IMF: Economic Slowdown Due to High Prices

Cambodia’s economic growth will drop more than 3 percentage points in 2008, compared with 2007, because of a slowdown in garment exports and an increase in the price of oil and food, the International Mone­tary Fund said Friday.

GDP growth will slow from 10.25 percent in 2007 to 7 percent in 2008, the IMF said in a news release, echoing earlier predictions of a slowdown by both the Ministry of Fi­nance and the Economic Institute of Cambodia.

The slowdown reflects weakened foreign demand for Cambodia’s garment exports, the IMF said, as well as skyrocketing inflation, measured at 18.7 percent in January by the Ministry of Planning. At the same time, the IMF applauded Cam­bodia’s measures to tighten monetary policies, including raising commercial banks’ reserve requirements from 8 percent to 16 percent, which the IMF said will help rein in high credit growth and rising prices.

Private bank lending grew more than 100 percent from January 2007 to January 2008, which contributed to domestic inflation, the IMF said in its statement, which rounded off a weeklong visit to Cambodia by an IMF mission from Washing­ton.

Hang Chuon Naron, secretary-general of the Ministry of Finance, said the drop in GDP growth for this year reflects a conscious government decision to implement policies that will curb inflation, such as increasing the bank reserve requirement and reducing government spending.

Inflation cannot be tackled without losing ground on GDP growth, he said.

However, not all in the private sector agree that increased bank lending is to blame for inflation.

In Channy, president of Acleda Bank, said Sunday that the increase in reserve requirements will cause GDP growth to slow, but will not halt inflation.

“The main influence to high inflation is not bank growth but high oil and food prices. Slowdown of bank growth is not the correct solution,” In Channy said by telephone.

“The more business, the more economic growth,” In Channy said. “In Cambodia, bank loans go to business development, it does not go for consumption.”

Regionally, Cambodia’s central bank stands alone in its decision to hike reserve requirements and slow the budding commercial banking sector in an attempt to curb inflation, In Channy said.

Related Stories

Latest News

The Weekly DispatchA weekly newsletter from The Cambodia Daily delivering news, analysis and opinion to your inbox. Published every Friday at 11:30am. Sign up today.