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IMF insider talks Cambodia


Olaf Unteroberdoerster, a senior economist at the International Monetary Fund’s Asia and Pacific Department, talked to Post reporter May Kunmakara about the Cambodian economy and the future of growth during the IMF and World Bank spring meetings in Washington.

What is the IMF’s forecast for Cambodia given the current state of its key export markets in the West?

This is one of the reasons why we have lowered somewhat the growth focus for Cambodia to 6.5 per cent this year. It is true that Cambodia remains exposed to the United States and to Europe. One thing working in Cambodia’s favour is that the access to the European market is not yet fully exhausted. So, even if growth in Europe is sluggish, Cambodia can still achieve a reasonably high growth rate because it might capture a lot of market share in the European market. And that’s what we are hearing from garment exporters in Cambodia.

What do you predict for inflation in Cambodia?

We believe that the National Bank of Cambodia should stand ready to normalise its monetary policy stance ... We think that [the low reserve requirement] is just the kind of support to growth that is now no longer needed. Growth in 2011 was very strong. If you [subtract] the impact of the flood on overall GDP growth and just look at non-agricultural GDP growth, it was 7.5 percent – that’s very high. And we also see that growth in 2012 is likely to be fairly robust at over 12 per cent. So it’s important the NBC take a firm stance on its commitment to price stability. We believe that it should be ready to raise reserve requirements and to signal that it is committed to the price stability goal.

What are the main challenges facing Cambodia’s financial sector?

Cambodia’s financial sector has come out of the global financial crisis relatively unscathed. We had seen in 2008 that deposits slowed at some points, and also credit growth slowed, but the banking system had remained relatively strong. And when confidence returns, your credit growth resumes. So these are positive developments, but we also have to be mindful that the banking system is still at the early stage of the development.

What about Cambodia’s current-account deficit?

Our view is that Cambodia’s current account reflects the early stage of development and a need for further investment in the country. And it also reflects the need of funds for the investment and power sector – hydropower plants. Our view is that as long as these investments remain productive and pay off and allow Cambodia to develop, and as long as such finance is [long-term and stable], the current-account deficit does not pose a problem.

What can you say about the Kingdom’s ability to attract foreign direct investment?

What we see is that in the past FDI was mainly in tourism and garments. But what we are seeing now is more diversification and also other manufacturing firms outside the garment sector are beginning to invest in Cambodia. And we expect this trend to continue if Cambodia makes improvements in infrastructure, in power generation, improvements in investing in education and skills in the labour force and continuing the improvement in all governances and service delivery.

How do you see the Cambodian business environment?

We hope that the business climate continues to improve and that these investments will materialise and help Cambodia to grow and catch up in the other economies in the Asian region. We have to be careful when we talk about business climate because we see all the global rankings and Cambodia does not rank very high. But I think we also need to be seeing that the country is moving in the right direction. Cambodia has been doing very well in attracting garment companies and investors. But what we would like to see is more diversifying in the economy. That will help Cambodia be more resilience to shock in the future.

To contact the reporter on this story: May Kunmakara at



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