It recommended the overall government budget deficit be allowed to rise to around 3¼ percent of GDP. To safeguard revenue, the mission urged the government to avoid backsliding in progress on tax administration. It also recommended priority be given to high-quality infrastructure spending and pro-poor social outlays to mitigate the impact of slowing growth.
"Monetary conditions were overly expansionary during the first half of 2008, contributing to excessive private sector credit growth that peaked at 103 percent year-on-year in June, and consequently to domestic inflation pressures". The National Bank of Cambodia responded appropriately by doubling the reserve requirement on foreign currency bank deposits to 16 percent in June. Since then, credit growth has moderated, but remains high at over 80 percent year-on-year. If credit growth and inflation pressures continue to moderate, some easing of monetary policy could be justified.
"Recognizing the challenges presented by recent global financial conditions, the authorities reiterated their determination to continue strengthening bank supervision while improving the regulatory regime. The mission emphasized that firm enforcement of prudential regulations would help to safeguard Cambodia's banking system."
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