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ADB raises growth estimate

THE Asian Development Bank said yesterday that it was confident in Cambodia’s growth prospects for the coming year, though it highlighted a number of risks that could threaten its otherwise positive outlook.

The ADB yesterday released its annual Asian Development Outlook report for 2011, predicting Cambodia’s gross domestic product would jump 6.5 percent this year, from its previous prediction for 2011 of 6 percent growth made late last year.

In yesterday’s report, it added Cambodia’s GDP had increased 6.3 percent in 2010, from its previous prediction of 5.0 percent.

Key industries, meanwhile, should remain strong over the coming year, the ADB said.

“Based on our analysis of 2010, and our initial observations of developments in the first two months or so of this year, I think we must continue to be quite bullish on Cambodia’s continued growth process,” said ADB Senior Country Economist Peter Brimble at a briefing yesterday.

The services sector, including tourism, was expected to reach 5.3 percent growth this year. Agriculture was on track for an incremental tick up to 4.3 percent growth. And industry, which includes garments – was expected to grow at 10.8 percent in 2011.

Brimble also noted that Cambodia’s current-account deficit would shrink to 10.7 percent this year from 11 percent in 2010.

These numbers reflect “the very positive signals” coming from early indications of exports for the year, he said.

But behind the numbers, the bank is concerned that rising food and energy prices, a slow global recovery and even ongoing tensions with Thailand could slow the country’s growth.

Inflation in Cambodia this year will climb to 5.5 percent and should remain at that level through 2012, up from 4 percent last year, stated the ADB’s report said.

While the ADB called this level of inflation “manageable”, it did leave open the possibility that overseas trends – such as continued tensions in the Middle East – could ripple out to Cambodia, affecting especially the country’s poor.

The ADB worried that struggling markets for Cambodia’s garment exports, particularly in the United States and the European Union, have the potential to slow the industry.

Brimble also called on the government to find a way to reconcile the gap between its spending and its revenue streams. Expenditures for 2010 equaled 19 percent of GDP, while revenues accounted for only 13 percent. The ADB expects the figures for both spending and revenues to increase this year.

That will leave a budget deficit of 6.2 percent of GDP in 2011, up from 6 percent last year. The difference is usually filled by grants and loans from multilateral and bilateral donors, he said, but there would still be 0.9 percent left for the government to cover by drawing down its deposits with the National Bank of Cambodia.

The 0.9 percent deficit is an increase over the 0.5 percent left over last year.

How the government finances its deficits, is “one of the issues that we need to look very carefully at,” according to ADB’s Peter Brimble.

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