1. Development

From 1994 to 2019, Cambodia proved to be one of the fastest growing economies in Southeast Asia, with a growth rate of 7.7% of GDP/year, but was severely affected by the outbreak of the Covid-19 pandemic (with GDP growth reduced to 2.3%).

In July 2016, the World Bank officially revised the status of Cambodia's economy, moving it from "low-income" to "lower-middle-income." The move is based on Cambodia's estimated gross national income (GNI) per capita. Low-income economies are those with a GNI per capita of less than US$1,025, while lower-middle-income countries are those between US$1,026 and US$4,035. While the change reflects an improving economy, it could ultimately lead to a reduction in foreign aid and access to the Generalized System of Preferences.

Cambodia's growth comes from industry, services and construction rather than agriculture. In 2018, for example, industrial production grew by about 10.8%, services by 6.9%, construction by 19% and agriculture by only 1.8%.

The EU market currently accounts for a third of Cambodia's main exports, mainly low-cost garment manufacturing. China has led the tourism and construction industries, accounting for three-quarters of Cambodia's foreign direct investment in 2018. However, growth in the sector is forecast to slow to 6.5% in 2020 due to a sharp slowdown in China and the partial suspension of the EU's EBA regime.

Cambodia’s economic growth has also been driven by the country’s rich and diverse natural capital. Agriculture (including forestry and fisheries) contributed 22% of the country’s gross domestic product (GDP) in 2018 and accounts for 32% of employment. Tourism is another sector that is increasingly dependent on natural resources and environmental sustainability.

Cambodia has some of the highest levels of climate vulnerability in the world. It is prone to natural disasters such as floods, droughts and sea level rise and has low adaptive capacity. The Ministry of Economy and Finance and the National Council for Sustainable Development (NCSD) have estimated that climate change could reduce Cambodia's GDP by 2.5% by 2030 and nearly 10% by 2050.

Urbanization in Cambodia offers ever-increasing job opportunities, but is still in its early stages, with only 23% of the population living in urban areas; this is expected to increase rapidly, as Cambodia's annual urban growth rate is one of the highest in the region at 3.25%, putting a strain on infrastructure and services.

Cities such as Phnom Penh and Sihanoukville are already experiencing urban growth problems with poor solid waste management and sewage treatment, urban flooding and air pollution.

Urbanization and economic development have driven Cambodia's growth, although this has put pressure on its natural resources. This pressure comes from the construction of hydroelectric dams and the overexploitation of forest and mangrove ecosystems. Climate change exacerbates these challenges through rising sea levels and shrinking arable land, threatening clean drinking water supplies and food security.

In 2019, Cambodia launched the “ Rectangular Strategy Phase IV”, a socio-economic policy agenda that serves as a blueprint to guide national development in four priority areas:

• Human resources development,

• Economic diversification,

• Promotion of private sector development and employment,

• Inclusive and sustainable development

The Strategy frames the need to strengthen the sustainable management of natural resources, manage urbanization, address climate change and improve gender equality and social protection.

The National Strategic Development Plan 2019-2023 (NSDP) serves as a roadmap for the effective implementation of the Strategy, which seeks a green growth model for urban development and to address challenges in sectors such as transportation, waste management and energy supply.