29 Jan 2025

Southeast Asia Global Relations Outlook Part 3: CLMB Countries and East Timor


by Admin

In this third part of our short series analyzing Southeast Asia’s Global Relationship Outlook for 2025, we discuss the key economic and political trends in the CLMB countries: Cambodia, Laos, Myanmar, and Brunei Darussalam. For the CLMB countries, economic growth and stability remains a priority as each country navigates tensions domestically and with its neighbors. We also cover the challenges facing East Timor in obtaining full membership to ASEAN in the near to medium-term.

Cambodia

The Cambodian government forecast economic growth of approximately 6.3% for 2025, driven by key sectors including industry, services, and agriculture. A major contributor will be Cambodia’s industrial sector, which is forecast to grow by 8.6%, fueled by the key garments, footwear and travel goods [GFT] sector. GFT exports grew by 16.9% in the first half of 2024, following a sharp decline in the same period in 2023 (thus underscoring the sector’s resilience). Meanwhile, Cambodia’s services sector is expected to grow by 5.6%, with the growth of tourism playing a major part. Tourist arrivals to Cambodia increased by 22.7% year-on-year in the first half of 2024. Although tourist numbers are approaching pre-pandemic levels (94.8% of 2019 levels), more regional tourists are reported to visit Cambodia compared to international ones, which entails that tourism revenues may not fully recover.[1] [2]

Foreign policy is expected to be a priority for the government entering 2025. Indeed, this was suggested as much by the sacking of Cambodia’s foreign minister in November last year and the subsequent reinstatement of former Foreign Minister Prak Sokhonn, an experienced hand with close links to former Prime Minister Hun Sen. The second Trump administration in the US may pose threats to Cambodian exports. The US currently serves as Cambodia’s number one market for its GFT sector. However, given the sector’s heavy reliance on Chinese-sourced raw materials, Cambodia might be caught in the crosshairs of the incoming Trump administration, who have expressed hostility to China-linked supply chains in the past. Cambodia’s trade surplus with the US may additionally serve as another complication.

Furthermore, Cambodia must also manage tensions with its neighbors, largely fueled by nationalist sentiments expressed both at home and amongst the Cambodian diaspora. In September 2024, Cambodia withdrew from the Cambodia-Laos-Vietnam Development Triangle Area (CLV-DTA), a regional economic development initiative which also includes Laos and Vietnam. This decision was in response to a public backlash in Cambodia where public sentiment saw the agreement as ceding too much power to Vietnam. Tensions have also recently developed between Cambodia and Thailand over the disputed island of Koh Kut. Relations between Vietnam and Cambodia have further been complicated over the latter’s planned USD 1.7 billion China-funded Funan Techo Canal, which will directly link Phnom Penh to Cambodian ports on the Gulf of Thailand, thereby bypassing Vietnam. The Vietnamese has expressed concerns over the possible environmental impact on the Mekong River, as well as whether it might facilitate Chinese military ambitions in the region. With construction activity on the canal expected to begin this year, tensions are expected to flare up again.

Laos

Laos enters 2025 still amidst a crippling sovereign debt crisis, which only moderately abated last year. Laos’ inflation rate had dropped to 21.3% in 2024, down from 31.2% in 2023. In comparison, the inflation rate in neighboring war-torn Myanmar is expected to stand at 20.7% in 2024 according to the Asian Development Bank (ADB). Despite this decline, the cost of living in Laos remains high, with the Consumer Price Index having risen from 208.3 in 2023 to 243.5 in 2024. Households remain battered through a loss of purchasing power, particularly in areas such as healthcare and foodstuff. The ADB projected in September 2024 that Laos would experience growth of 4.0% in 2024 followed by 3.7% in 2025. While international tourist arrivals to Laos are approaching pre-pandemic levels, this growth is offset by risks stemming from the country’s debt distress, which will continue to hinder investment prospects and domestic consumption.[3] [4]

According to the ADB, public debt levels remain critical in Laos. While the ratio of  the total public and publicly guaranteed debt to GDP decreased slightly from 112% in 2022 to 108% in 2023, the ratio of external debt service to total government revenue rose from 27% to 43%. Public and publicly guaranteed debt combines domestic and external debts. The ADB also warned that refinancing options for the Laotian government will remain limited in 2025, which, alongside significant external debt maturities, means that public sector access to foreign currency will be constrained. This will negatively impact private sector recovery and household spending.[5] Laos’ debt crisis is largely due to the country having undertaken several expensive and largely unnecessary big-ticket infrastructure projects, including a China-backed USD 6 billion railway project linking Vientiane with Kunming in China. Economists have argued that debt restructuring and forgiveness will be the only way for Laos to escape this crisis, which entails that the government will need to continue negotiations with their main creditors. China remains Laos’ main creditor, and so far has been reluctant to forgive Laos’ debts for fear of setting a precedent.   

