of Cambodian exports as a response to perceived backsliding on democracy.
In recent years, Cambodia has tethered itself more tightly to China, a shift that has raised concerns among some fellow ASEAN member states. Beijing’s contribution to Cambodia’s economic development over the past decade is indisputable; in 2016, it invested more in the country than domestic sources. China is the biggest investor in Cambodia, accounting for up to 44 percent of the US$19.2 billion in foreign direct investment (FDI) between 1994 and 2014, according to the National Bank of Cambodia and the National Institute of Statistics.
The Belt and Road Initiative (BRI), Beijing’s flagship development assistance program focused on funding and building infrastructure in developing economies across the world, fueled a significant construction boom in Cambodia, generating jobs and stimulating growth in manufacturing. Three years ago, Minister of Transport Sun Chanthol said that 70 percent of Cambodia’s national roads and bridges had been built with some US$2 billion in concessionary loans issued by China since 2004.
The growing dependence on China could portend a shift in the national account balances. The proportion of Cambodia’s debt owed to China is unclear: By some estimates, it makes up 40 percent of Cambodia’s total public debt of US$4 billion, exceeding the combined debt that Phnom Penh owes to the World Bank and the Asian Development Bank (ADB).
The human-capital challenge
With the sharp global economic contraction due to the pandemic, the question is whether Cambodia has the resilience to return to the high-growth path it has been on in recent years. Cambodia, which has a population of 17 million people, is a Covid-19 success story, with just 273 cases and no deaths as of 25 August. Despite its weak public-health system, the country’s strong performance in controlling the coronavirus has been attributed to swift and early action to shut down borders, a robust testing and contact tracing program, the closure of schools and entertainment venues, and domestic travel restrictions.
Phnom Penh also had support from the World Health Organization (WHO), other international organizations and agencies, and donor countries including China, Japan and Vietnam. Government coordination with the business community and other domestic stakeholders was a significant boost, as was the fact that some 80 percent of the population lives in low-density rural areas. Mask wearing was already common prior to Covid-19 due to poorly maintained roads and the resulting dust kicked up by traffic.
If Cambodia is able to recover quickly, the economy will still have to face the same key structural challenges confronting it before the pandemic, in China’s embrace or not: how to build greater capacity to wean itself of dependence on external sources of growth and to navigate a volatile, more competitive global market, especially in its position as one of the smaller, lower-income ASEAN economies.
An educated, healthy and adequately fed labor force is essential to improving all economic sectors. In 2019, Cambodia had an unemployment rate of just 0.7 percent. It has now shot up to about 20 percent, according to the World Bank. Many of the employed, however, possess low education and skill levels, and underemployment is not uncommon. Cambodia’s efforts to transition from a lower middle-income to upper middle-income status by 2030 have driven increased funding to improve the education sector. The government implemented an education strategy plan from 2014 to 2018, which aimed to expand early childhood education and access to good-quality secondary and post-secondary education, non-formal education, technical and vocational education.
Despite such government initiatives, Cambodia faces four key problems in providing basic education. First, pre-school is largely inaccessible and remains underfunded. Second, there is a big disparity in access and quality of education among regions and income groups and between genders. Third, there are no institutionalized methods of assessing student performance, which inhibits the ability of policymakers and educational institutions to make informed policy plans to improve education. Lastly, schools lack good-quality teaching, particularly in rural, remote and disadvantaged areas. This lack of teacher training and teacher resources harms student retainment and performance rates.