Cambodia

Moderating economic growth

In 2025, economic growth slowed amid uncertainty over US tariffs, a correction in the real estate market, and renewed tensions with neighbouring Thailand. Fighting on their border and the displacement of people living near combat zones impacted the Cambodian economy in several ways. First, through the flow of goods. Although Thailand is not a major export market (it accounted for 3% of total exports in 2024), it is a significant source of imports (12%), particularly for certain food products (beverages, sugar) and automobiles. It also serves as a transit point for some Cambodian exports, particularly agricultural products. In addition, the conflict disrupted expatriate remittance flows from Thailand (the primary destination), many of whom returned to the country. Remittances accounted for a total of 6% of GDP in 2024. Last, the conflict has affected tourism (9% of GDP). The loss of confidence among international tourists and the sector's dependence on Thailand – the main source of foreign tourist arrivals (32%) in 2024 – contributed to a decline of nearly 6% in foreign tourist arrivals in the first eight months of 2025.

The slowdown is expected to continue in 2026, with growth remaining well below its pre-pandemic pace, which averaged 8% between 2015 and 2019. Private consumption (60% of GDP), after its expected slight decline in 2025, should contribute positively to growth. However, despite moderate and declining inflation, which is favorable to purchasing power, this contribution will remain limited. The massive return of Cambodian workers from Thailand—nearly one million in 2025—could lead to a prolonged decline in remittances and a deterioration in the domestic labour market and consequently drag on the strength of household demand. Private investment could grow at a more moderate pace than in 2025. The slowdown can be attributed to the continued downturn in the real estate market, as well as to an increase in foreign direct investment inflows that began in the third quarter of 2024 and continued into the first half of 2025, likely linked to a partial reallocation of value chains in the garment sector from Bangladesh to Cambodia. These two sectors alone accounted for nearly two-thirds of foreign direct investment (FDI) flows in 2024, which represented almost all of total private investment.

Exports (143% of GDP) will remain the main source of growth. Consisting of nearly 50% clothing, footwear and leather goods, growth in these sectors will continue to be robust. The introduction of a 19% tariff rate by the US—the leading export market, accounting for 37% of Cambodian merchandise exports—is not expected to significantly compromise the country's competitiveness. This rate remains comparable to, or even lower than, those applied to other Asian producers in the sector, such as India (50%), Bangladesh (20%) and Vietnam (19%).

Little risk from the twin deficits

After virtually disappearing in 2023 and 2024, the current account deficit is expected to widen in 2025 and 2026, driven by a widening trade deficit. Although merchandise exports continue to grow, the ramp-up in manufacturing activity is expected to lead to a more pronounced increase in imports, particularly of textile raw materials such as fabrics, chemical fibres and cotton. In addition, a prolonged reduction in remittances on back of a massive return of Cambodian workers from Thailand could reduce the secondary income surplus. Conversely, the services balance (tourism) will remain positive, but trends in the surplus will partly depend on the sustainability of the ceasefire signed with Thailand in October 2025. Despite this trend and the anticipated slowdown in foreign investment flows, the current account deficit is expected to continue to be financed by capital inflows. In 2024, net foreign direct investment (FDI) accounted for 9.4% of GDP, allowing foreign exchange reserves to remain at a comfortable level, equivalent to 7.5 months of imports in June 2025. Furthermore, given the high degree of dollarisation of the Cambodian economy, a weaker US dollar amid the prevailing uncertainty over Washington's trade policy has reduced the need for the National Bank of Cambodia to intervene in the foreign exchange market by selling currency to stabilise the riel as it had done in previous years. The gradual easing of US monetary policy, which began in September 2025, should continue to alleviate this pressure.