Myanmar

February 2025 will mark the fourth year since Myanmar’s military (the Tatmadaw) seized power, deposed the democratically elected government led by Aung San Suu Kyi, and plunged the country into civil war. Between January 2021 and May 2024, some 52,720 people have been directly killed in the conflict, with 9,147 or 17% of these having been civilians. These numbers do not include indirect deaths from the war caused by lack of access to healthcare, food insecurity, and other follow-on impacts from the prolonged conflict.[6]

The Tatmadaw enters 2025 increasingly embattled, with ethnic armed organizations having made gains in the North and West. The junta has lost control of most border gates on the Chinese border, threatening supply lines and trade. The Tatmadaw is also suffering from a high number of defections as well as challenges getting supplies to its soldiers. On December 19 last year, the Tatmadaw announced that it was on track to hold elections this year (with said elections having already been delayed by more than two years). The junta’s efforts to hold elections has been met with a lukewarm response from the main rebel groups, and it is unclear how elections will even be held given the state of the country.

According to the World Bank, Myanmar’s economy is expected to contract by 1% in the fiscal year ending March 2025, a downward revision from the previous projection of modest growth. Production in Myanmar has been impacted by ongoing shortages of raw materials, inadequate electricity supply, and weakness in domestic demand caused by rising inflation. The Myanmar Kyat has weakened significantly from MMK 1,330 to the dollar in February 2021 to MMK 4,450 by late June 2024. With over half of Myanmar’s townships currently experiencing conflict, supply chains and border trade have been disrupted. Natural disasters, including the recent Typhoon Yagi and heavy monsoon rains, have also disrupted agricultural production, thereby exacerbating food insecurity in the country. Government crackdowns on businesses, traders, importers, and banks in the name of stabilizing the exchange rate have only further disrupted Myanmar’s overall business environment.[7]

Brunei Darussalam


According to the Bruneian government, the country’s economy is expected to expand between 2.5% and 2.9% in 2025, fueled by robust downstream production. Government officials have attributed this projection to the sultanate’s economic resilience even amid external volatility. According to a separate analysis by the Economist Intelligence Unit (EIU) in 2024, exports of downstream petrochemicals and fertilizers over the period of 2024-2025 will support GDP growth, while oil output will be supported by launch of a new offshore oilfield. Private consumption and investment spending are expected to remain firm, thereby supporting growth. Other findings by the Brunei-based Centre for Strategic and Policy Studies (CSPS) have pointed to Brunei’s strong post-pandemic recovery and stable inflation.[8]  

In his New Year’s Address, Brunei Sultan Hassanal Bolkiah reiterated the necessity of diversifying Brunei’s economy beyond oil and gas. The CSPS have pointed to some success in this regard, with contributions from non-oil segments already being reflected in overall growth.9]


East Timor

The ascension of East Timor (or Timor-Leste) as ASEAN’s 11th member has been a long-time process, with the small petrol-state expected to join the bloc as a full member in either 2025 or 2026. Having first applied to join ASEAN in 2011, in November 2022 the ASEAN Member States had agreed “in principle” to admit the island state, as well as grant the country status as an official observer. In May 2023, ASEAN endorsed a roadmap outlining steps for East Timor to become a member state. The roadmap covers political, security, economic, and socio-cultural aspects, and will require East Timor to sign 66 key agreements, including the ASEAH Trade in Goods Agreement (ATIGA) and the ASEAN Comprehensive Investment Agreement (ACIA), to obtain full membership. In October 2024, ASEAN leaders agreed to ease some regulations and procedures for accepting new members – such as allowing a longer timeline for cutting import tariffs – in order to expedite East Timor’s accession process.

On the road to full membership, East Timor faces several structural barriers. To begin, the country’s small economy means it will struggle to adapt to the trade and investment regulations currently observed by all ASEAN members. These include the elimination of tariff and non-tariff barriers (NTBs) to facilitate intra-regional trade and investment. East Timor’s GDP stood at US$2.2 billion in 2023, smaller than Laos, ASEAN’s smallest economy at present, at US$15.2 billion. Some 42% of East Timor’s population are believed to be under the poverty line, while only 5.2% of the population aged 15 years and older had completed their universities as of 2015. Concerns have been raised that Timor-Leste may become a burden to ASEAN and hinder the bloc’s efforts in economic integration. There are also concerns that East Timor lacks the necessary infrastructure and technical expertise to contribute as an ASEAN member.[10]

