IMF Says Cambodia’s Economic ‘Takeoff’ Not Yet Sustainable

Government action will be needed to ensure that nearly two decades of impressive economic growth continues in Cambodia, the International Monetary Fund (IMF) said in a report published Wednesday.

In its 2013 World Economic Outlook, the IMF put Cambodia’s gross do­mestic product (GDP) growth for 2012 at 6.5 percent.

While the IMF has a positive outlook on Cambodia’s economy, its growth figure falls below the government’s stated growth rate for last year of 7.3 percent, a figure with which the World Bank this week concurred.

The IMF also predicts 6.7 percent GDP growth this year, rising to 7.2 percent in 2014 and to 7.5 percent in 2018.

The report singles out Cambodia as an example of a low-income country “takeoff” since the mid-1990s—a period in which Cambodia’s real GDP per capita, the wealth of the population in terms of spending power, grew by an average of 5.63 percent each year.

“Cambodia’s experience underscores the importance of peace and stability as well as that of recent government efforts toward in­vestment and development,” the report says.

The IMF highlighted recent public-private partnerships in power generation and rural development—largely hydropower dams and irrigation canals built by Chinese companies using Chinese soft loans. And it said Cambodia’s open investment climate, com­bined with proximity to dynamic economies, had attracted new foreign investment.

“In fact, there have been promising signs of diversification in the manufacturing sector, particularly through outsourcing efforts by multinational companies that are responding to rising wages elsewhere in Asia, and these will likely increase with improved power generation,” it said.

Foreign direct investment was $1.5 billion last year, and a number of Japanese firms arrived in the country to set up high-tech manufacturing operations.

Amid a flurry of positive economic news recently, Prime Minister Hun Sen said this month that Cambodia will graduate to a lower-middle income country this year and could be an upper-middle income country by 2030.

However, the IMF said Cambodia still had “far to go” in its economic development, and indicated areas where the government would need to do more.

“Sustaining strong growth in Cambodia will require further economic diversification and strengthened macroeconomic policies,” it said.

“Removing infrastructure bottlenecks and improving the business climate will remain critical for attracting private investment and for further diversification.”

The IMF also called for “strong prudential supervision and regulation” to address rapid credit growth-private lending grew by 34.1 percent in 2012—and for the government to address its lack of revenue to make development more inclusive.

“Mobilizing fiscal revenue will help build fiscal buffers to meet the country’s development needs, including human capital development through improved health and education,” it said.

The IMF also said consumer inflation in Cambodia was only 2.9 percent last year, after it rose to 5.5 percent in 2011. The IMF predicted consumer prices would go up by 3.1 percent this year.

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