On the budgetary front, despite the government's consolidation efforts, the public deficit is expected to have worsened slightly in 2025. The decline can be attributed to the slowdown in economic activity, which has weighed on tax revenue collection, as well as increased capital expenditure and civil service salaries. If the 2026 finance bill, approved by the Council of Ministers at the end of October 2025, is passed by Parliament, public spending is expected to grow by nearly 8% compared to the previous fiscal year, with a focus on education, infrastructure, defence and health. On the revenue side, the government plans to introduce a capital gains tax from 1 January 2026, with the aim of broadening the tax base. Tax revenues accounted for around 12% of GDP in 2024, which is below the Asia-Pacific region’s 2023 average of 19.5%. The public debt-to-GDP ratio is expected to remain moderate. In addition, Cambodia had fiscal reserves representing 11.9% of GDP in March 2025 and its debt profile limits risks. Although it is almost exclusively external, Cambodia’s debt remains largely concessional, with maturities concentrated in the medium and long terms.

The risks associated with debt are more concentrated in the private sector, with outstanding domestic credit to the private sector representing around 125% of GDP in 2024. With nearly one-third linked to the struggling real estate sector, private debt is weighing on the country's banking sector, which has had to cope with an increase in the non-performing loan ratio (from 5.1% in 2023 to 7.2% in 2024).

Tensions flare with Thailand

After nearly four decades in power, Hun Sen, former Khmer Rouge military commander, officially handed over power to his son, Hun Manet, in July 2023. Hun Manet was sworn in as Prime Minister the following month for a five-year term following a vote of confidence in Parliament. However, this was largely a formality, as the Cambodian People's Party (CPP), led by the Hun family, holds a near-total monopoly in parliament, occupying 120 of the 125 seats after the main opposition party was excluded from the last elections. Although he has promised to modernise the state and promote transparency, his government has been accused of severe repression of civil liberties, according to Human Rights Watch. Furthermore, Hun Sen, despite stepping down from his executive duties, continues to play a central political role by retaining the Presidency of the CPP and the Senate.

In order to attract foreign investment, Prime Minister Manet has shifted Cambodian diplomacy toward a more diversified and balanced approach. Long focused on China, it is now opening up to new partners, particularly in the West, the Middle East and Africa. In 2025, relations with the US were marked by tense trade negotiations over tariffs imposed by Washington. Following the “Liberation Day” initiative launched in April, Cambodia was hit with a record tariff of 49%, the highest among the countries targeted. The measure related to the current account surplus of USD 13 billion in 2024, representing 98% of the value of US imports from Cambodia. Through a series of bilateral negotiations, Phnom Penh managed to lower this rate to 19%, which became effective on 7 July 2025. The bilateral trade agreement signed in October 2025 endorsed this new tariff regime. At the regional level, Cambodia has continued to actively participate in ASEAN despite diplomatic tensions with Thailand. For more than a century, the two countries have fought over their common border, which was established by an agreement between Thailand (then the Kingdom of Siam) and France. Latent tensions escalated sharply in May 2025 after a Cambodian soldier was killed in the area. Following the announcement of a ceasefire in July and under pressure from Donald Trump, who reportedly threatened to suspend ongoing trade negotiations with both countries if no compromise was reached, a formal peace agreement was signed in October. Nevertheless, tensions have persisted on the ground, with Cambodia and Thailand accusing each other of violating the ceasefire, harassing civilians and even committing acts of violence, particularly against Cambodian nationals attempting to cross the border to find work in Thailand. Two weeks after the agreement was signed, Thailand publicly announced the suspension of the ceasefire.

Despite its diversified foreign policy approach, the country continues to maintain close relations with China. Beijing is a major trading partner and accounts for 47% of total merchandise imports in 202, as well as its main investor and provider of financial aid. The strength of this relationship is also evident in the military sphere: since 2016, the two countries have regularly held joint exercises dubbed “Golden Dragon,” thereby illustrating their cooperation in defence matters. Another symbol of this strategic partnership is China's modernisation of the Ream naval base on Cambodia's southern coast. The project, which gives Beijing privileged maritime access to the Gulf of Thailand, has raised concerns in Washington, which feared that the facility would be used exclusively by Chinese forces. Nevertheless, Japanese and Vietnamese military vessels have also made stopovers there. However, certain aspects of this relationship could be the source of friction. The presence of Chinese criminal networks in Cambodia, which are engaged in money laundering and cyber scams, could destabilise bilateral relations. Furthermore, Beijing did not express explicit support for Cambodia during its conflict with Thailand.

Last updated: November 2025