Cambodia is set to graduate from the United Nations’ Least Developed Countries (LDC) status in 2029, marking a significant achievement in its socio-economic progress. However, this transition brings challenges, including the withdrawal of key benefits such as preferential trade agreements and concessional financing. Experts have thus suggested that Cambodia reform to ensure sustainable growth.
Cambodia joined the LDC list in 1991, and sought to meet the criteria to graduate from it in 2021 and 2024. It was assessed based on its income per capita, human assets and economic vulnerability. Cambodia met these criteria last year.
The government requested a five-year preparatory period to ensure a smooth transition, which the UN endorsed, citing Cambodia’s effective use of international support measures, including preferential trade access and intellectual property arrangements.
To navigate these challenges, Cambodia must prioritize economic diversification, market expansion, and resilient development to compete without LDC-specific support. The UN Development Programme (UNDP) also emphasized the need for reforms and infrastructure improvements to sustain growth in a rapidly changing global environment.
“Cambodia must advance both product and market diversification and develop productive capacity that is resilient to geopolitical and geoeconomic shifts so that it can compete without least developed country-specific international support measures,” the Committee for Development Policy of UN wrote.
According to the UNDP policy brief, graduation from LDC status was a significant achievement but it also meant gradual withdrawal of key benefits, such as preferential trade agreements and concessional financing, potentially affecting key export sectors like garments, rice, and bicycles.

‘Will request for preferential treatment’
Graduation will notably affect Cambodia’s export sectors, including garment, rice, and bicycles to the European Union (EU) and Canada markets. The EU and Canada markets constituted 29.4% of total exports in 2022, with three key exports to these markets accounting for 28.6% of the exports.
When Cambodia graduates from LDC status, it will face higher export tariffs. Items such as bicycles could rise to 10.1%, and 14.5% for other cycles. Export tariffs for rice will increase from zero to $179 per ton for regular rice and $66 per ton for broken rice. Similarly, exports to Canada will see tariff hikes, potentially reaching up to 16.4% for garments, textiles, and footwear.
Dynamic Global Trade Analysis Project (GTAP) stated that Cambodia’s exports could dip by 2.4%, leading to a reduction in gross domestic product (GDP) growth by two percent and a loss of 168,000 jobs, mostly affecting female workers. The country will also lose benefits like World Trade Organization TRIPS flexibilities and concessional financing, which could increase debt burdens.
When he was prime minister, Hun Sen, who is now Senate president, voiced concern about Cambodia leaving LDC, as it might lose access to preferential rates. However, Cambodia will continue to request preferential treatment from development partners, he said then.
UNDP recommends that Cambodia should focus on boosting competitiveness, diversifying exports, maintaining trade preferences, and investing in green development. A sustainable transition strategy, social protection expansion, and support for micro, small and medium enterprises will help mitigate the impacts of LDC graduation.
The Cambodian economy in 2025 is projected to grow at a rate of 6.3%, while GDP per capita is expected to increase to US$2,924, results of a plenary meeting of the Council of Ministers on October 25, 2024 stated.

Meanwhile, Ministry of Economy and Finance spokesperson Meas Soksensan told CamboJA News that Cambodia is actively preparing for its graduation by implementing key reforms.
“We are getting ready by strengthening the business environment, increasing competition and investment, and implementing reforms,” he said, adding that there are several more years to prepare for the transition.
Government spokesperson Pen Bona did not respond.
Impending impacts
Yang Sophorn, president of the Cambodian Alliance of Trade Unions (CATU), said Cambodia’s exit from LDC could impact the textile sector in the next five years. With rising tariffs, factories may relocate to avoid tax burdens, leading to job losses.
Regarding tax, she viewed that factories benefit from a 10-year tax exemption in Cambodia, but if the country moves beyond this status, fewer factories may remain, with some closing or moving to countries with more favorable tax policies.
“If in the future they [the company] make less profit and pay higher taxes, they won’t make a profit. I think they will leave and not continue doing business,” she said.
She believes that Cambodia has a long journey ahead before transitioning from LDC to a developed nation. She pointed out that in the industrial sector, workers continue to face limited income and education opportunities, while market inflation significantly impacts their daily lives.

Emphasizing the importance of improving workers’ rights and wages, she noted that despite gradual increases, current wages remain insufficient for workers to adequately support their families. She argued that enhancing productivity and preparing for sustainable, long-term growth must be prioritized to overcome these challenges.
Reflecting on the current challenges faced by citizens, Am Sam Ath, Operations Director for Licadho, stated that rising debt, prevalent microfinance issues and land disputes causes people to suffer hardship.
According to a quantitative study of microloan debt in Kampong Speu province published in August 2023 by two human rights NGOs, over two-thirds of borrowers feel their households are burdened by excessive debt. Estimates of over 80% of the province having at least one microloan suggests widespread impact of overindebtedness, including coerced land sales, child labor, and reduced food consumption.
“If we, Cambodia, act as a country that fully respects democracy and human rights, we will be able to develop rapidly. If we do not fully implement democracy and respect human rights, it will also affect the development of the country,” Sam Ath said.
He stated that although Cambodia benefited from the EU’s Everything But Arms (EBA) tariff preference, the country faced difficulties when it was reduced by 20% in 2020 due to human rights abuses, which affected key exports like garments and footwear. Similarly, Cambodia lost access to the US Generalised Scheme of Preferences (GSP).
Need time to adapt
In terms of foreign aid, he viewed that aid from other countries plays a vital role in supporting development.
“If Cambodia were to move out of the LDC rank, it would lose the valuable impact of this assistance, which has contributed to the development of key sectors such as health, education, and the environment,” Sam Ath added.
Hong Vanak, an economic researcher at the Royal Academy of Cambodia, described UN’s assessment of Cambodia from LDC as a “well-deserved honor”.
He noted that Cambodia’s graduation from LDC brings both benefits and challenges. The main benefits include improved international transactions, investments, and political relations, which are crucial for future growth.
However, he added that Cambodia may lose some international aid and still needs financing for public projects. The government will also face higher financial burdens due to commercial loans, as opposed to concessional loans with favorable terms.
“If Cambodia reduces borrowing over the next few years, it could reduce aid dependency and take on more responsibility for its development,” he said.

Phnom Penh bakery owner Ou Ussa stressed the importance of business owners adapting to changing circumstances and prioritizing continuous development as Cambodia prepares for the transition.
She believes that increased support for businesses could play a crucial role in improving livelihoods ahead of the transition. She emphasized that many businesses need time to adapt and effectively manage their operations before achieving self-sustainability.
“My business is divided into stages, where there is progress, I mean we need to learn and will be improved all the time,” she continued, saying that sales is no longer confined to physical stores but now also relied heavily on online platforms and apps.
Ou Ussa remains optimistic about the future, highlighting the need for government support in providing knowledge, expertise, and accessible education for business people over the next five years. These efforts will drive positive changes, benefiting the people and fostering sustainable development in Cambodia, she said.