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Cambodia: Central Bank has limited levers to influence emerging economy
As a pre-emerging to emerging economy, Cambodia has been tagged as a “most at risk” country by the World Bank’s recent economic outlook report. But the nation’s Central Bank has stated they have limited measures to administer independent fiscal policy to combat the recent global economic fallout from strict COVID-19 health measures.
The World Bank has identified Cambodia amongst a group of 25 pre-emerging to emerging economies worldwide and three in the East Asia and Pacific region (Cambodia, Laos PDR and Mongolia) that require urgent assistance to “protect their poor and vulnerable, support businesses and bolster their economic recovery”.
In response, the World Bank has been fast-tracking lines of credit from the International Development Association to provide emergency support to these 25 countries, issuing Cambodia specifically with a $20 million line of credit.
Inguna Dobraja, World Bank Country Manager for Cambodia said, “This fast-tracked financing will help Cambodia confront this unprecedented global health emergency by sourcing much-needed medical supplies and facilities to diagnose and treat COVID-19, reduce the spread of infection, strengthen pandemic response capabilities and shorten the time to recovery for both people and the economy.”
These pre-emerging and emerging economies have been singled out for extra concern during this economic crisis. This is because they are typically characterised by three aggravating economic features during a global economic shock; a large outflow of capital, an overly panicked market and high level of leveraging against creditors that can be forced to withdraw from multiple countries and on mass at once.
In addition to these economic concerns, according to the nation’s Central Bank, Cambodia is also in the position of being a highly dollarised economy, resulting in an inability for the Central Bank to effectively implement independent fiscal policy during such an economic crisis.
The situation was outlined by comments made by the National Bank of Cambodia (NBC) director-general H.E. Chea Serey who wrote earlier this week that all Cambodians should increase their use of the local riel currency to assist the effectiveness of the bank’s ability to effectively stabilise pricing and interest rates.
“While the NBC has implemented measures, their efficiency and effectiveness are limited. This is because the NBC only has access to lower interest rates effective on riels and, of course, cannot have influence over US-issued dollars,” she said.
This is why the Central Bank has been offering loans in riels at a low-interest rate, to encourage Cambodians to take out loans in their local currency. However, even with these policies, loans in riels have decreased from 25 percent in 2016 to 10 percent this year.
“We have no control over the interest rate of US dollars. Whether the Cambodian economy is good or bad is not their [the US Federal Reserve] business. They take care of their people and their economy,” she added.
While some economists have stated that the sheer magnitude of the current shock introduces an unprecedented complexity for reliable and accurate economic forecasting, the Asian Development Bank (ADB) has predicted that the real economic growth of Cambodia will reach 2.3 percent this year, increasing to around 5.7 percent in 2021, according to the newly released report on ADB’s flagship annual economic publication, Asian Development Outlook 2020.
Source: https://www.khmertimeskh.com/50711326/central-bank-has-limited-levers-to-influence-emerging-economy/