Cambodia appears unlikely to meet its target of becoming a high middle-income nation by 2030 and years of gains it has made reducing poverty could be erased by even a modest shock to the economy, according to the latest World Bank data.
World Bank senior country economist Enrique Aldaz-Caroll said Wednesday that the government had done “phenomenal” work reducing the country’s poverty rate. He was speaking at the start of a two-day forum in Phnom Penh on Cambodia’s quest for middle-income status hosted by the Cambodia Development Resource Institute, a local think tank.
The official poverty rate has dropped from 53 percent of the population in 2004 to 20 percent today. But Mr. Aldaz-Caroll warned that even a small drop in per capita consumption of 1,000 riel, or about $0.25, a day would quickly wipe most of those gains away.
“Let me sound the alarm here,” he said. “A small shock of 1,000 riel per person per day would double poverty. We would go back to the high poverty of before; only 1,000 riel,” he said.
While the ranks of the middle class have doubled between 2004 and 2011, those not in poverty but close to it have also grown dramatically over the same period from 35 percent to 56 percent of the population. That, the World Bank economist said, means 3 in 4 Cambodians are still either poor or very nearly so.
Mr. Aldaz-Caroll noted also that more than half the country’s poverty reduction since 2007 was thanks to rising global commodity prices, mainly rice, a chain of events unlikely to repeat itself soon.
Undaunted, the government has set itself the ambitious goal of moving from low income status to high middle-income status by 2030. Based on the World Bank’s definitions, that would mean raising gross nation income (GNI) per capita from $880 today, according to the World Bank’s figures, to just over $4,000.
Mr. Aldaz-Caroll said Cambodia could hit low middle-income status, set at $1,026, as soon as 2015. But even at the bank’s most optimistic projections of steady 8 percent gross domestic product (GDP) growth, he said, Cambodia still would not hit high middle-income status by 2030.
“Even if we were to grow at 7 percent [GNI] per capita, that’s 8 percent GDP growth, the income would still be $3,100. So we wouldn’t yet make it to higher middle income, which is $4,000, and that’s where we got Thailand,” he said.
To put the government’s ambitions into perspective, Mr. Aldaz-Caroll reminded the crowd that only two countries have achieved even an average 6 percent GDP growth over 20 years: China and, more surprisingly, Armenia. Matching that feat would make Cambodia only the third country ever.
“That gives you an idea of the challenge that Cambodia faces,” he said.
To avoid the “middle income trap,” where countries get stuck on their way to high-income status after years of rapid growth, he stressed the need to invest more in three areas especially: infrastructure, education and health. He said no country has maintained high, steady growth without those.
Another key to avoiding that trap will be improving the productivity of the country’s workforce, also a challenge for Cambodia.
Mr. Aldaz-Caroll cited a recent World Bank study of half-a-dozen countries where garment exports were key pillars of the economy, including Cambodia. While matching the other countries in growing its exports, he said, Cambodia’s garment sector, unlike those in the most successful economies, saw little to no growth in salaries and productivity.
“Productivity increased in the other countries, but not in Cambodia,” he said. “The productivity of the garment industry has not increased, and…escaping that middle-income trap means increasing your productivity of labor. So far we’re not seeing that happening, so that’s an alarm.”
But the news was not all bad. He noted that more technologically advanced firms were starting to move to Cambodia, namely Japanese firms looking for a reprieve from rising wages in Thailand.
Setsuko Yamazaki, country director for the U.N. Development Program, said Cambodia was also on the cusp of a demographic dividend, when the average number of dependents in a family falls while the productive, working age population bulges and creates the potential for quicker economic growth.
“So Cambodia has this abundant young people who are in the labor force and expect[ed] to last up to 2038,” she said. “So we have 25 years of good time to invest in the people, invest in the system…so that when the time comes you have the foundation of a mature society.”
It was just last week that the World Bank announced that GDP would likely remain strong at 7 percent both this year and next.
But Mr. Aldaz-Caroll also stressed the need to make that growth inclusive, reaching the poor just as much as the middle class and wealthy.
“Successful countries have been those that have been inclusive,” he said.
“And by inclusive it doesn’t mean that everybody needs to have the same, but it means that everybody has the same chance…equal access to services, to education and good health.”
After improving access to education and health care, he said Cambodia’s next major challenge was to improve the quality of that education and health care. And as those Cambodians started to demand more of those services, he added, the government and economy would have to learn to be more accountable to them.