Cambodia
Date: 5 May 2011
The event will be held in Phnom Penh, Cambodia, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Ros Seilava
Deputy Secretary General
Ministry of Economy and Finance and the Supreme National Economic Council
Douglas Broderick
United Nations Resident Coordinator and
United Nations Development Programme Resident representative
Country briefing note <download pdf file>
Economic growth helped by recovery in garment exports, tourism and agriculture
• One of the hardest hit economies in 2009, Cambodia benefited from a rapid recovery in tourism, a modest rebound in garment exports and higher agricultural output in 2010, when the economy expanded by 6.0%.
• Garment exports grew by 24%. Tourism grew by 15%, with 72% of arrivals coming from Asia . Following a good harvest the volume of milled rice exported almost tripled. The construction sector, however, which contracted by some 40% in 2009, remained subdued due to delays in major property projects.
• In 2011, Cambodia is expected to grow faster at 6.2% as recovery gains hold.
• Government efforts to strengthen trade ties with neighbouring Asian countries need to be accelerated, as a narrow export base with heavy reliance on the markets of developed countries in the West poses significant risks.
• Export items could also be diversified into areas of comparative advantage, including rice, footwear and low-end electronics. The rice harvest, for instance, was reported to have reached nearly 8 million tons in 2010, but suffered from a shortage of processing facilities.
Inflation is picking up amid higher food-oil prices and a weaker dollar
• Inflation picked up to 4.1% in 2010 and is expected to accelerate to 6% in 2011.
• In a highly dollarized economy as Cambodia , a weaker dollar could mean a loss of purchasing power and higher imported inflation from neighbouring countries whose currencies have strengthened against the dollar.
Fiscal balance has improved and revenues strengthened
• Fiscal deficit fell to 5.7% of GDP in 2010, from 8.1% in the previous year when the Government implemented strong counter-cyclical spending.
• Revenue rose to 12.9% of GDP, the bulk of it coming from VAT, excise and import duties. The Government also introduced a tax on property and doubled the road tax on vehicles. Meanwhile, expenditure fell to 18.6% of GDP. Public investment is largely funded by concessional loans from development partners.
• The Government is stepping up efforts on social protection, with focus on free healthcare for the poor, conditional cash transfers and labour-intensive public works.
Financial stability will become more important with the opening of stock exchange
• Interest rate cannot be used as an effective policy instrument due to high dollarization of the economy, but reserve requirement was tripled on 1 January 2011, and bank lending to the real estate sector faced restrictions.
• Credit to the private sector is increasing, and so is the number of banks.
• Financial regulation and supervision needs continuous improvement, especially as the opening of the first stock exchange, expected this year, may raise exposure to volatile capital flows.
• For a dollarized economy, increased exposure to foreign capital flows is particularly risky, since large inflows and outflows will have a direct impact on the money supply and the availability of credit.
Current account deficit remains high, but foreign direct investment is recovering
• Cambodia continued to post large current account deficit in 2010, which rose to 13.4% of GDP, higher than previous year. This was largely driven by the trade deficit, as both imports and exports recovered strongly.
• Garment export to the EU market is expected to increase, under the relaxed rule of origin on LDC preferential tariffs, which came to effect on 1 January 2011.
• The Cambodian riel appreciated slightly against the dollar in 2010, despite the wide current account deficit.
• Foreign direct investment recovered to 5.4% of GDP in 2010 and is expected to rise further in 2011. FDI will be vital in enhancing competitiveness and diversifying the economy.
• Foreign reserves were at $2.7 billion by end-2010, covering 4 months of imports.
Continued effort is needed to address vulnerable employment and poverty
• While unemployment has fallen to pre-crisis levels in many countries in South-East Asia , the formal sector has seen less improvement, as many of the workers who had been laid off were absorbed by the informal sector during the crisis.
• The informal sector, however, suffers from lower productivity, lower wages, poorer working conditions, lower employment protection and minimum levels of social protection.
• This has serious implications not only for poverty but also for future growth.
• Therefore, human resources and skills development—including strengthened education, technical and vocational training and lifelong learning—are vital for sustained dynamism.
• Such efforts will also help to tackle the high youth unemployment.
• Moreover, considering that labour is one of the few assets of the poor, creating more and better jobs will help the poor to earn their way out of poverty.