The Economy of Cambodia has seen rapid economic progress in the last decade. Per capita income, although rapidly increasing, is low compared with most neighbouring countries. The main domestic activity on which most rural households depend is agriculture and its related sub-sectors. Manufacturing output is varied but is not very extensive and is mostly conducted on a small-scale and informal basis. The service sector is heavily concentrated in trading activities and catering-related services. Cambodia has reported that oil and natural gas reserves have been found off-shore.
During 1995, the government implemented firm stabilization policies under difficult circumstances. Overall, macroeconomic performance was good. Growth in 1995 was estimated at 7% because of improved agricultural production (rice in particular). Strong growth in construction and services continued. Inflation dropped from 26% in 1994 to only 6% in 1995. Imports increased as a result of the availability of external financing. Exports also increased, due to an increase in log exports. With regard to the budget, both the current and overall deficits were lower than originally targeted.
After four years of solid macroeconomic performance, Cambodia's economy slowed dramatically in 1997-98 due to the regional economic crisis, civil violence, and political infighting. Foreign investment and tourism fell off. Also, in 1998 the main harvest was hit by drought. But in 1999, the first full year of peace in 30 years, progress was made on economic reforms and growth resumed at 4%. The long-term development of the economy after decades of war remains a daunting challenge. The population lacks education and productive skills, particularly in the poverty-ridden countryside, which suffers from an almost total lack of basic infrastructure. Recurring political instability and corruption within government discourage foreign investment and delay foreign aid. On the brighter side, the government is addressing these issues with assistance from bilateral and multilateral donors.