A continued lack of diversity in Cambodia’s economy coupled with low consumer spending is impeding the country’s ability to bounce back from the economic crisis as quickly as other countries in the region have, economists say.
Spending levels are still below where they were before the crisis, and all the while the government has adopted a strategy to lessen stimulus spending by reducing the budget deficit from around 7 percent of GDP last year to 5 percent this year.
Individual banknotes are re-entering circulation at an average of 3.5 times a year, as opposed to five times prior to the crisis, according to the World Bank.
“If you look at consumer spending itself, it is going to lag a little,” said Peter Brimble, the ADB’s senior country economist in Cambodia. “We are fighting back from a very low growth rate” last year.
The main threat to Cambodia’s recovery, Mr Brimble said, is the economy’s exposure to fluctuations of demand in the US and Europe.
Other countries in the region have reached a stage in their development where more robust links to the local market are helping to keep the economy afloat.
And in Laos, major export items such as electricity and copper are less likely to see the sort of dips in demand that garments experience in Cambodia.
“Cambodia is exposed to the outside world, and the outside world is not recovering quickly,” Mr Brimble said.
Nevertheless, there are some early signs of optimism in the economy: Garment exports are up around 20 percent, foreign direct investment is on the rise and optimism is beginning to flow through the agricultural sector.
In a periodic report on regional economies in June, the World Bank forecast that Cambodia’s GDP would grow by 4.8 percent this year, compared to 6.5 percent in Vietnam, 6.2 percent in Thailand, 7.7 percent in Laos and 5.9 percent in Indonesia.
In Channy, CEO of Acleda Bank, said that Cambodian consumers were still in favor of saving rather than spending.
“The low-income people have understood that they need to save,” Mr Channy said, pointing to lessons learned from the economic crisis.
Nevertheless, Tal Nay Im, director-general of the National Bank of Cambodia, said that lending from banks in Cambodia had gone up by 20 percent in the first seven months of this year compared to the same period last year.
“This is all down to the recovery,” she said.
Outh Renne, secretary-general of the Small and Medium Industries Association of Cambodia, said Cambodia’s recovery would not match that of surrounding countries due to its small industrial base. Still, he said the country stands to benefit from development within the rice sector.
“I don’t think any other industry can develop in the coming years apart from rice,” he said, conceding that rubber would also contribute more to the country’s economic base.
Other countries in the region that have better financial support, human resources and more developed industries are in a much better position to ride out the aftermath of the economic crisis, he said.
“They [other countries] have the market. Cambodia is in the starting process,” he said.
