High level workshop on
"Strengthening the response to the global financial crisis in Asia-Pacific: the role of macroeconomic policies"
Phnom Penh, Cambodia
22-24 June 2010
The Cambodian economy has grown at an average annual rate of 9 per cent between 1999 and 2008, one of the fastest in the Asia-Pacific region. This fast growth was driven largely by an expansion in the garment sector, construction, agriculture, and tourism. However, the country was hit hard by the global financial crisis of 2009. This is not entirely surprising given Cambodia 's heavy reliance on garment exports , largely to the US and EU markets, and on tourism. While these factors contributed to the country's success prior to the crisis, they also made it vulnerable to an aggregate demand contraction in industrial countries, as it happened in 2009 . The financial crisis also led to a sharp decrease in FDI, which was particularly detrimental for the construction sector. As the manufacturing and services sectors contracted, tens of thousands of jobs were lost. The impact of the crisis was also felt in rural areas , where 90 per cent of the poor reside, partly because unemployed urban workers were unable to send remittances to their families in the countryside, and also because of farmers' revenue losses due to lower prices of agricultural commodities. According to the latest estimates, Cambodia 's GDP has grown 0.1 per cent in 2009.
Prior to the global economic crisis, Cambodia 's central government revenues have increased from 8 per cent of the GDP in 1998 to 12 per cent of the GDP in 2007. However, that figure is still low compared to the ASEAN-6 countries, whose central government revenue to GDP ratio averaged 18.6 per cent over the period 1998-2007. Moreover, as a result of the crisis, the country's budget deficit is estimated to have increased from 2.9 per cent of the GDP in 2008 to 6.2 per cent of the GDP in 2009. In light of the country's limited access to domestic financing, Cambodia had to rely on foreign financing to mitigate the impact of the crisis, accumulating around US$600 million, or 6 per cent of the GDP, in foreign debt as of the end of 2008. However, the Cambodia Government is making an effort to avoid non-concessional borrowings in order to keep the overall debt sustainability according to some experts.
The crisis has highlighted various challenges for Cambodia including how to mitigate the impact of economic downturns on vulnerable groups, how to mobilize additional domestic financial resources, how to coordinate macroeconomic policies to make them most effective, how to enhance competitiveness of a country, and what structural reforms should be undertaken to preserve sustainable economic growth into the future. Issues that deserve special consideration include inflation, management of capital inflows, the promotion of investments, trade diversification, and implementation of macroeconomic policies.
The objective of the high level workshop is to provide an opportunity for Cambodia's high level officials, policy makers and experts to conduct a focused discussion of concrete policy options to address these and other challenges facing the country's economy. For that purpose, ESCAP will invite eminent experts and high level officials from key partner countries of Cambodia such as China , Thailand , Viet Nam , Republic of Korea , and India as well as experts from ESCAP, ADB, UNDP, IMF and the World Bank. The workshop will be co-organized by Cambodia 's Ministry of Economy and Finance and ESCAP and will take place in Phnom Penh from 22 to 24 June 2010.
The workshop will address aspects of monetary, fiscal and exchange rate policies that are of particular relevance to Cambodia . While the agenda is currently under preparation by ESCAP and the Ministry of Economy and Finance, topics to be discussed could include the following:
Exchange rate management and inflation control in dollarized economies;
Mobilization of domestic financial resources to create fiscal space;
Banks and financial system regulation;
Investment and Trade;
Mechanisms to mitigate adverse effect of capital inflows;
Enhancing competitiveness of the Cambodian economy;
Searching for a new growth model for sustainable economic growth and its key elements; and
Effective coordination of monetary, fiscal and exchange rate policies.
This workshop is the third activity of a two-year project of ESCAP. It is also in accordance to a recent resolution approved during the 65th session of the Commission, which requested ESCAP to assist members “in building their capacity to make appropriate policy responses that mitigate the impact of the economic crisis, restore growth and avoid future global shocks”.