ADB forecasts stronger growth for Cambodia

ASEAN_Investor

Publish date: Wed, 25 Mar 2015, 02:16 PM

Cambodia's economic growth will accelerate in the coming two years due to improving conditions in the US, lower domestic labor tensions and soft global fuel costs, the Asian Development Bank (ADB) said in a report released on March 23.

In its annual report, titled "Asian Development Outlook 2015," the bank estimated that Cambodia's growth will rise from 7 percent last year to 7.3 percent in 2015 and 7.5 percent in 2016. Agriculture, garments, tourism and construction continue to drive the economy, but the country is becoming more advanced in each of those categories and moving higher up global value chains, it said.

"With the stronger performance of the world economy and overall prudent macroeconomic management, the growth prospects for Cambodia over the next two years remain good," Mr. Eric Sidgwick, ADB Country Director for Cambodia, said at a press conference for the report's release.

Growth sectors

Garments form one of the pillars of Cambodia's economy, accounting for nearly three quarters of its total exports, ADB data shows.

Export growth of garments and footwear cooled slightly to 10.7 percent last year due to labor unrest in early 2014. The bank said the situation has eased, but has not ruled out more unrest in the future, which would be a significant source of risk for the economy. In the meantime, output quality is improving.

"Cambodia managed to increase the quality and price of its products, over the years, not just exporting average t-shirts but also high-end garments for more sophisticated consumers," Mr. Sidgwick said.

Cambodia's agricultural sector, another pillar of the economy, saw slow growth last year as a result of flooding and drought damage. The sector increased by just 1.8 percent in 2014, helped along by rising cassava demand from China. At the same time, Cambodians are increasingly milling their own rice, which is "winning international awards for its quality," according to Mr. Sidgwick.

Growth in trading, tourism and real estate contributed 7.9 percent to expansion in services last year. Tourist arrivals were up 7 percent to 4.5 million in 2014. To maximize the sector's economic contribution, measures should be taken to ensure that tourists spend money locally rather than giving it all to foreign airlines and hotels, the report said.

Macroeconomic indicators

Inflation grew in early 2014 due to higher meat prices but the global oil price decline brought it back down. Average inflation was 3.9 percent for the year, while ADB predicts next year will see an average 1.6 percent inflation on low oil prices.

Cambodia improved its tax collection, lifting revenue to 15.7 percent of GDP and expenditure as a ratio of GDP declined. The fiscal deficit, excluding grants, narrowed to 4.1 percent, from around 9.3 percent. The deficit is "broadly stable," ADB said.

Access to credit has improved for private enterprise, which along with money supply grew by about 30 percent last year. The ratio of credit to GDP climbed to 54.6 percent in 2014, from 45 percent a year earlier. This, and increased dollarization, might heighten macroeconomic risks, and requires stronger oversight by the government, the report said.

Diversification

Despite praising the economy, ADB said that Cambodia needs to do more to diversify its industry and exports.

"Cambodia needs to continue to broaden its economic base and diversify sources of growth to support more sustainable and inclusive growth," said Mr. Sidgwick.

The ADB indicated that small assembly in Special Economic Zones (SEZs), including bicycles, car wiring, phone components and packaging is increasing. While this activity is still too small to impact the economy, if it continues to grow at the present rate, it will sustain and diversify growth in a few years, the report said, adding that vocational training is necessary to help this diversification succeed.

"Cambodia needs to worry less about where its export markets are, but needs to diversify its clients and also its products," said Mr. Sidgwick

By Khmer Times

The post ADB forecasts stronger growth for Cambodia appeared first on Asean Investment | Marc Djandji Blog.

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