Painting an ominous picture of the economic situation in Cambodia, officials at the World Bank said Tuesday that Cambodia would experience the strongest decline in GDP growth for 2009 out of any country within the East Asian and Pacific bloc.
The World Bank predicted the country’s economy in 2009 would contract by 1 percent, which would mark an 11.2 percentage-point decline compared to 2007.
The new projection by the Bank comes just weeks after both the International Monetary Fund and Economist Intelligence Unit also forecast a recession in the country, putting even more pressure on the government to possibly reassess its current prediction of 6 percent growth this year.
“Low-income countries are likely to suffer the most from the crisis,” said Vikram Nehru, chief economist for the East Asia and Pacific region at the World Bank. “The countries with less-diversified economies will suffer a lot [as] the governments have less fiscal space” in which to operate.
He added that poorer countries would probably strain the availability of resources coming from organizations like the IMF but that recent commitments from G20 leaders in London to provide the IMF with $1.1 trillion in new funds, aimed at reviving trade among developing nations, would alleviate some of the pressure.
According to Stephane Guimbert, Cambodia country economist for the World Bank, the main reason for the bleak prediction is the stark decline in Cambodia’s garment and tourism sectors. According to the Bank’s April report entitled “Battling the Forces of Global Recession,” export growth from the garment sector declined by 6 percent in February, occupancy rates inside major hotels have fallen to well below 40 percent and “construction and real estate have also weakened considerably.”
Cambodia has also seen dramatic increases in its levels of debt, which now sits at 15 percent of GDP, according to the report.
Current assessments are a contrast to those in 2008, when some analysts predicted that developing nations like Cambodia would be sheltered from the economic downturn due to a lack of access to credit and limited exposure to toxic assets.
But now “the impact of the crisis is being felt completely by the private sector” here and “financing is falling off, resulting in a shedding of labor and reduced production,” said Ivan Izvorski, lead economist for the East Asia region for the World Bank.
Throughout the current turmoil, many policy makers and government officials have stated that agriculture would act as Cambodia’s economic savior, a safety net for those who lose their jobs in the manufacturing and garment sectors.
“Agriculture is the main factor for our economic growth, and it must be a nationwide effort,” Prime Minister Hun Sen said last month in response to the IMF’s prediction of a 0.5 percent contraction of the Cambodian economy.
But Nehru said Tuesday that although agriculture was important, it was “unlikely” to prevent a decline in Cambodia’s GDP.
Guimberg said that the Bank has only had three or four months to develop an accurate picture of GDP and that the margins for error in such reports were rather extensive, explaining the wide range of forecasts being cited by analysts and commentators.
What is more important, he said, is how Cambodia reacts to the current problems in helping to defy further poverty and unemployment within the population.
“While the poverty rate for the region as a whole will still decline, Cambodia, Malaysia, Thailand and Timor-Leste are projected to experience absolute increases in poverty as a result of retractions in per-capita income,” the Bank said in its report.
Tim Conway, poverty specialist for the World Bank in Cambodia, wrote as part of a response by e-mail: “The downturn is resulting in lay-offs in the garment and construction sectors; in tourism, it is likely that the effects will be [felt] more in terms of lower incomes rather than lay-offs. As people in these urban sectors lose their jobs or see incomes contract, there will be less money sent back to rural areas. Cambodian workers overseas may also be forced to return home. All of this will have an effect on living standards and poverty.”
He added that in the same way that poverty has improved over recent years of growth-the poverty rate fell from 35 percent to 30 percent between 2004 and 2007-it could get worse as the economy slows.
Looking to the future, Izvorski urged people to think first and foremost of the poorest members within society.
“What will happen when you are set for a much slower economy? How do you cope? How do you deal with reduced expectations?” he asked. “Can you maintain social cohesion?”