ADB Predicts Slowdown in Economic Growth

Weakness in Cambodia’s garment sector is expected to restrict economic growth in 2005, according to a report from the Asian De­velopment Bank.

The Bank’s Asian De­vel­op­ment Outlook 2005, released Wednes­day, forecast Cambodia’s gross domestic product to grow 2.3 percent this year, compared with 6 percent in 2004.

The Bank attributed the anticipated slowdown to the end of the Mul­tifiber Arrangement, which until this year limited the amount of clothing textile giants like Chi­na could export to the US.

Compared to the rest of Asia, it stated, only the tsunami-ravaged Mal­dives are pro­jected to have a lower economic growth rate: 1 percent for 2005. Thailand is ex­pected to experience 5.6 percent GDP growth, Vietnam 7.6 and Laos 7 percent, the report said.

Cambodia’s GDP growth will re­main below 5 percent for the next two years, the report added, al­though it will see gradual recovery, helped in part by an increase in agricultural exports.

In 2006, GDP is expected to grow 4.1 percent, and in 2007, 4.7 percent, the report stated.

“[A]lthough growth will pick up in 2006 and 2007, it will not be by much,” the report stated. Slimmer economic gains will further hamper the country’s ef­forts to alleviate poverty, the re­port ad­ded.

Despite relatively strong economic growth experienced up until this year, the ADB reported little progress when it comes to poverty reduction.

“Although Cambodia has made im­portant socioeconomic gains over the past decade, poverty re­mains widespread and in­tense: 35 per­cent to 40 percent of the population are below the poverty line and inequality appears to be widening,” the report said.

The ADB was upbeat that the government will implement its plans for reforms and that the reinforcement of tax laws and customs procedures will improve.

But it noted that reforms in the legal, judicial and civil service systems have been lagging, “which forces the private sector to operate under uncertain rules.

“These…constraints to the private sector such as a lack of access to, and high cost of, transportation and energy; a limited skills base; and limited access to land need to be addressed if the private sector is to promote growth and employment oppor­tuni­ties,” it said.

The ADB predicted the rate of inflation will moderate in 2005, to 3.5 percent, compared with 3.9 percent in 2004. In 2006, the rate of inflation is expected to slow further to 3 percent.