Cambodia has strong ties to the EU, accounting for more than 40 per cent of the former’s garment exports. However, Cambodia’s economy could see possible downside risks due to the cancellation of the Everything But Arms (EBA) scheme. It could severely affect trade, investor sentiment, and the overall economy followed by a possible sovereign rating downgrade.

A rating downgrade would dampen the confidence of future investors, and raise the cost of financing for Cambodia in future. Loss of preferential access to key export markets could hamper exports and foreign direct investment, and dent confidence.

The risk would be exacerbated if countries like Australia and Canada also review their existing trade agreements with Cambodia in response to political and human right concerns.

The preferential trade status is an important element underpinning the success of the garment industry in Cambodia. As the single largest formal employer, it provides over 6,00,000 jobs in more than 500 export factories with production amounting to 30 per cent of the gross domestic product and over 70 per cent of exports.

In addition concerns about credit quality, external funding, rising concentration in real estate and unregulated lending by developers, and growing systemic importance of micro finance institutions continue to pose risks to financial and macroeconomic stability.