Bi-Annual World Bank Country Report published: Cautious on growth, highlights urgent need for tax and compliance reforms
The World Bank’s June 2025 Cambodia Economic Update lowers the country’s growth forecast to 4.0% in 2025 and 4.5% in 2026, a significant revision that reflects deepening concerns over Cambodia’s economic structure and investment climate.
A central message in the report produced by the bank’s experts is that complex tax compliance and regulatory burdens are stifling formal business growth and discouraging new investment. Many businesses, particularly SMEs, continue to operate informally to avoid high compliance costs, unpredictable enforcement, and administrative hurdles. This dynamic undermines domestic revenue generation, weakens fair competition, and ultimately deters businesses from scaling up, or accessing more financing to invest.
While Cambodia has made great strides in expanding its tax base and professionalising its collection practice, these gains have often come without sufficient facilitation. The bank reports that the compliance environment is not only costly but also unpredictable, with a lack of transparency and support that pushes many firms away from formalisation. Addressing this will require policy clarity, streamlined procedures, and stronger government–private sector dialogue.
Beyond compliance, the report raises broader structural concerns. Private domestic investment has dropped sharply: under the Qualified Investment Project (QIP) scheme, domestic investment dropped by a staggering 96.7% year-on-year in the first quarter. All this, while the economy remains overly reliant on garment exports and Chinese FDI. Modest gains in agriculture and tourism are not seen as enough to offset weaknesses in construction, real estate, and services.
To build resilience and sustain growth, the World Bank underscores the need for faster economic diversification, particularly through a stronger, SME-led service sector in Phnom Penh and other key economic centres. This, paired with reforms in regulatory efficiency and a more supportive business environment, will be essential if Cambodia is to achieve its 2030 and 2050 development targets.
“We all understand that the formalisation of the economy is a priority. But it needs to be done evenly. The report highlights that, in particular, foreign firms are in the formal sector, and they are scrutinised much more as their financial data is transparent and they are accessible to checks and audits.
Compliance is good, and we surely support all measures from tax collection to the labour law. Cambodia could invite more small investment to join the economy, creative and digital entrepreneurs who rent apartments, eat out, send their children to international schools. The reductions of important development aid budgets could also lead to an exodus of development sector experts, which creates an additional drain on our urban economies.
We need more diverse, compliant businesses to come here – small and medium in particular. They need to feel that its easy to do business here, not that its complicated. They need to support compliance and pay taxes and license fees easily and transparently,” says Vice-Chairman Tassilo Brinzer, who attended the launch of the World Bank report on behalf of EuroCham. “This report is all but a call to action that things cannot continue as normal in these much more insecure times for our economy.”
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