Cambodia’s economy fared relatively well in 2001, set against a global economic downturn, natural disasters and a continued slide in foreign investment, a leading independent economist said Wednesday.
“In general, it’s OK,” Sok Hach, a senior macro-economist for the Cambodia Development Resource Institute, said at the second annual review of Cambodia’s economic performance. He said the country’s foreign debt was rising to a large percentage of the overall gross domestic product and care should be taken to spend those loans wisely.
Sok Hach, using CDRI’s own methods and database, calculated the country’s real Gross Domestic Product growth for 2001 at 5.3 percent, a full point lower than the government estimate that was announced in June.
Government officials said the 6.3 percent estimate for 2001 was calculated after new information was studied in the fisheries and tourism sectors.
It is typically difficult to gauge Cambodia’s economic performance. Many people earn their money in the informal sector, which is impossible to accurately gauge, and there are a number of other variables that make precise calculations difficult.
With either GDP growth rate, “the story is the same,” said Robert Hagemann, country representative for the International Monetary Fund. “Growth is inadequate to reduce poverty.”
The distribution of wealth remained an issue, he said. Obstacles to growth still include lack of infrastructure, low agricultural productivity, the slow rate of legal reform, and high trade costs.
Income growth in the industrial sector slowed sharply between 2000 and 2001, according to CDRI research. Growth of the nominal GDP—a measure of actual income earned—fell from more than 15 percent in 2000 to below 5 percent in 2001 in the industrial sector.
Overall, nominal growth rose just a touch to around 3 percent, and the agricultural sector rose out of a decline it had fallen into after the massive floods in 2000. The government’s improved response to floods in 2001 kept the sector from further decline, Sok Hach said.
Total government expenditure rose by nearly 10 percent to $341 million in 2001, according to CDRI, but public investment—such as bridges, roads and schools—actually declined, from $79 million in 2000 to $72 million.
Sok Hach warned, though, that while the government was improving its domestic revenue, it was accumulating an increasing burden of foreign debt from international lenders such as the World Bank, the IMF and the Asian Development Bank.
The total foreign debt owed by Cambodia is unclear. The government is in continued negotiations with countries such as the US and the former Soviet Union over the amount of debt it should shoulder from the years prior to the Khmer Rouge.
But CDRI put the amount of debt “recognized” by the government at more than $500 million.
The IMF’s Hagemann said the loans were concessional and were needed to generate national income and boost the national coffers.
Those loans come with low interest rates and a 40-year grace period, but they will still weigh heavily on government finances if the administration does not use the money it borrows to make the country productive, Sok Hach said.
“This money was not free,” Sok Hach said. “Take care now what we do with that money…. It could be a burden for Cambodia.”
Foreign direct investment “continued its decline trend,” CDRI reported, even though the productivity of existing investments improved. The first semester of 2002 was also showing a decline in foreign investment, Sok Hach said.
During a meeting Wednesday in which CDRI announced the results of its 2001 economic analysis, a representative of the Council for the Development of Cambodia said the decline in foreign investment was expected to slow or stop, as the CDC’s private investment board had plans to approve several new investments.
Foreign investment has been on a continual slide for several years, with companies currently investing here blaming the high costs of transportation, electricity, water and “unofficial fees” for the lack of interest from potential investors.
Deposits in commercial banks and liquidity in the National Bank of Cambodia continued to rise, Sok Hach said.
One National Bank representative said Wednesday that after the closures in 2001 and 2002 of non-viable banks, the rise in deposits was a particularly good sign.
If there are fewer banks, but an increase in deposits, she said, “confidence of the public, of the businessmen, in the banking system remains strong.”
The “key issues” for Cambodian policy-makers to consider now included a high economic growth contrasting with low income and uneven distribution; low job creation in the formal sector; a sharp increase in under-employment in the informal sector; a sharp increase in deposits at the commercial banks, but most of the money—54 percent—leaving the country; and a significant improvement in social expenditure that was still much lower than planned.
This is the second year CDRI has published an annual review of the economy. A published version of this year’s review will be available in early September.