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Quick Facts
- Population:
- GDP (PPP):
- $30.2 billion
- 6.0% growth
- 6.2% 5-year compound annual growth
- $2,112 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Cambodia’s economic freedom score is 57.6, making its economy the 102nd freest in the 2012 Index. Its overall score is 0.3 point worse than last year due to a drop in scores for trade freedom and government spending. Cambodia is ranked 17th out of 41 countries in the Asia–Pacific region, and its overall score is slightly higher than the regional average.
Cambodia has not experienced much progress in economic freedom, and the government shows little interest in fostering reform. The lack of dynamism in the domestic economy leaves it highly vulnerable to the vagaries of world markets, and though five-year average growth has been a respectable 6 percent, the country was significantly affected by the global economic slowdown.
Small gains in regulatory efficiency and the maintenance of relatively sound public finance management have allowed Cambodia to maintain economic stability, no small feat for a country previously ravaged by violence. Nonetheless, lingering institutional weaknesses still restrict economic freedom and prevent more dynamic growth. In particular, the rule of law, one of the basic foundations of economic freedom, remains fragile due to corruption and an inefficient judicial system that is vulnerable to political interference. Government tariffs and other restrictions reduce the benefits to the population from international trade.
Background
Between 1975 and 1979, the brutal Khmer Rouge regime of Pol Pot took the lives of an estimated 3 million Cambodians. Today, Cambodia is nominally a democracy, but it has been ruled since 1993, either formally or de facto, by Prime Minister Hun Sen, who has held power through elections that have often fallen short of international standards for fairness. In mid-2008, the former Khmer Rouge leader’s Cambodian People’s Party won a large majority in the National Assembly, and Hun Sen was re-elected prime minister. A tribunal established under an agreement with the United Nations to try senior officials involved in the atrocities gained its first conviction in July 2010. Cambodia’s economy is heavily dependent on tourism and garment exports.
The legal system does not protect private property effectively. The executive branch usually dominates the judiciary. Inconsistent judicial rulings and outright corruption are common. The land titling system is not fully functional, and most property owners cannot prove their ownership. A new foreign ownership law passed in 2010, however, expanded the rights of foreigners to own property. Infringement of intellectual property rights is pervasive.
The top income and corporate tax rates are 20 percent. Other taxes include an excise tax and a value-added tax (VAT), with the overall tax burden amounting to 9.4 percent of total domestic income. Government spending has increased to 18.3 percent of total domestic output, but the budget balance remains under control. Public debt continues to remain below 30 percent of GDP.
Measures to modernize commercial codes and facilitate private-sector development, including updated bankruptcy legislation, have been adopted in recent years. The market determines most prices, but the government attempts to maintain stable retail prices for fuel through subsidies. The non-salary cost of employing a worker is low, but enforcement of many aspects of the labor codes is not effective. Inflation has been relatively modest.
The trade weighted tariff is 9.9 percent, with other non-tariff barriers hampering the dynamic growth of trade. Foreign capital and domestic capital are generally treated equally under the law, and up to 100 percent foreign ownership is allowed in most sectors. In a few sectors, foreign investment is subject to local equity participation or prior authorization. Banking has become more market-oriented, but the financial sector remains subject to state influence.