Recovery To Depend on Lending, World Bank Says

Cambodia’s economy is expected to grow by a modest 4.2 percent this year, according to a World Bank forecast released last week. Yet the Bank said growth in Cambodia remains dependant on an increase in lending in international banking, which is likely to remain slow in the wake of the crisis.

As part of a global economic forecast for 2010, the World Bank predicted that Cambodia’s recovering economy, which development institutions said last year had shrunk by as much as 2.75 percent, will rise from growth of 4.2 percent this year to 6 percent in 2011, below regional growth rates foreseen at 8.1 percent this year and 8.2 percent the next.

The global economy, however, will move more slowly at 2.7 percent this year, with prospects for economic recovery shrouded in “considerable uncertainty,” the report said.

The latest World Bank projection for Cambodia was only a marginal improvement of November’s 2010 forecast of 4 percent. The Asian Development Bank in December predicted 3.5 percent.

“Prospects for low-income countries, Cambodia, Laos PDR and Vietnam, will depend heavily on improvements in the environment for bank lending,” the report said, adding this sector is likely to recover slowly from the economic crisis.

The Bank explained that due to increased risk aversion and financial regulations, the next five to ten years would see “scarcer, more expensive capital for developing countries.”

“Developing countries will face higher borrowing costs, lower levels of credit, and reduced international capital flows,” the report’s author Andrew Burns said in a statement, adding this would reduce economic growth in developing countries by between 0.2 to 0.7 percent.

Hans Timmer, director of the World Bank Prospects Group, said developing countries should therefore “reduce domestic borrowing costs and promote local capital markets.”

CPP lawmaker Cheam Yeap, chairman of the National Assembly’s commission on finance and banking, said the World Bank’s latest forecast fell in line with the government’s own prediction for economic growth this year.

“During the drafting of the national budget, Prime Minister Hun Sen also predicted the Cambodian economy would grow by at least 3 percent, so the prediction of the international [institutions] is not very different from the government’s prediction,” Mr Yeap said.

Acleda Bank President In Channy said the World Bank forecast was a positive sign for the economy as it was more optimistic than the government’s forecast, adding that within Cambodia’s financial sector there were also increasing indications of rebounding economic growth.

“It’s a good sign. Normally the World Bank is more conservative than the government. I am glad to hear the World Bank is more positive,” he said.

“As a banker I see economic growth as growth in the demand for loans. Now the demand for loans is back at the level of 2008,” said Mr Channy.


Related Stories

Latest News