The economic growth of Cambodiain 2006 is expected to moderate to a projected 8.9 percent owing to slower expansion in construction and agriculture, said a report issued by the World Bank here on Tuesday.

Meanwhile, the consumer price inflation is projected to fall to around 5 percent this year, down from 6.7 percent in 2005, according to the bank's bi-annual review of the country's economic outlook.

Despite projected strong export growth, the trade deficit is forecast to reach 20 percent of Gross Domestic Products (GDP) in 2006, up from 16 percent in 2005, due to faster import growth, said the report.

Gross foreign reserves are projected to reach 1.1 billion U.S. dollars in 2006, up from 9 million U.S. dollars in 2005 and the exchange rate is projected to depreciate slightly by 0.8 percent against the U.S. dollar, it added.

The amount of customs revenue collected through the banking system has increased from zero in 2004 to 36 percent of the total in 2005, and is scheduled to increase further in 2006, said the report, adding that 86 percent of all tax department revenue is now collected through the banking system.

"A sound macroeconomic framework has helped underpin the success in 2006," noted Robert Taliercio, World Bank Country Economist for Cambodia, in the report.

"However, Cambodia's narrow growth base remains a concern. A program of second generation growth and poverty reduction needs to be based on improving the investment climate, raising agricultural productivity, and making public service delivery more effective. The Royal Government is aware of these challenges and is addressing them through policy and institutional reform measures supported by the international community."

The recent and ongoing work, including the National Export Strategy 20072010, the Small and Medium Enterprise Development Framework 2005-2010, and the second phase of the Integrated Framework (IF) for trade, aims to tackle this challenge, he added.

Another major challenge for the Cambodian Government is the passage of several laws necessary for WTO compliance, including the Secured Transactions Law, the Commercial Leasing Law, the Law on the Issuance and Trade of Non-Governmental Securities, the Insolvency Law, and the Law on Establishment of Commercial Court, among others, said the report.

Cambodia's real GDP grew by an unprecedented 13.4 percent in 2005, it said.

The stellar performance was driven by solid garment exports, strong tourism receipts, significant growth in FDI, the continuing construction boom, and record crops in agriculture, it said.

Agriculture remained a crucial sector for the economy, accounting for 38 percent of GDP growth and some 60 percent of total employment in 2005, it added.

The external sector maintained its dynamism in 2005 with an 11 percent increase in apparel exports, said the report.