Cambodian Growth Stays Strong in 2006

In separate reports released Tuesday, the World Bank and the Economic Institute of Cambodia predicted a high level of GDP growth in Cambodia for 2006: 8.9 percent in the case of the World Bank and 8.5 percent according to EIC.

The rates do not match 2005, when GDP grew at an astounding 13.4 percent. Cambodia’s GDP grew 10 percent in 2004, 8.6 percent in 2003 and 6.2 percent in 2002, according to the World Bank.

Strict comparisons with years before 2005 cannot be made, however, the World Bank said in its biannual East Asia Update. This is because improved data-gathering methods in 2005 increased the GDP rate from 9.8 percent to 13.4 percent that year, the Bank said.

With the new methods, Cam­bodia had the highest growth rate in East Asia last year and will have the second highest in 2006, trailing only China, which is projected to grow at 10.4 percent.

Growth slipped from last year because of a slight slowdown in the construction boom and agriculture sector, the World Bank said.

This year’s rainfall was strong and should produce a similar crop to last year, said World Bank senior country economist Robert Talier­cio. But to increase crops significantly year after year, Cambodia needs to invest more heavily in canals and dams to free agriculture from boom-and-bust cycles that depend on the monsoon.

“To predict GDP, you have to be a bit of a weatherman in Cam­bodia,” Taliercio said at a press conference to launch the report. “Irrigation is vital for sustained growth in agriculture and to reduce volatility.”

The EIC predicts 4 percent growth in agriculture this year, compared to 16 percent in 2005.

EIC Director Sok Hach said the industrial sector likely contributed 14 percent growth in 2006 on the back of the garment sector. Gar­ment exports are expected to in­crease 40 percent this year based on data from the first nine months, although prices for garments have declined dramatically.

“Overall, we see revenues in­crease between 10 and 20 percent in the [garment] industry [in Sept­ember 2005 to September 2006],” Sok Hach said.

To sustain the overall growth, the EIC and the World Bank recommend diversification away from heavy reliance on a narrow base of garments and tourism.

Taliercio said that although there is no data yet on whether Vietnam’s entry into the World Trade Organ­ization this year will hurt Cambo­dia, it will be a significant challenge to the garment industry’s competitiveness next year.

Government spokesman and Information Minister Khieu Kanharith welcomed the growth figures.

“In order to really develop the country we have to have at least 6 per­cent growth, so this is good news,” Khieu Kanharith said in an interview. “Since the beginning of the third mandate the government has adopted the Rectangular Strategy, so these policies are having an effect,” he added.

The World Bank commended the government for improvements to its tax collection and budget operations. But the EIC said in its report that the government needs to do more to collect property taxes. Attempts to collect taxes on unused land have been problematic, it notes, adding that last year, land estimated by estate agents to be worth over $300 per square meter was being taxed as if it cost $36 per square meter.

The EIC also recommends speedy passage of the business laws Cambodia agreed to adopt when it joined the WTO in 2004. So far only 21 out of 47 laws have been passed. Khieu Kanharith admitted that the process has been a challenge for Cambodia.

Measuring how the economic boom has translated into jobs and reduced poverty is subject to controversy.

The EIC notes that officially, un­employment in Cambodia is narrowly defined by the government as working less than one hour—formally or informally—per week. By this measure, Cambodia has a 0.8 percent unemployment rate, “possibly the lowest rate in the world,” the EIC’s report notes.

The EIC estimates that 85 percent of Cambodians hold no formal job.

Cambodia, like Thailand and China, needs to become more “domestically integrated,” and link its prosperous cities with its rural poor, World Bank officials said. And the estimated 200,000 young people entering the job market every year need jobs.

Sok Hach said in an interview that EIC estimates that Cambodia gaining duty-free access to the US market could add 146,000 new jobs to the garment sector, where 320,000 Cambodians now find work.

Against the backdrop of rosy economic numbers, the Inter­national Business Club met with the International Monetary Fund on Tuesday and expressed its confidence in the economy, IBC Pres­ident Bretton Sciaroni wrote in an e-mail.

“I do not see why [growth] would not be sustainable,” he said. “The private sector is bullish on the economy.”


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