In response, some ASEAN members have sought to provide support to East Timor in terms of capacity building. For instance, in December 2022 Singapore launched the Singapore-Timor-Leste ASEAN Readiness Support training package, which aims to provide training to East Timorese government officials. By joining ASEAN, East Timor would gain access to a market of more than 680 million people, as well as larger markets that overlap with ASEAN such as the Regional Comprehensive Economic Partnership (RCEP). ASEAN would also be able to support East Timor’s development process by providing the requisite knowledge, skills, and regional connectivity. For ASEAN, helping a small country bordering Indonesia to tackle its domestic challenges will help facilitate regional stability. Preventing East Timor from becoming the pawn of external powers can also help maintain the larger centrality of Southeast Asia within the Indo-Pacific. As well, East Timor can serve as a link to other multilateral frameworks such as the Comunidade dos Países de Língua Portuguesesa – CPLP (the Community of Portuguese Language Countries), of which East Timor is a member, as well as the Pacific Islands Forum, of which East Timor is an observer. 


About the Southeast Asia Public Policy Institute

The Southeast Asia Public Policy Institute is a research institute based in Bangkok and Singapore, working across the region. Our mission is to support the development of solutions to the most pressing public policy challenges facing Southeast Asia in the 21st century. The Institute undertakes in-depth research to develop actionable policy solutions on a range of issues across sustainability, technology, public health, trade, and governance. We convene dialogues with stakeholders and decisionmakers to drive discussion on the challenges and opportunities facing markets across the region. The Institute draws on a network of in-market researchers, advisors, and partners to provide insights and recommendations for governments, policymakers, and businesses.

[1] “Cambodia’s economy is projected to grow by 6.3% in 2025,” Khmer Times, January 2, 2025, https://www.khmertimeskh.com/501618029/cambodias-economy-is-projected-to-grow-by-6-3-in-2025/

[2] Hong Raksmey, “Cambodia’s economic outlook strengthens amid regional trends: ADO,” The Phnom Penh Post, October 16, 2025, https://www.phnompenhpost.com/business/cambodia-s-economic-outlook-strengthens-amid-regional-trends-ado.

[3] Oulayvanh Sisounonth, “Lower Inflation in Laos in 2024, but Cost of Living Remains High,” The Laotian Times, January 3, 2025, https://laotiantimes.com/2025/01/03/lower-inflation-in-laos-in-2024-but-cost-of-living-remains-high/

[4] Namfon Chanthavong, “Asian Development Bank Forecasts Economic Growth for Laos by Year-End Amid Challenges,” The Laotian Times, September 26, 2024, https://laotiantimes.com/2024/09/26/asian-development-bank-forecasts-economic-growth-for-laos-by-year-end-amid-challenges/

[5] Chanthavong, “Asian Development Bank Forecasts Economic Growth for Laos by Year-End Amid Challenges”

[6] Casey Johnson, “The Civilian Cost of Myanmar’s Civil War: An Accounting of the First Three Years,” Center for Excellence in Disaster Management & Humanitarian Assistance, https://www.cfe-dmha.org/LinkClick.aspx?fileticket=e7vJaE1I59M%3D&portalid=0

[7] “Compounding crises hit Myanmar’s economy and its people,” World Bank Group, December 11 2024, https://www.worldbank.org/en/news/press-release/2024/12/11/compounding-crises-hit-myanmar-s-economy-and-its-people, Romain Caillaud, “Myanmar’s Economy Deeper in the Mire,” Fulcrum, July 29, 2024, https://fulcrum.sg/myanmars-economy-deeper-in-the-quagmire/.

[8] Malai Hassan Othman, “Brunei 2025: His Majesty’s Vision for a Resilient and Inclusive Future,” LinkedIn, December 31, 2024, https://www.linkedin.com/pulse/brunei-2025-his-majestys-vision-resilient-inclusive-future-othman-rmtwc/, “Brunei Insights,” Economist Intelligence Unit, accessed January 7, 2025, https://www.eiu.com/n/geography/brunei/, “Forum explores Brunei’s economic growth, future trends,” Centre for Strategic and Policy Studies, November 19, 2024, http://www.csps.org.bn/2024/11/19/forum-explores-bruneis-economic-growth-future-trends/.

[9] Othman, “Brunei 2025: His Majesty’s Vision for a Resilient and Inclusive Future,” “Forum explores Brunei’s economic growth, future trends”

[10] João da Cruz Cardoso, “Why is Timor-Leste Important for ASEAN?,” Fulcrum, February 8, 2023, https://fulcrum.sg/aseanfocus/af-why-is-timor-leste-important-for-asean/.