Preliminary estimates from the government indicate that Cambodia’s GDP grew at a strong 9.8 percent in 2005, up from a recent 7-percent estimate and dire predictions of 2-percent growth made in 2004, officials said.
While the final 2005 GDP growth rate will be released in about one month, World Bank representatives, government officials and the Economic Institute of Cambodia said Thursday that the high figure is most likely correct, making 2005 the best year for the Cambodian economy since 1999.
“The new GDP estimation will likely reach 9.8 percent…I strongly believe that 2005 saw remarkable growth,” Minister of Planning Chhay Than said by telephone.
Finance Ministry Secretary-General Hang Chuon Naron said he is confident enough in the 9.8-percent figure to use it when addressing a meeting of Asean central bankers next week.
The EIC adopted the new rate in its April Economic Watch report, while the World Bank said it would hold its estimate at 7 percent pending final analysis by the government.
The apparent growth was driven by surprising strength in the garment industry, which economists had predicted would be undermined by the end of worldwide quotas in January 2005.
The second surprise factor was a boom in agricultural production—a 43-percent increase in rice production over 2004 to 5.9 million tons, the biggest harvest in 27 years, economists said.
Preliminary data for the agricultural sector shows 17-percent growth in 2005, up from negative-2-percent growth in 2004.
At a World Bank press conference Thursday to release its biannual economic East Asia Update, country economist Robert Taliercio said growth in agriculture was largely due to fortunate weather rather than increased irrigation.
World Bank officials said increased productivity in the garment industry—up 6.5 percent in 2005—and government trade reform in 2005, which has reduced the cost of exporting and business registration fees, drove some of the growth.
“Part of the improvement has to be associated with improved policy performance in Cambodia,” World Bank chief regional economist Homi Kharas said.
The time it takes to get approval to export fell from an average of 15 days in 2003 to 20 hours in 2005, according to Emerging Markets Consulting, a consultancy firm hired by the World Bank, while average fees fell from $942 to $598.
Sok Hach, director of the EIC, noted that uneven distribution of income and falling garment export prices have meant that high growth has not translated into rising incomes for most Cambodians.
EIC data indicates that the value of Cambodian garments fell by about 6 percent in 2005, while garment workers’ income fell by about 5 percent. But there were 319,000 garment workers in 2005, up from 280,000 workers in 2004.
Sok Hach said last year’s higher inflation, driven by rising food prices, further depressed Cambodians’ income.
The World Bank Board of Directors approved $37 billion in dept relief for 17 of the world’s poorest countries on Tuesday. Although countries from Benin to Nicaragua will get 100-percent forgiveness of their debts, Cambodia’s $500 million debt to the bank will remain.
“Unless the qualifications change, Cambodia’s debt will not be considered,” Taliercio said Thursday.
While Cambodia collected more revenue compared to its GDP than ever last year, some 11.7 percent, it still fell short of the 15 percent required by the World Bank to cancel debt.
The World Bank now provides all of its assistance in the form of grants, he said, noting that while the International Monetary Fund forgave Cambodia’s debt of approximately $80 million in December, the IMF is now providing assistance in loans.