Cambodia ended 2015 with 7.1% real GDP growth, driven by solid performances in the garment sector, tourism and construction. A strong US dollar combined with Europe and China’s continuing slowdown nevertheless hindered exports. Garment shipments rose 11% year on year but fell from 14.5% in 2014.

The economic outlook for 2016 provided by the Asian Development Bank is broadly favorable, with growth projected to remain robust at 7.2% while inflation is expected to stay under 2%. The fiscal deficit narrowed from 2.1% of GDP in 2014 to 1.3% in 2015, supported by stronger revenues from improved tax and customs administration as well as higher-than-planned grants. Having fostered economic diversification, Cambodia is in an excellent position to expand and diversify its export base and further integrate into global supply chains.

Government initiatives to improve competitiveness are now expected to focus on upgrading infrastructure and boosting rural access, strengthening human capital, and improving the investment climate by reducing the overall cost of doing business. The main foreseeable risk is the rising vulnerability of the financial sector, stemming from rapid credit growth. The credit-to-GDP ratio doubled over 2015 to more than 50%, with the loan-to-deposit ratio reaching over 100%. This reflects the entry of new foreign banks, increased foreign funding of domestic banks, and buoyant domestic activity.

In March 2015, the National Bank of Cambodia expanded reserve requirements to banks’ foreign borrowings, but international observers have recommended well-designed macro-prudential measures to moderate the pace of credit growth and guard against excessive risk-taking. In January, the IMF emphasized that continuing to reform public financial management would be important to ensure spending effectiveness and enhance budget transparency. The arrest warrant for opposition leader Sam Rainsy in November 2015 confirms that the political truce known as the “culture of dialogue” between the government and the opposition is over. This raises the prospect of renewed street demonstrations and poses possibly the largest risk to Cambodia’s business environment since the aftermath of the 2013 election. Allies of Mr. Rainsy claim the arrest warrant is an attempt to force him out of politics before the 2017 local elections and 2018 national elections.

The pharmaceutical market is expected to reach US$278 million in 2016, a 10.3% increase on 2015. Key regulatory changes may also take place this year, with a vote on January 16 introducing the second of three steps toward implementing a social security program. Benefits of the healthcare scheme include preventive health services, treatment and medical care services and a daily allowance during time off work due to treatment or accidents. Details regarding process and procedures for payment of contributions and rates, as well as an implementation schedule, are yet to be disclosed by the Ministry of Labor.

In November 2015, World Trade Organization members agreed to allow least-developed countries – including Cambodia – to exercise maximum flexibility to protect pharmaceutical patents and clinical trial data before 2033 to ensure access to medicines. As marketing authorization in Cambodia cannot be exclusively assigned to a distributor, this is likely to remain unchallenged.

In the same month, India lobbied Cambodia and other unregulated markets to accept the Indian Pharmacopoeia, which stipulates the standards for drugs produced and marketed in India.