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Cambodia: Kingdom set for stronger growth: AMRO Report
ASEAN+3 Macroeconomic Research Office (AMRO)’s annual Regional Economic Outlook predicts 6.1 percent GDP growth for Cambodia in 2023
The reopening of the economy and tourism recovery is expected to help Cambodia register stronger growth in 2023, according to the ASEAN+3 Macroeconomic Research Office (AMRO)’s annual Regional Economic Outlook.
Cambodia, which posted a GDP growth of 2.9 percent last year, is expected to grow at 5.2 percent this year, and 6.1 percent in 2023.
Among the Asean countries, only Vietnam, which is projected to grow at 7 percent, and Philippines with an estimated growth of 6.5 percent, are set to register higher growth than the Kingdom next year.
The report observed that the ongoing Russia-Ukraine conflict would have a limited impact on the ASEAN+3 region’s GDP growth this year because of the small exposure to the economies of both countries by the regional economies. The region is expected to post a growth of 4.7 percent in 2022.
However, it cautioned that “an escalation and prolongation of the conflict would pose a downside risk to growth.”
“Now, as we move through 2022, it appears as though the region may finally have gained some ground in its long battle against the virus and we can now look forward to a fuller opening-up and a strong economic recovery,” said AMRO Chief Economist Dr. Hoe Ee Khor.
“ASEAN+3 policymakers will have to be nimble as they navigate this complex environment, strengthen economic recovery, and rebuild policy space. This will not be our last crisis. We must rebuild, and continuously innovate and learn as we prepare for the next crisis,” Dr. Khor added.
While looking back at the economic performance of the Kingdom last year, the review mentioned that the surge in Covid-19 infections in 2021 severely dampened the domestic economic activity. However, the country staged a comeback by posting an estimated 2.9 percent growth last year, compared to a contraction of 3.1 percent in 2020. A strong performance from the agriculture and manufacturing sectors partially mitigated the adverse impact last year, the report pointed out.
The country is set to register good growth this year due to the recovery in several sectors, including the garment industry. “The economy is expected to steadily recover in 2022, supported by the continued expansion of garment and non-garment manufacturing. High vaccination rates have facilitated the resumption of businesses, especially in the services sector.”
However, the recovery in the tourism sector will take a bit more time. “Despite the relatively open borders of Cambodia, tourism recovery is projected to proceed at a slower pace, as it hinges largely on the global pandemic situation and resumption of international and regional tourism.
The report indicated the possibility of an increase in inflation due to higher oil prices. “Inflation remained stable at 2.9 percent year-on-year in 2021 as lower prices for most food items — particularly rice, as good weather resulted in a bumper harvest — offset the impact of increased energy and transportation costs. Inflation is projected to rise in 2022 from higher oil prices, although prices of pork, fish, and seafood are anticipated to decline with a projected increase in domestic supply,” the report said.
Strong external demand, especially from the United States helped the Kingdom post strong exports last year in agriculture, garments and non-garment manufactured products. The imports also bounced back across most major items after the contraction in 2020.
Regarding the current account deficit, it said, “With tourism receipts remaining depressed and remittances low, the current account deficit is estimated to have widened in 2021 to about 40 percent of GDP (20 percent if excluding gold). The current account deficit is expected to have been partially offset by steady foreign investment inflows. Thus, Cambodia is estimated to have recorded an overall balance of payments deficit in 2021, resulting in a reduction in international reserves. Nonetheless, external buffers remain sizeable at $20.3 billion, equivalent to 7.9 months of imports of goods and services as of end-December 2021.”
“Liquidity remained ample in 2021 as monetary policy continued to be accommodative. Credit growth recovered across a broad range of sectors in 2021, rising above 20 percent since May 2021, despite the rise in COVID-19 community cases. NPLs remained low at 2.4 percent, while the reopening of the economy has resulted in the steady decline of restructured loans.”
It said the National Bank of Cambodia (NBC) provided timely and welcome guidance to banks on assessing the creditworthiness and increasing provisioning for restructured loans. Fiscal policy continued to be expansionary in 2021, with the fiscal deficit rising to 9.2 percent of GDP from 5.3 percent of GDP in 2020.
The review pointed out that the government almost doubled its Covid-19 intervention package to $1,291 million, with the bulk allocated to Covid-19 treatment and prevention, while also increasing the budget for cash transfers to the poor last year.
It said the public debt is estimated to have risen slightly to 34.6 percent of GDP at end-2021 from 33.8 percent at end-2020, as Cambodia drew down its fiscal reserves to finance the deficit.
The report also cautioned that the risks of a large outbreak from new virus variants would remain, which could derail the economic recovery.
“Slow and uneven recovery, coupled with economic scarring may adversely affect businesses and households, leading to rising NPLs. Economic damage brought about by the prolonged pandemic may lead to permanent job losses and business closures, potentially resulting in a deterioration in the quality of outstanding loans. It is estimated that NPLs could rise by 1 percentage point from current levels if regulatory forbearance is withdrawn. However, a larger-than-anticipated shock could push NPLs higher, dampening the prospects for economic recovery. Moreover, narrowing fiscal space may limit the government’s capacity to provide support in case of another surge in infections,” it pointed out.
“With government savings drawn down by $1.7 billion to help finance the stimulus budget in 2020–21, government savings that can be tapped for discretionary spending have gone down by almost a third compared to their pre-pandemic level. This steady decline in fiscal savings could limit the government’s capacity to provide counter-cyclical support in the future, particularly given the persistent risk of further waves of infections from new virus variants. The reduction in fiscal revenues relative to pre-pandemic trends has also made it more challenging to rebuild fiscal buffers,” it added.
The report also pointed out that the Covid-19 pandemic has taken the greatest economic toll on the region’s tourism-dependent smaller economies.
“Cambodia and Thailand, in particular, had reaped large benefits from tourism prior to the pandemic—the sector’s contribution to their respective GDPs amounted to more than 20 percent in 2019. However, this contribution shrank sharply to just below 10 percent in 2020. The collapse in tourism led to considerable job losses of about 24 million in the whole region in 2020 — especially in Cambodia and Vietnam, where tourism employment declined by 27.9 percent and 24.7 percent, respectively, compared to 2019.”
“The decline in tourism earnings also eroded the external position of several economies in the region—travel services
exports as percent of GDP fell by more than 7 percentage points in 2020 compared to 2019 in Cambodia, Hong Kong, and Thailand due to the collapse in inbound tourism,” it added.
Source: https://www.khmertimeskh.com/501059468/kingdom-set-for-stronger-growth-amro-report/