‘Cambodia should further increase investment-to-GDP ratio’

‘Cambodia should further increase investment-to-GDP ratio’

Investments in public infrastructure, creating a stable, confidence-building economic and policy environment are crucial to stimulating both private and public investment and achieving sustainable growth.

The Kingdom should focus on further increasing its investment-to-GDP ratio as it would catalyse overall economic development, a study carried out by the Cambodia Development Resource Institute (CDRI) says.

The study titled ‘Cambodia’s New Growth Strategy—An Assessment of Medium and Long-Term Growth for Resilient, Inclusive and Sustainable Development’ mainly discusses measures to continue the country’s economic growth trajectory while overcoming new challenges.

Cambodia’s investment-to-GDP ratio stood at 32.19 percent during the end of 2024. The ratio is a vital economic metric providing crucial insights into investment levels that support economic activities.

“Starting at approximately 18.3 percent in 2000, Cambodia’s investment-to-GDP ratio exhibited a notable upward trend increasing to over 31 percent by 2022. This consistent increase indicates a robust investment climate driven by favourable government policies, infrastructure development, and increasing market opportunities that fostered growing confidence in the Cambodian economy among investors,” the study said.

From 2000 to 2007, the investment-to-GDP ratio rose from 18 percent to 20 percent. “This period was marked by a significant influx of FDI and domestic investment that were driven by government incentives, tax reforms, and increasing trade partnerships, which were supported by favourable policies and global interest.

“The surge in investment was instrumental in driving Cambodia’s economic growth and has positioned it as one of Southeast Asia’s rapidly expanding economies. However, the 2008 global financial crisis adversely affected Cambodia’s investment landscape, resulting in a significant downturn in the investment-to-GDP ratio as FDI dwindled, domestic investment stalled, and investor confidence wavered amidst economic uncertainties.

“After 2010, Cambodia’s capital formation witnessed a resurgence, which was characterised by steady growth and a maturing investment environment that can be attributed to a series of structural reforms, enhanced market regulations, and improved business climate.

“This strong rebound can be attributed to a combination of internal economic reforms, political stability, and deeper integration into the global economy that enhanced Cambodia’s appeal to investors.”

The study highlighted that within the region, Cambodia’s average investment-to-GDP ratio between 2000 and 2022 was 20 percent. “This average ratio is modest, especially when compared with the major fast-growing economies of Asia, such as China, Korea, and Thailand, which have historically demonstrated investment-to-GDP ratios surpassing the 30 percent mark.

“The high intensity of investment fuelled each country’s respective periods of accelerated economic growth and development. By contrast, Cambodia’s ratio has not yet reached such heights, indicating it needs to boost the formation of capital within its economic structure.

“Both Malaysia and Vietnam also surpass Cambodia’s investment intensity with an average ratio of 24 percent and 30 percent, respectively.”

Cambodia is currently below the average investment-to-GDP ratio found in lower-middle-income countries (26 percent) indicating a comparatively more conservative investment environment for its level of development and economic growth, the study said, underscoring the significance to increase the ratio, which will in turn boost holistic economic development.

Speaking to Khmer Times, Tom Goh, economic analyst, said that the economic policy-makers in the Kingdom are in their best efforts to increase the investment-to-GDP ratio. “It is simple mathematics; you will have to increase the numerator for increasing the ratio.

“The Kingdom has been offering tax incentives and improving the regulatory environment, while simultaneously promoting domestic savings through initiatives like investing in human capital and industrialisation towards higher-value sectors.

“Additionally, the Royal Government has facilitated investments in public infrastructure, creating a stable, confidence-building economic and policy environment, which is crucial to stimulating both private and public investment and achieving sustainable growth.”

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