The Asian Development Bank (ADB) forecast Thursday strong growth in Cambodian exports of goods and services this year but also warned of multiple risks to its outlook for the broader economy.
Risks include ‘potential slower growth’ in major economies like the United States, Europe and China as well as Cambodia’s ‘high level of private debt impacting financial sector growth and the broader economy.’
Other risks include a possible renewed rise in energy prices and adverse impacts from extreme weather, the ADB said in its annual Asian Development Outlook.
According to the outlook Cambodia’s economy is set to grow by 5.8 percent this year and 6.0 percent next year, partly reflecting exports of garments, footwear and travel goods, which have gained momentum since the December quarter.
Robust demand for other manufactured goods should sustain export growth, with industrial output expected to accelerate to 8.0 percent this year and 8.4 percent next year.
RECOVERY IN REAL ESTATE EXPECTED TO BE GRADUAL
‘Construc
tion, however, may see only modest growth,’ the bank said, pointing to the prolonged property sector downturn in China and reduced Chinese real-estate investment in Cambodia.
‘Recovery in real estate is expected to be gradual,’ it said.
On the other hand, the ADB said, further recovery in tourism is expected to fuel growth with exports of services projected to expand 5.4 percent this year and 5.2 percent next year.
Tourist arrivals – especially from fellow ASEAN members – ‘will likely increase, supported by the region’s positive economic prospects.’
‘The recent inauguration of the Siem Reap International Airport will also likely attract more tourists.’
Agriculture is forecast to grow by 1.3 percent this year and 1.4 percent next year, buoyed by rising export demand and domestic consumption – along with free-trade agreements with China, South Korea and the United Arab Emirates as well as Cambodia’s membership of the 15-nation Regional Comprehensive Economic Partnership.
POLICY RATE TO ANCHOR INTEREST RAT
ES WHILE PROMOTING RIEL
Headline inflation is forecast to average around 2.0 percent both this year and next year – if global fuel prices remain stable.
The National Bank of Cambodia meanwhile remains ‘committed to maintaining a stable exchange rate against the US dollar to preserve price stability and public confidence in the Riel.’
Moreover, the ADB noted that the central bank ‘plans to set a policy rate to anchor market interest rates while actively promoting broader use of the riel.’
On fiscal policy, the government’s five-year revenue mobilisation strategy under preparation envisages ‘greater tax administration efficiency rather than introducing new taxes.
‘Spending will align with the government’s Pentagonal Strategy, which prioritizes education and skills development along with expanding health-care coverage and social assistance for the poor and vulnerable.’
ON TRACK TO GRADUATE FROM LEAST-DEVELOPED-COUNTRY STATUS
The bank noted that Cambodia met the criteria for graduating from the UN category
of ‘least-developed-country’ (LDC) for the first time in 2021.
According to the latest UN review, held very three years, gross national income per capita is now US$1,590 – above the threshold of US$1,306, and the human assets index is 77.8 points – above the 66-point threshold.
But the economic and environmental index is only 24.1 points, below the 32-point threshold.
Cambodia is nevertheless ‘well-positioned to pass its second consecutive triennial review this year, potentially graduating out of the LDC category in 2027,’ the bank said.
LONG-TERM BENEFITS . . .
By sending positive signals on Cambodia’s development and stability, graduation from the LDC category is expected to attract higher foreign direct investment and stimulate faster growth.
‘Graduation may also accelerate economic diversification, reducing reliance on a few products and markets,’ the bank said.
‘Preparing for graduation often involves strengthening institutions and capacity, leading to more effective governance, policy implementat
ion, and resilience to external shocks.’
. . . COUNTERED BY SHORT-TERM CHALLENGES
But loss of trade benefits – like duty-free privileges and lenient rules of origin – ‘will impact several key exports,’ the bank warned.
Exports likely to be notably affected would be shipments garments, footwear and travel goods to European Union, which accounted for 12.7 percent of all exports last year.
‘Graduation will also reduce official development assistance (ODA), an important factor contributing to the past decade of high growth and development,’ the bank said.
Source: Agence Kampuchea Presse