Cambodia solid, but vulnerable: World Bank

Garment production will contribute to a predicted increase of seven per cent in Cambodia’s GDP in 2014 and 2015, the World Bank says. Photograph: Tracey Shelton/Phnom Penh Post

17 January 2013
By Daniel de Carteret
The Phnom Penh Post

Although the World Bank has cut its estimate for global growth this year, a report released on Tuesday shows its prediction for GDP growth in Cambodia remains consistent at 6.7 per cent.

The World Bank predicts a continued Cambodian GDP increase of seven per cent in 2014 and 2015.

“Growth prospects in Cambodia are based on achieving the dividends from a focus on higher rice production, inflows of FDI into the growing garment industry and a growing tourism industry,” the World Bank says.

This growth is not without risk, however, as the East Asia Pacific (EAP) region remains vulnerable to a deepening of the European crisis and financial tightening in the US — scenarios that could threaten EAP countries’ exports and capital flows into the region.

Aligned with the World Bank prediction of 6.7 per cent growth, Hiroshi Suzuki, head of the Business Research Institute of Cambodia, says the Kingdom is making efforts to reduce its reliance on the US and Europe by diversifying its export mix and trading partners.

“The weak export of garments to Europe and the US could be mitigated by the export of automobile parts that are now produced by Japanese manufacturers such as Minebea, Sumitomo and Yazaki to Japan and neighbouring countries,” Suzuki said.

Ngoun Sokha, director general of the National Bank Cambodia (NBC), is confident that Cambodia’s banking system is largely insulated from the uncertainties of the global financial system.

“The banking system in Cambodia isn’t really integ-rated with the international financial system,” Sokha said.

“Our bank relies on our own capital and on [Cambodian banks’] deposit collection for issuing credit and their operations, so they don’t rely much on capital from Western countries, especially the euro zone.”

Speaking to the Post last month, IMF country director Faisal Ahmed was confident the steps taken by the NBC would reduce the impact of the global downturn.

“Despite the global slowdown, Cambodia’s economic performance has held up well, driven by resilient exports, robust tourism and construction, with growing signs of economic diversificat-ion,” Ahmed said. “We welcome the increase in reserve requirements, an important first step to safeguarding financial stability and the NBC’s over-all improvement in banking supervision.

“As in any rapidly evolving financial system in a developing country, managing financial deepening — including through moderating rapid credit growth and continued strengthening of financial sector supervision — will remain important.”

As reported by the Post on January 10, the International Monetary Fund also has concerns about Cambodia’s vulnerability to global and dom-estic uncertainties.

“The outlook is subject to considerable risks, stemm-ing from the fragility of the global economy and a range of domestic factors, including potential labour market instabilities and extreme weather,” a January IMF report states.

Cambodia and its neighbours are also sensitive to China, where the World Bank says an abrupt winding-down of high investment rates could lead to the tightening of credit conditions.

The Cambodian government’s projection is higher than the World Bank project-ion at seven per cent for 2013.

Sokha said the Cambodian economy had demonstrated its resilience by its performance during the Asian economic crisis and the more recent global financial crisis.

“Our growth prospects will continue to be based on the four pillars of the economy: agriculture, construction, tourism and government production,” he said.

“In addition to that, our specification of our panel in investment and trading platforms will also contribute to maintaining macro-economic stability.”

The World Bank attributes a downturn in 2012 across the EAP region to a slowdown in external demand, but predicts improving domestic demand and more stable global financial conditions will drive solid growth year on year across the region.

The World Bank also said Cambodia might look to reduce its debt among state-owned enterprises, which may affect potential growth.