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Cambodia: WB’s economic update paints challenging outlook for Kingdom

The World Bank unveiled its latest economic update yesterday, entitled Weathering Growing Risks, and highlighted regional and global challenges that will, the report suggests, trickle down to affect Cambodia’s growth.

Real GDP growth as reported by the World Bank held steady at 7 percent in 2016 and 2017, jumping up to 7.5 in 2018 – a year described as “exceptional” by the World Bank’s in-country senior economist Sodeth Ly, who cited increased levels of foreign direct investment (FDI) and increased exports to the US as factors involved in the jump.

However, the World Bank’s estimate for 2019 sees Cambodia’s GDP growth drop to 7 percent, with the forecast looking gloomier at 6.8 percent for 2020 and 2021. What is key to remember when looking at these figures is that neither the possible withdrawal of the EU’s Everything-but-arms (EBA) or the Generalised System of Preferences (GSP) in the United States have been factored in on account of the uncertainty at the time of writing.

While stating that neither he nor the World Bank could speculate on the government’s position, Mr Ly did clarify that the government has agreed on a 3 percent fiscal stimulus package if the EBA is lost, although he refused to comment on what punch that could pack for the Kingdom’s economy.

In spite of this disheartening news, Cambodia fares better than most of the region and indeed the globe. Regional growth is projected to decline from 6.3 percent in 2018 to 5.8 percent in 2019, then dropping further still to 5.7 and 5.6 percent in 2020 and 2021, respectively.

The report also highlighted that global growth projections have been downgraded due to rising levels of uncertainty, particularly with regards to the tit-for-tat trade war between China and the US, the wheels coming off the Brexit bus and the Chinese economy slowing more drastically than anticipated.

For Cambodia, where 40 percent of FDI comes from China, the sluggish neighbouring economy will hit hardest – in what may see the Kingdom caught between the pincers of investment-shy Chinese and Europe’s EBA withdrawal. The report also highlighted rising indebtedness, with combined bank and microfinance credit now accounting for over 100 percent of Cambodia’s GDP.

Alas, there is hope – Cambodia’s foreign debt levels show public debt-to-GDP sitting around the 30 percent mark, which the World Bank considers sustainable. Moreover, the easing of GDP growth from 7 percent to 6.8 percent is not sharp enough to be felt too keenly and opportunities for greater regional integration exist in the form of the Regional Comprehensive Economic Partnership.

Andrew Mason, the World Bank’s lead economist for East Asia and the Pacific, warned that we are one shock away from a downturn in the global financial environment, but that through active policy measures and a greater focus on growth-enhancing investments such as infrastructure the region will prove resilient.

For this resilience to weather the growing risks though, Mr Mason urged leaders to manage debt responsibly, minimise risk exposure and resist protectionism. The ability of Cambodia and its neighbours to thrive in such a harsh global economic climate will depend on structural reforms that enhance competitiveness, foster innovation and create an enticing business environment, Mr Mason says.

Source: https://www.khmertimeskh.com/50650068/wbs-economic-update-paints-challenging-outlook-for-kingdom/