World Bank Optimistic about Economy
The Cambodian recovery is beginning to take shape with the World Bank projecting that the economy will “expand moderately in the short-term”.
The Kingdom’s economy contracted 3.1 percent last year and is forecast to grow by 4 percent this year under baseline conditions, according to the World Bank.
Economic growth will be buoyed by increased domestic investment, vaccination efforts and fiscal stimulus, the global body said in its biannual country report.
“Cambodia’s economy is tourism-dependent. Regardless of a recovery in domestic tourism after the easing of lockdowns, global tourism is expected to remain below pre-pandemic levels until 2023,” the World Bank said.
Noting that the 2021 budget has boosted domestically financed public investment to make up for losses in foreign direct investments, the World Bank stated increased effort is needed to improve the business climate ahead of the full ratification of the Cambodia-China Free Trade Agreement and the Regional Comprehensive Economic Partnership.
The World Bank found that the industries hardest hit by the pandemic such as construction and manufacturing were characterised by a narrow export base that existed before the pandemic such as in labour-intensive, low value-added goods.
“Global economic recovery, supported in part by the significant US stimulus, will revive trade in goods and could provide an external boost to growth of as much as 1 percentage point on average,” it added.
The global organisation, which is charged with monitoring economic growth and distributing loans in support of national development, noted that Cambodian employment has yet to return to pre-pandemic levels after reaching historic highs in 2019 of 82 percent.
Cambodian employment dipped as low as 65 percent in October before rising to 72 percent two months later.
“The negative impacts of the Covid-19 pandemic on non-farming businesses remain substantial, with weak consumer demand driving losses in business revenue,” the report read.
However, the agriculture sector has remained resilient amid the pandemic with the manufacturing sector showing signs of having “gradually recovered”.
“The easing of traditional manufacturing industries, namely garment, footwear and travel goods, have been partly offset by the newly emerging manufacturing [electrical, electronic and vehicle parts including bicycles] and agro-processing industries.”
Domestic tourism and demand for retail trade have done little to make up for the gap in international exports, according to the report.
A World Bank study revealed 54 percent of Cambodian households had reported a loss in household income during the pandemic.
As a result, authorities have called on housing developers to accept delays on mortgage payments with the loan-to-deposit ratio rising to 120 percent last year, up from 78.7 percent from more than a decade ago.
“The country’s external competitiveness eroded, partly caused by rapidly rising wages – made worse by the dollarised economy – and exacerbated by challenges in doing business and investment climate reforms.”