Lasting recession could set in: IMF [-Add papaya and banana trees and Cambodia's GDP will increase: Trust Dr. Hun Xen on economy]

A farmer plants rice in a paddy field outside of Siem Reap. Agriculture was seen as the one sector that has showed better-than-expected promise, but the IMF warned that fallling prices could curtail growth in 2009. (Photo: BLOOMBERG)

Monday, 09 March 2009
Written by STEVE FINCH AND KAY KIMSONG
The Phnom Penh Post

-0.5%
the IMF’s growth forecast for Cambodia in 2009

The International Monetary Fund has revised its GDP growth forecast downwards for 2009 from 4.75 percent, made in December, to a contraction of 0.5 percent.

IMF recommendations

In its statement released on Friday, the International Monetary Fund made a number of recommendations to the government:

• Larger fiscal stimulus than previously planned should be enacted
• 4.75 percent of GDP should be level of budget deficit to allow for increased spending
• Pro-poor social outlays and safety nets should be the focus of spending
• High-quality infrastructure should receive funding to strengthen competitiveness
• Tax administration should be maintained at the same level to guarantee revenue base
• Enforcement of regulations in the banking sector to safeguard the system

Source: IMF

Forecast points to recession in 2009 and the possibility of economic uncertainty extending to 2010 depending on the state of the global economy, as world crisis bites deeper locally

IN predicting negative growth for 2009, the International Monetary Fund (IMF) said on Friday that adverse economic conditions would likely continue into next year, with Cambodia turning in a worse economic performance than it did during the Asian financial crisis more than a decade ago.

Having predicted 4.75 percent gross domestic product growth in December, the economy is now expected to contract half a percentage point, the IMF said in a statement following a mission to Phnom Penh that ended on Wednesday.

"Negative incoming data from all regions of the world, coupled with a further erosion in investor and consumer confidence and continued turmoil in global financial markets, point to an extremely challenging growth environment in 2009 and 2010," the statement said.

Cambodia has not experienced such low growth for more than a decade, even managing to maintain 1 percent GDP growth in 1997 and 1998 during the Asian economic meltdown, IMF data shows.

Previously, the lowest forecast for 2009 was 1 percent growth, made by the Economist Intelligence Unit last month, a prediction the ruling Cambodian People's Party rejected at the time. Prime Minister Hun Sen a week prior insisted that Cambodia could reach 6 percent GDP growth this year.

Government rejection

Ministry of Finance Secretary General Hang Chuon Naron refused to comment on the IMF's prediction on Sunday. However, Cheam Yeap, chairman of the National Assembly's Finance, Banking and Audit Commission, rejected the IMF forecast.

The Cambodian economy is very dependent on the world economy.

"As a Cambodian, I no longer trust what the IMF says," he told the Post Sunday. "They always exaggerate ... only trust what Samdech Hun Sen says.

"They [the IMF] don't know how to count correctly," he added. "Cambodian people know better, I think."

But Chan Sophal, president of the Cambodia Economic Association, said he thought the IMF's forecast was realistic based on the increasing evidence that the global crisis had reached the Kingdom.

"There is so much uncertainty ... the Cambodian economy is very dependent on the world economy, especially the US," he said, referring to the garment and tourism sectors in particular.

Citing Cambodia's exposure to the global economy, the IMF pointed to a decrease in garment orders from abroad - particularly from the United States and the European Union - a declining tourism sector, reduced Cambodian competitiveness following currency appreciation and a slowing construction sector as the main reasons behind the gloomy forecast.
Agriculture a positive

Agriculture was seen as a sector that had overperformed last year, but the IMF warned that falling prices "may limit further gains".

Commodity reports produced by the Ministry of Commerce show agricultural products have fallen in price this year. Grade-one milled rice has dropped 3.2 percent on the domestic market since January 1, figures showed on Thursday, while mung beans have dropped 5 percent and peanuts more than 25 percent over the same period. Meanwhile, paddy has increased 12 percent.

Agriculture has also been badly affected by border tensions with Thailand and a blockade on cassava and rice that hit traders on the border recently.

The IMF conceded on Friday that "a larger-than-usual degree of uncertainty exists around this [GDP growth] projection" given the global situation. The "highly uncertain" outlook for next year is "hinging critically on global and regional growth prospects", it added.