The International Monetary Fund will likely lower Cambodia’s forecast economic growth rate for 2009 to below 4.8 percent as the global economy continues to collapse, IMF Resident Representative John Nelmes said Wednesday.
An IMF team will visit Cambodia later this month “to take a closer look at the situation,” Nelmes said in an e-mail, adding that “a downward revision to our 4.8 percent is probably on the cards.”
“In effect, the fuel that fed growth in the Cambodian economy in recent years is drying up,” Nelmes wrote.
The IMF and several local economists are all predicting that Cambodia’s economic slump will not end in 2009, but rather will stretch into 2010.
However, CPP lawmaker Cheam Yeap, chairman of the National Assembly’s finance and banking commission, said the IMF is sometimes wrong.
“Predictions are sometimes right and sometimes wrong…. Cambodia’s economy should grow between 6.5 percent and 7 percent as the prime minister has predicted,” he said Wednesday by telephone.
Cheam Yeap said today’s 3rd Annual Economic Forum in Phnom Penh would provide a clearer outlook, but, he added, “I think the global crisis will impact all countries, but to Cambodia there is no impact.”
Last November, the IMF forecast Cambodia’s 2009 GDP growth to be about 4.8 percent, but this was before announcements that in 2008 tourism only grew 5.5 percent, its slowest rate in five years, and 20,000 garment factory jobs were lost, with more factory closures expected.
“Since [November], the IMF has revised down sharply our growth projections not only for Asia, but also for Cambodia’s key garment export markets, the US and the EU [European Union],” Nelmes said.
“Both are facing a deep downturn in economic activity, with real GDP now projected to contract by 1.6 percent in the US, and to contract by 2.0 percent in the Euro area in 2009. Indeed, global growth is expected to come to a virtual standstill this year, and Cambodia’s economy will not be isolated from this situation.”
Garment exports are slowing because of collapsing US retail sales, tourist arrivals have stopped growing because of a “massive destruction of wealth” in countries such as the US and Korea, and construction has halted because of slowing foreign capital inflows, he said.
“Prospects for 2010 depend largely on the anticipated recovery in the global economy,” Nelmes said.
The World Bank has forecast 4.9 percent GDP growth in Cambodia in 2009, while Finance Ministry Secretary-General Hang Chuon Naron has previously announced a forecast of 5 percent growth.
Cambodia’s economic outlook is troubled, but it’s still better than the IMF’s forecast for rest of Asia, showing that the country is somewhat sheltered.
On Monday, the IMF slashed its regional forecast for Asia to 2.7 percent from an estimate of 4.9 percent made two months ago.
Asia’s rate of growth could bounce back to more than 5 percent in 2010 if the world economy improves, although IMF Managing Director Dominique Strauss-Kahn said during a news conference Monday in Washington that “a worse outcome cannot be ruled out.”
Addressing Cambodia specifically, Anoop Singh, the IMF’s director of the Asia and Pacific Department, said at the Monday news conference that the IMF was “very concerned…about the situation in Cambodia.”
“But so far, as Cambodia has been relatively sheltered from some of the adverse effects, growth has been holding up. We do think that although growth is going to come down in 2009, it could still be in the 4 percent range,” Singh said, according to a transcript of the conference.
Douglas Clayton, chief executive officer of investment fund Leopard Capital, recently predicted Cambodia would be the first Asian nation to bounce back from the global financial crisis.
While Cambodia’s economic growth is slowing to levels unseen since the Asian Financial Crisis and experts are predicting slowdown into 2010, “Cambodia now stands out by not standing on the brink of financial ruin,” Clayton wrote in the most recent Gloom, Boom & Doom Report.
The monthly report is edited by investment analyst Marc Faber, who predicted the 1987 stock crash and is also on the board of Leopard Capital, which is actively seeking investors for its 10-year Cambodia fund.
In the report, Clayton agrees that Cambodian land prices are tumbling, construction is contracting, garment exports are stagnating and tourism growth is slowing.
“But in contrast to many countries, Cambodia’s slowdown is unlikely to be protracted,” he said.
Cheapening land and the exit of Korean investors creates opportunities for new investors, Clayton said, while at the same time Cambodia’s labor pool is growing 4 percent annually, educated overseas Cambodians are steadily coming back, and the opening of a third international airport in Preah Sihanouk province will “potentially double Cambodia’s tourism appeal and construction focus.”
Cambodia will be one of the first Asian economies to recover and “climb back to double-digit growth,” Clayton predicts.
Kang Chandararot, director of the Cambodia Institute of Development Study, said he disagreed with Clayton’s upbeat economic forecast.
“I am not optimistic that this period of slowdown is over for 2009. It could go into 2010,” he said Sunday by telephone. “Our pillars of economic growth have suffered already from the economic crisis,” he added, referring to the garment, tourism and construction sectors.
Kang Chandararot said substantial coastal development is still years away, and since Cambodia relies heavily on import-hungry Western economies along with investment from China and Korea, until those countries recover Cambodia will not return to double-digit GDP growth.
“We are very much relying on the international markets for our products, not just garments but also agricultural products,” Kang Chandararot said.
“We need the market. Unless we have the market, we cannot develop. If there is no market available, our farmers cannot survive.
Local economist and labor specialist Sok Sina said the economy may start to see recovery in 2010 as global demand increases for garments and foreign investors return, but until then many more jobs will be lost in the tourism and construction sectors.
“2009 will not be good at all,” he said Tuesday by telephone.
The Cambodian government does not stand powerless against the gloomy outlook, said Nelmes of the IMF.
The government should improve tax collections and increase spending in 2009, Nelmes said. In 2008, the budget deficit was about 1.7 percent of GDP, but in 2009 it should be allowed to rise closer to 3.3 percent of GDP.
The National Bank acted appropriately in lowering its foreign reserve requirement to 12 percent from 16 percent, which eased the liquidity strain on the banking system, Nelmes said.
But Cambodia’s banking system isn’t in the clear yet, he added, and the National Bank must be proactive in monitoring the health of the banks and quickly recognizing non-performing loans.
The National Bank needs “to continue to strengthen its supervision over the banking system. With growth slowing, and property prices slipping, non-performing loans in the banking system are likely going to start to increase,” Nelmes said.
If the world economy recovers as hoped in 2010, Nelmes said Cambodia will stand to benefit and “see growth recover to a range of between 5 percent and 6 percent” next year.
“However, there is a large degree of uncertainty right now over both the projection for the global economy and Cambodia,” he said.
“Looking forward in the near term,” he added, “the global crisis is likely to take a heavy toll on Cambodia.”
(Additional reporting by Eang Mengleng)