A year that began amid bruising rises in the price of food and fuel is likely to end with the conspicuous absence of tourists in Cambodia and the increasing silence of the garment factory floor, the International Monetary Fund announced Friday.
With global economic growth projected to slow to 2.2 percent in 2009, the forecasted growth of Cambodia’s economy is now 6.5 percent in 2008 and 4.8 percent in 2009, down from 10.25 percent in 2007, according to David Cowen, deputy chief of the IMF’s Asia-Pacific office.
“Cambodia has a very open economy. Cambodia also has a very narrow production and export base so Cambodia’s economy will not be immune to this slowdown,” Cowen told reporters at a news conference in Phnom Penh to conclude a two-week IMF delegation visit.
Cowen said the slowing global economy will also likely account for as much as a 30 percent drop in foreign direct investment in Cambodia, estimated to be $750 million in 2008, though foreign exchange holdings will likely still increase, in part due to the flows of development aid from donor countries.
“The overall external position, if we measure that by gross official reserves, is expected to improve in Cambodia for this year, with gross official reserves at about $2.2 billion in September,” Cowen said.
According to IMF findings released Friday, by June, record fuel prices had driven inflation to 25 percent and they will likely account this year for a tripling of Cambodia’s current accounts deficit to 12 percent of gross domestic product, which stands at $8.69 billion.
Decreasing prices and dropping fuel imports will likely reduce inflation to 15 percent by next month and to half that by the end of 2009, Cowen said.
Due to effective tax collection, Cambodia’s budget deficit will likely be only 2 percent of GDP in 2008. However the IMF is advising the government to increase deficitary spending to 3.25 percent of GDP to help cushion the blow to the slowing economy, Cowen said.
Tal Nay Im, Director-General of the National Bank of Cambodia, said Friday that gloomy growth forecasts had in the past been proven wrong: In 2005, the economy grew at over 12 percent, or three times the forecast rate, she said.
“This year, the agricultural sector may save us from slow growth,” Tal Nay Im said. “So let’s see.”