Cambodia will slip into a recession in 2009, with GDP projected to fall by about half a percentage point into negative territory, a representative for the International Monetary Fund said Friday. That gloomy prediction represents a significant drop from the 4.8 percent GDP growth the IMF predicted late last year.
“The downward revision mainly reflects the impact of the unrelenting and deepening global recession on Cambodia’s main drivers of growth: tourism, garment exports and construction,” IMF Country Representative John Nelmes said in an e-mail Friday.
His comments were based on the findings of a US IMF delegation that visited Cambodia and met with government officials here from Feb 25 to Mar 3.
The projected 0.5 percent drop in GDP lies in stark contrast to the 6.5 percent growth the IMF estimated Cambodia achieved in 2008, and the 10.25 percent GDP growth in 2007, a downward trend that the IMF attributed to the global economic crisis.
In December, the Asian Development Bank predicted that Cambodia’s GDP would fall to 4.7 percent in 2009, while the World Bank put growth at 4.9 percent.
But the IMF has now forecast that Cambodia’s economic performance in 2009 could be even worse than its most recent negative-growth prediction, Nelmes said.
“Unfortunately, given the severity of the global crisis, the risks for Cambodia’s growth this year remain on the downside, despite the large downward revision,” he wrote in the e-mail.
Nelmes went so far as to speculate that the global GDP could fall in 2009.
“This reflects the impact of the severe credit crunch, massive wealth destruction, sharply mounting job losses, historic declines in confidence, and more recently very sharp declines in global trade volumes,” he wrote.
A recession on a global scale would mean decreasing consumer demand, which would further harm Cambodia’s already struggling garment exports, Nelmes said.
During a presentation in February, Secretary-General for the Ministry of Finance Hang Chuon Naron said that garment export growth decreased by 2 percent in 2008 after growing by 15 percent between 2002 and 2007.
“Moreover,” Nelmes continued, “The global recession and fall in disposable incomes is projected to feed through into a fall in tourism in Cambodia.”
There are already strong signs that Cambodia’s tourism industry is suffering.
In January, Angkor Archaeological Park announced that it posted a $2.7 million loss in ticket revenues in 2008, as visitors to Angkor Wat fell by 50,000 from 2007 figures.
To address the deteriorating economic situation, the IMF recommended on Friday that the Cambodian government allow its budget deficit to rise to 4.75 percent of GDP to combat worse-than-expected economic losses, an increase from the fund’s November recommendation of 3.25 percent deficit spending.
According to Nelmes, the government ran a 2.2 percent budget deficit in 2008.
“Our advice to the government has been to provide additional fiscal stimulus to help cushion the downturn…. The key is higher spending, while not backsliding on revenue administration,” Nelmes said.
He added that, “The spending should be focused on well targeted social safety nets, and high quality infrastructure projects. This will be much more effective in supporting the economy than would lower taxes.”
Hang Chuon Naron said Friday that he could not yet comment on the IMF’s statement or the government’s plans to address it.
Cambodian Economic Association President Chan Sophal said by e-mail Friday that he agreed with the IMF’s dismal predictions for the country’s GDP, adding that, “I agree that the risks are on the downside…. I fear that the worst is yet to come.”
However, some financial experts were skeptical of the IMF’s projections.
“I am not so pessimistic,” said Kang Chandararot, head of the economics unit at the Cambodian Institute of Development Study, when contacted by telephone Friday.
He said that Cambodia’s GDP depends on two factors: the agriculture sector and international donor contributions. “So far this year, we have seen a good season in agriculture, and we have seen subtle increases in aid.”
Tal Ny Im, director-general of the National Bank of Cambodia, said that although she had no comment on the IMF’s findings, she suspected that they were based on a “worst-case scenario.”