IMF Says Economy Grew 13 Percent in 2005

The International Monetary Fund and the government now es­timate that Cambodia’s GDP grew an astonishing 13.1 percent in 2005, up from 9.5 percent in 2004, making 2005 the best year for the economy since 1991.

The GDP growth figure is more than double the 6 percent growth predicted for 2005 by the IMF in June 2005. In 2004 the IMF predicted that the 2005 GDP figure would be just 2.3 percent.

The new growth estimate is also significantly larger that the 9.8 percent estimate made by the government last month. The second best year for Cambodia’s economy was 1999, which saw 12.5 percent GDP growth.

“This is excellent news,” IMF Country Representative John Nelmes wrote in an e-mail Thurs­day.

“The main factor is significantly higher agricultural production, paddy rice in particular. After a rather weak year in 2004 due to drought, agriculture crops are estimated to have bounced back by 27 percent, owing to excellent weather conditions, and government measures such as rural irrigation,” he said.

Original IMF predictions had forecast a devastating impact from the end of the worldwide Multi-Fi­ber Agreement in January 2005.

Instead of facing unfettered competition from China, Cambodia ben­­efited from protective tariff measures instituted by the US and Eur­o­pean Union, the IMF said in a statement.

Nelmes said that while non-farm sectors also grew at around 11 percent, the increase in agricultural production benefited a wide cross-section of the nation’s poor, who live overwhelmingly in rural areas.

The IMF statement notes that inflation, at 6.75 percent on average in 2005, was high. However, inflationary international oil prices were balanced somewhat by a bountiful agricultural harvest, which lowered food prices.

Nelmes said there was little danger now that the high growth could cause inflationary pressure in the economy, since growth is being driven by supply increases rather than rising demand for goods.

Five percent GDP growth for 2006 is predicted by the IMF and the government, due to a return to “nor­mal” weather conditions, and 9 percent rather than 11 percent non-farm growth.

Commenting on the IMF estimates, Prime Minister Hun Sen told an audience at the Royal School of Administration Thursday that government critics do not praise the government when the economy is strong, but praise the weather.

“When economic growth and agriculture is poor they say the government doesn’t pay attention. But when [they are] good they say it is because the sky is good,” Hun Sen said.

Ministry of Finance Secretary-Gen­eral Hang Chuon Naron said that while the government will not finalize its analysis of 2005 GDP data until June, it believes the 13.1 percent estimation to be close to accurate.

“Weather played a role as did investments in irrigation canals and improved productivity,” he said, adding that the government spent $30 million on irrigation last year.

While international oil prices re­main a key threat to the economy, and influence the conservative 5 per­cent prediction for 2006, Hang Chuon Naron said that 13 percent could be reached again this year.

He said that although Vietnam is poised to join the World Trade Or­gan­ization and gain the same quota-free access to world markets Cam­bodia already enjoys, it will not threaten the economy or de­molish the garment industry.

“When the region benefits, Cam­bodia benefits,” he said. “Already we see more Viet­na­mese tourists in Siem Reap.”

In its statement, the IMF said that good progress has been made in talks between the US and Cam­bodia over its Lon Nol-era debts to the US.

Nelmes and Hang Chuon Na­ron both declined to comment on the ongoing negotiations.

US Embassy spokesman Jeff Daigle said nothing final has been agreed upon and that determining the exact amount of debt, which has accumulated since the 1960s, has not yet been completed.

            (Additional reporting by Yun Samean)

 

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