Cambodia’s fiscal stance contractionary to neutral in FY 25, AMRO says

Cambodia’s fiscal stance contractionary to neutral in FY 25, AMRO says

The Kingdom’s fiscal stance has been contractionary to neutral in the current financial year, according to latest report released by the Asean+3 Macroeconomic Research (AMRO).

In economics, contractionary policies aim to reduce demand by cutting spending or raising taxes, while neutral policies involve taking no specific action to support or restrain the economy.

Contractionary policies are typically implemented when the economy is overheating, with high inflation and rapid growth. By reducing government spending or raising taxes, contractionary policies aim to decrease overall demand, which can help cool down the economy and curb inflation.

Neutral policies are adopted when the economy is perceived to be in a healthy, stable state. The government takes no action to actively support or restrain the economy. The goal is to maintain the current economic trajectory without intervening.

AMRO said both Cambodia and the Philippines within the Asean region followed the contractionary to neutral model.

“A contractionary policy bias is observed in four economies: from expansionary to neutral in Indonesia; from expansionary to contractionary in Hong Kong, China; and from neutral to contractionary in Japan and Korea.

“Conversely, the fiscal stance shifts from neutral to expansionary in Thailand and Vietnam and to expansionary in Lao PDR.”

According to the report, the Kingdom’s key budgetary objectives included achieving resilient, flexible, inclusive, and sustainable economic growth, supporting the sustainability of state institutions’ operations through efficient governance and reforms and prioritising people’s living standards and infrastructure development.

“Meanwhile, the budget priorities include promoting SMEs, improving the business environment, diversifying into new sectors and enhance competitiveness, expanding financing mechanisms and promoting institutional reforms to improve fiscal efficiency.

“The priorities also focus on ensuring inclusive social welfare by strengthening education and health system, with the improvement of public service, developing hard and soft infrastructure, strengthening global cooperation and autonomy, increasing agricultural output for food and income security along with driving the digital and green revolution through investment.”

Cambodia’s fiscal balance improved by both revenue increase and spending cut.

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