Cambodia will continue to feel the effects of the global financial crisis well into 2009, when the country’s GDP growth will drop to 4.9 percent, according to a World Bank report released Wednesday.
GDP growth for 2008 is expected to register at 6.7 percent, while the inflation rate will decrease from a high of 25.7 percent in May to 16 percent by year’s end, and will further fall to 10 percent by the end of 2009, the Bank’s report on East Asia stated.
The Bank’s projections for GDP growth in 2009, however, fall short of recent, rosier predictions by the government.
“Cambodia compared to many other countries in the region is even more open to the external environment in terms of trade, garments, tourists and investments,” World Bank Country Economist Stephane Guimbert said at a news conference to unveil the report Wednesday. “A lot of the recovery will depend on the external environment,” he said. “Cambodia will be vulnerable to risks upward and downward.”
Cambodia’s fortunes may follow those of developed countries, which could hit the rock bottom of the crisis at the end of 2009 and then begin recovery, he said.
“If things go well for developed countries, things are likely to go well for Cambodia,” Guimbert said by telephone after the conference.
The country may be able to gain some independence from the ups and downs of developed economies if it creates more regional trade partners and develops its agriculture sector, he said.
According to the report, Cambodia is challenged by limited investment in agriculture and a slowing down of the tourism, construction and garment sectors.
Agriculture made up 26.7 percent of the GDP in 2007, according to the World Bank.
Still, Guimbert said, 4.9 percent growth is enough to increase average income per capita in 2009.
Additionally, the figure of 4.9 percent is higher than the projected regional average of about 4 percent if one excludes China’s projected growth of 7.5 percent, according to the Bank report.
Speaking in a video presentation from Tokyo, Vikram Nehru, World Bank chief economist for East Asia, said the crisis came at a particularly bad time for Cambodia.
Unlike Vietnam, which had a chance to stabilize its overheating credit sector earlier this year, Cambodia is still trying to do the same, he said. All at once, Cambodia must stabilize credit as well as face the world financial crisis and slowdowns in several sectors, he said.
“Countries have been caught at different points in their own development,” Nehru said. “Cambodia was unlucky to be caught with the crisis at this particular time.”
According to the report, government efforts to reduce credit have been accompanied by a decrease in inflationary pressure. The 12-month growth of credit had increased 103 percent by June, but will come down to 43 percent in December, the report states.
Speaking at the National Assembly on Tuesday, Ministry of Finance Secretary of State Ouk Rabun rejected GDP growth estimates of 5 percent or less in 2009, calling them “pessimistic.”
“It doesn’t reflect reality,” he said.
As long as the tourism and garment sectors grow slightly, GDP growth will amount to more than 6 percent in 2009 because of planned increases in agricultural production, Ouk Rabun said.
“Our farmers will produce more crops because of the government’s efforts to build irrigation systems,” he said.
National Assembly First Vice President Nguon Nhel said Wednesday that the government is committed to maintaining GDP growth of at least 7 percent, which is a figure recently touted in public by Prime Minister Hun Sen. The World Bank isn’t looking at the big picture, said Nguon Nhel, adding that its growth estimate doesn’t give enough credit to government plans for farmers.
“They are looking at only one corner,” he said.
Chan Sophal, president of the Cambodian Economic Association, said the world economy has become too unpredictable to create a detailed forecast of Cambodia’s economic future. But Cambodia has such a low economic base that growth in Cambodia will continue, he said.
“I don’t think we are so vulnerable. Luckily, Cambodia still remains basic,” he said by phone.
If expected investment comes through, agricultural production has the potential to grow 10 to 20 percent within a year, Chan Sophal said.
“The demand for food will continue to rise,” he said, adding that foreign aid—which looks likely to reach a record high next year—will also boost development.
“My feeling is that things will recover sooner than many people fear,” he said.
(Additional reporting by Yun Samean)