Asian Development Bank predicted a GDP growth of 5.3 percent in 2022 and 6.5 percent in 2023 for Cambodia, which rebounded faster than expected in 2021.
According to ADB’s Asian Development Outlook 2022 report, Cambodia, which registered a contraction of 3.1 percent in 2020, posted an estimated three per cent GDP growth last year. The bank cited a robust recovery in external demand for the Kingdom’s manufactured products that led to the robust recovery in the second half of last year.
The bank also praised Cambodian government’s efforts in handling the Covid-19 crisis.
“Cambodia’s authorities continue to implement policies to mitigate the impact of Covid-19 on business revenue and people’s incomes and to support economic growth. The loan restructuring program has been extended to the end of June, and other regulatory forbearance measures to enable banks and microfinance institutions to continue lending are being kept in place. The finance sector remains stable and well-capitalised, but potential rises in nonperforming loans and loan impairments could put pressure on some banks and microfinance institutions.”
The bank also predicted that the GDP growth of the Kingdom would touch 5.3 percent this year and accelerate to 6.5 per cent next year. The growth in the economies of its major trading partners will be a great boost in supporting the strong momentum of Cambodia’s merchandise exports and inflows of foreign direct investment.
“Industry output is expected to grow by 8.1 percent in 2022 and 9.1 percent in 2023. Growth in the garments, travel goods, and footwear segment will be driven by strong external demand supported by the relocation of orders from the People’s Republic of China and neighbouring countries. This growth will also be buoyed by the implementation of the Garments, Footwear and Travel Goods Development Strategy to raise competitiveness in this segment,” it noted.
The report also pointed out that the growth of non-garment manufacturing should reflect expected strong external demand supported by recent free trade agreements with China, Korea and new investment law. Agriculture output is expected to grow at 1.2 percent over the forecast horizon.
Meanwhile, the services sector is projected to rebound to 4.8 percent this year and 6.8 percent next year.
The bank also predicted a rebound in the hotel and restaurant sector, badly affected by Covid-19 in the last two years.
“The recovery in 2022 will reflect a rebound in hotels and restaurants from the contraction of the last two years and continued growth in wholesale and retail trade, transport and communications, and real estate. Reopening the economy and the already remarkably high level of vaccination coverage will allow for a gradual recovery in tourism, which, in turn, will support demand for accommodation, food, transportation, and other in-person services.”
“The growth in services next year will build on the momentum in 2022, especially in the hospitality sector, and will likely be supported by Cambodia hosting the 2023 Southeast Asian Games and the 2023 national election.”
However, inflation is projected to accelerate this year, averaging 4.7 percent on surging energy prices caused by the Russian invasion of Ukraine and broader domestic demand. The pressure on consumer prices is expected to moderate in 2023, when the inflation rate is forecast to average 2.2 percent.
While analysing the positive aspects that helped Cambodia’s recovery in 2021, the bank said, “Industrial output grew by 7.4 percent in 2021. Exports of garments, footwear, and travel goods recovered exceptionally well last year, particularly in the second half. Non-garment manufactured products continued their robust expansion, with exports rising by 30.7 percent. Agriculture exports rose by 19 percent in 2021 on solid growth in cassava, banana, and rubber exports. Restrictions in pig imports to prevent outbreaks of African swine fever and better domestic prices supported the local pig industry. Agriculture output expanded by 1.1 per cent.”
However, some sectors performed badly due to various factors, including the ill effects of Covid-19 and disruptions related to it.
“Fisheries performed worse than expected due to low water levels. Services contracted by 0.4 per cent on a continued steep decline in demand for food, accommodation, transportation, and other in-person services due to the prolonged Covid-19 outbreak and lockdowns.”
The report pointed out that the poor performance of these services was partially offset by stronger growth in communication services and a gradual recovery in wholesale and retail trade and real estate.
However, the country suffered a major setback in the tourism sector last year.
“Restrictions on international travel, which were in place for most of 2021, caused an 85 percent drop in international tourist arrivals,” it said.
ADB also pointed out that the main policy challenge for the country is to sustain the rapid increase in light manufacturing in areas other than garments.
It also said that the current account deficit widened as the imbalance in goods trade rose, but the deficit is expected to narrow this year and next.
The bank noted that inflation was stable in the country, edging up to 3.7 percent year on year at the end of 2021, mainly due to rising energy prices. “Inflation averaged 2.9 percent, the same as in 2020. While high dollarisation levels constrained monetary policy, the National Bank of Cambodia adopted measures to maintain liquidity in the banking system and facilitate loan restructuring to soften the impact of the pandemic and lockdowns on lenders and borrowers and to support economic activity.”
It said the growth in money supply accelerated to 16.3 percent from 15.3 percent in 2020, mainly reflecting increases in foreign currency deposits. Private sector credit growth also accelerated to 24.1 percent from 17.7 percent.
It said slow economic activity contributed to an estimated 7.1 percent decline in domestic revenue in 2021, equal to 21.4 percent of GDP.
“Because of these measures, the general government budget deficit widened to an estimated 4 percent of GDP in 2021 from 3.5 percent in 2020. And as a result, public external debt rose to 35.2 percent of GDP from 34.7 percent. While 2021 saw continuing inflows of foreign direct investment and other capital, the slump in tourism receipts and lower private gold sales, exacerbated by a surge in temporary gold imports, caused the current account deficit to widen significantly. This led to a modest decline in international reserves to $20.2 billion, cover for 7.4 months of imports. The current account deficit for the full year widened sharply to an estimated 45.7 percent of GDP,” it noted.
Meanwhile, the total public external debt is projected to rise to a manageable level of 36.2 percent of GDP in 2022 and 37.1 percent in 2023. It said the government plans to issue bonds in 2022 to help diversify its financing sources. The current account deficit is projected to narrow to 21.5 percent of GDP and 16.1 percent in 2023.
The bank predicted that the goods and services exports would grow by 17.8 percent in 2022 and 18.5 percent in 2023 on strong external demand for Cambodian products supported by a recovery in tourism. “Imports are expected to fall by 7.7 percent in 2022 on high base effects from 2021 before growing by 10.3 percent in 2023. The narrower current account deficit is expected to be offset by capital inflows, enabling an increase in gross international reserves, forecast at $24.9 billion by the end of 2023.”
Talking about the Law on Investment, adopted in October 2021, the bank said, “The law will help attract more domestic and foreign direct investment into manufacturing. The law provides a more comprehensive, transparent, and predictable legal framework to make Cambodia a more attractive investment destination.”
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.
