The IMF has warned that Cambodia's narrow export base might be a weakness given the fragility of the global economic recovery. Cambodia is heavily reliant on the US and European markets (garment exports to these destinations account for around 40% of total goods and services exports), exposing the kingdom to significant downside risks, the Fund warned in a report following recent Article IV consultations with the government. The IMF's claims were backed up by Ministry of Commerce data released in early January showing that Cambodia's garment and textile exports are destined overwhelmingly for the US and the EU, despite growth in other markets. During the first 11 months of 2010 garment exports rose by 20.2% year on year to US$2.8bn, with shipments to the US, the EU and other foreign markets increasing by 16.7% (to US$1.6bn), 18.5% (to US$703m) and 34% (to US$444m) respectively. Garment exports in 2010 as a whole are unlikely to top the total of US$3.2bn earned in 2008. Despite duty- and quota-free access to the EU, a labour strike in September 2010, high overheads, poor infrastructure and stiff competition from other garment manufacturers such as Bangladesh are casting a shadow over Cambodia's long-term garment prospects.

In addition to issuing a warning over the narrow export base, the IMF said that limited fiscal space and the weaknesses of the financial system reduced the resilience of Cambodia's economy. The Fund raised its concerns about the fact that low fiscal revenue limited Cambodia's ability to address priority development needs, while a shallow and highly dollarised financial system undercut broad-based growth and complicated macroeconomic management. It encouraged the government to continue to improve tax collection, claiming that taxation was the best route to fiscal sustainability, and to mobilise resources for development. It also recommended increasing incentives to use the riel in place of the US dollar, describing de-dollarisation as a critical step towards monetary independence. The IMF expects Cambodia's real GDP growth to accelerate gradually to 6-7% over the medium term. The Fund said that growth and exports had remained narrowly based, offering limited benefits to the rural poor that make up the vast majority of Cambodia's population, and claimed that indications suggested that poverty had increased in 2010 after several years of steady declines.