Economy Not Out of Woods Yet, PM Says

Recognizing last year’s economic stagnation, the government said yesterday that Cambodia’s economy had grown at an estimated 0.1 percent in 2009, far below an official forecast last year of 2 percent, but still rosier than the sharp contraction seen by development agencies.

In announcing the new 2009 estimate at an economic outlook conference in Phnom Penh, Fi­nance Ministry Secretary-Gener­al Hang Chuon Naron predicted that the nation’s economy will grow this year by 5 percent, just above the International Monetary Fund’s most-recent forecast of 4.3 percent.

Yesterday’s revised government figure for growth in 2009 was the government’s first firm acknowledgement of the extent of the global economic crisis on Cambodia. But even that estimate was still well above a December IMF estimate of 2.75 percent negative growth due to slumping demand for exports last year.

Speaking at the conference organized by the Cambodia Development Resource Institute and ANZ Royal Bank, Prime Minister Hun Sen said yesterday there was much work to be done before the country returned to the rapid growth which marked the economy prior to the global financial crisis.

“The weather is calm now, but the sky is not clear yet. So we must be prepared,” said the prime minister, adding that the country had faced “daunting challenges” to find new export markets beyond the US and Europe during the economic crisis.

Mr Hun Sen also said that future economic growth in Cambodia would hinge on foreign aid and preferential trade treatment abroad.

But relying on such assistance is not enough to send Cambodia on the way to becoming a middle-income country, he said.

“Nobody gives us money to become rich if we have no ideas on how to live on our own,” Mr Hun Sen said, adding that government spending must be directed toward sectors that are “critical for growth.” Mr Hun Sen added that the government would maintain a hiring freeze on civil servants through 2010 in an effort to reduce spending.

Despite recognizing the problems facing the economy, government officials at yesterday’s conference did not announce any specific new policy measures to address them.

John Nelmes, IMF resident representative in Cambodia, said as the budget deficit declines from last year’s record heights at 6.75 percent of GDP, the government should intervene with policy measures to increase social spending in priority sectors such as health and education.

“It will be essential to concentrate on where spending goes,” he said, while acknowledging a recovery in the overall economy so far this year.

The UN and Asian Development Bank said last month that just over 1 percent of Cambodia’s GDP was spent on social welfare and that Cambodia was off track to meet even half of the development targets under the UN Millennium Development Goals.

Mr Nelmes added that as Cambodia’s economy recovers, regulatory measures to make sure credit is dispersed at a moderate rate of about 20 percent annual growth will be necessary to keep debt levels under control.

“Once you start increasing lending by 100 percent a year you run into difficulties with overheating the economy,” he said, making reference to previously high credit levels prior to the economic crisis.

Flooding the economy with too much credit will have negative repercussions for the economy in the long run, he said. “Catching up with the rest of Asean requires a long-term strategy.”

Human rights groups say that Cambodia’s development strategy has to date prioritized economic growth over the rights of local communities. At yesterday’s conference several members of the audience expressed concern over how the government planned to support communities with high poverty levels and limited physical assets such as land.

Hang Chuon Naron, secretary-general of the Finance Ministry, said the government had a tough job of balancing broad macroeconomic strategies with social intervention.

But he said the government was “focusing on sector reform to ensure that the spending reflects the needs.”

Mr Chuon Naron’s economic policy outlook, however, painted a similar picture to previous years.

Cambodia’s growth potential can be seen in its abundant arable land, cheap labor force and natural resources, he said, adding that continued efforts to improve trade facilitation and increasing capital flows are also high on the government’s agenda. More rubber plantations would also help, Mr Chuon Naron said.

“Now we will see a drastic increase in rubber exports in line with the global recovery,” he said.

Last month, the government and the state-run Vietnam Rubber Industry Group announced plans to plant rubber on an additional 100,000 hectares in Cambodia.

Though Mr Chuon Naron said that public spending would focus on agriculture, infrastructure, education and the introduction of social safety nets, he did not spell out specifics.

As Cambodia’s labor force becomes evidently cheaper than in neighboring countries, the government will also prioritize labor-intensive industries such as assembly plants for motorcycles and shoe manufacturers, he said, also without providing specifics.

Mr Hun Sen said that growth of 5.4 percent in the agricultural sector and 2.3 percent in the services sectors in 2009 had offset much of the decline in industries such as garments, which fell by 9 percent.

He also said that only 20 percent of all households had a job in sectors directly hit by the crisis—tourism, construction and garments.

Chan Sophal, president of the Cambodian Economic Association, urged caution when looking too deeply in to macroeconomic indicators within the economy, which may not translate into improved livelihoods of the country’s population.

Growth in the agricultural sector was set at about 5 percent last year, he said. He noted that while agricultural productivity had risen, as the government claimed, gains may have been offset by decreases in commodity prices.

“The impact on people in rural areas is different from the macro data,” he said.


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