IMF says Kingdom’s GDP growth now less than 6%

Friday, 09 December 2011
Don Weinland
Phnom Penh Post

The International Monetary Fund yesterday said Cambodia’s gross domestic product for 2011 would grow at slightly less than 6 per cent, a decline from the 6.7 per cent projection announced in October.

In addition, the IMF said the country’s 35 per cent credit growth could approach unsafe territory if left unchecked.

The latest overall GDP outlook was subject to further evaluation given flood damage and the volatility associated with this year’s agricultural output, IMF Asia and Pacific Deputy Division Chief Olaf Unteroberdoerster said yesterday.

A better barometer for the Kingdom’s economic performance was non-agricultural GDP, which the IMF said would increase at 7.5 per cent this year, the highest rate in four years.

The less than 6 per cent figure given by Unteroberdoerster came during questions from the media and was not a part of an official statement given by the IMF at yesterday’s event, an annual discussion on Cambodia at the IMF’s headquarters in Phnom Penh.

Continued increases in exports, tourist arrivals and domestic demand, particularly in real estate, and agricultural recovery, supported an overall national recovery from the 2009 global economic crisis, Unteroberdoerster said.

The IMF’s reassessment is not surprising given the unfavourable economic news in Europe and the United States, Kalyan Mey, a senior advisor to Cambodia’s Supreme National Economic Council, said yesterday.

But such GDP projections still carry with them a high level of uncertainty, he said.

The projection is, however, a sign of tougher economic times at home and abroad, he said.

“It’s a good sign for everybody to know that the economy here and anywhere in the world is not so good. So it’s time to tighten your belts,” Kalyan Mey said.

This was the third IMF GDP outlook figure for Cambodia this year.

A stable real estate sector and increased agricultural production saw an upgrade from 6.5 to 6.7 per cent in October.

The World Bank lowered the projection from 6.5 percent to 6 per cent last month, but was rebuffed the following day when Hun Sen blasted the bank for its downgrade and predicted 6.4 per cent growth for the Kingdom. The government had previously forecast 6 per cent. The Asian Development Bank upped its projection from 6.5 to 6.8 per cent this year.

The premier said GDP would grow by 8.7 per cent in September.

Rapid credit growth – a risk recently noted by financial rating services – was one of several issues touched on yesterday by the IMF.

“We think this is about to reach Cambodia’s speed limit for credit growth,” Unteroberdoerster said.

Credit spending grew at an annual average of 35 per cent between 2002 and 2007, he said.

The 2011 average is expected to hit the same level, sparking fears of systemic risks, as well as reinforcing inflation which the IMF said will grow by 5.7 per cent.

Credit growth hit 80 per cent in 2007 but declined to about 29 per cent in 2010, Moody’s analyst Christian de Guzman said, citing National Bank of Cambodia figures.

Still, Cambodian banks rated by Moody’s continued to have concentrated exposure to the export sector, which could lead to the deterioration of asset quality if Western economies continue to decline, he said.

“In short, the risks from rampant credit growth are not as large a worry as they were previously, but do pose a risk nonetheless,” de Guzman said.

The IMF said the introduction of a credit bureau would contribute to better risk management by banks.

The IMF projected 7.25 per cent GDP growth for 2012 and up to 8 per cent in the medium term.

The World Bank said Cambodia’s GDP would grow at 6.5 per cent in 2012 and 2013.