Cambodia’s Forex reserves to decline in 2020
Poor outlook for Kingdom's foreign exchange earnings. Supplied
The Kingdom’s foreign exchange reserves are expected to decline by more than 10 percent this year given the country’s poor key foreign exchange earning sectors, with tourism and exports being hit hard by the virus outbreak, according to the World Bank.
The bank said strong foreign direct investments (FDIs) inflows and the injection of local currency allowed the central bank to continue to accumulate increased international reserves, which reached $18.7 billion by December 2019 ( 28.3 percent growth year-on-year), covering more than seven months of prospective imports.
Efforts to promote the use of local currency, in Cambodia’s highly dollarised economy by the central bank paid off, the World Bank said. Riels in circulation grew at 31.3 percent in 2019, up from 11.5 percent in 2018, while the riel versus US dollar exchange rate remained stable.
However, like domestic revenue collection, Cambodia’s international reserves position is also projected to shrink this year to $16.8 billion (6.8 months of prospective imports), given the country’s key foreign exchange earning sectors, while FDI inflows are also slowing, the bank said.
“The tourism sector is an important foreign exchange earner, accounting for more than three-quarters of Cambodia’s services exports, and about one-fifth of Cambodia’s total goods and services exports,” the bank said.
The tourism and hospitality industry has faced both a structural slowdown and severe effects from the COVID-19 outbreak.
The demand for tourism and hospitality services, which is the second-largest growth driver, estimated to have contributed about 18.7 percent of real gross domestic product growth in 2019, has largely collapsed in recent months.
Siem Reap, Cambodia’s most popular tourist destination, experienced a 45.6 percent decline in tourist arrivals during the first quarter and a 99.6 percent contraction in April 2020.
Cambodia’s total approved FDI value declined by 52.2 percent in the first two months of 2020, attributed to the global COVID-19 pandemic effect on the appetite for international investment, according to the bank’s report. The majority of Cambodia’s approved FDI projects mainly flow to the local construction and real estate and tourism sectors.
Foreign Exchange Reserves are foreign currency assets held by the central bank of countries. These assets include foreign marketable securities, monetary gold, special drawing rights (SDRs) and reserve positions in the International Monetary Fund. The main purpose of holding foreign exchange reserves is to make international payments and hedge against exchange rate risk.
High levels of foreign exchange reserves have strengthened investor confidence in the resilience of the Cambodian economy.
The National Bank of Cambodia (NBC) reported last year that Cambodia’s foreign exchange reserves have also continued to grow gradually. The report shows that in just the first half of 2019, reserves reached $11.1 billion, which could guarantee 4.9 months’ import cover.
Cambodia’s economy in 2020 is expected to contract by between -1 percent and -2.9 percent because of the pandemic spread, according to the World Bank’s latest economic update for Cambodia.
Credited: Khmer Times
