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Oil increase hits Cambodia

Rising global oil prices could increase the rate of inflation and slow Cambodia’s economic growth this year, according to a highly respected international financial expert.

The Kingdom’s economic recovery has been export-led, particularly through improving the tourism and garment sectors, and therefore could be vulnerable to a global economic slowdown caused by high-cost oil, says International Monetary Fund Asia and Pacific Department senior economist Olaf Unteroberdoerster.

“If the global oil prices stay at current levels, Cambodia’s trade deficit would worsen by about 1.5 percent of GDP relative to our October 2010 forecasts,” he told The Post via email.

Ministry of Commerce statistics show petrol was sold at about US$1.28 a litre at Phnom Penh petrol stations yesterday, up from $1.23 at the end of February, and roughly $1.07 six months ago.

Brent crude traded north of US$115 a barrel on the London-based ICE Futures Europe Exchange yesterday.

It traded near its highest price in two weeks as the alliance enforcing a no-fly zone over Libya prepared to attack Muammar Gaddafi’s ground forces.

Rising oil prices could dampen the Kingdom’s growth prospects, particularly if the increase is protracted and leads to a global economic slowdown, according to Unteroberdoerster. “Higher fuel costs tend to spill over to other prices, notably food and transportation, which make up a significant share of consumption in Cambodia,” he said.

Inflation stood at about 3 percent year on year in January – a low level historically, he said.  However, higher oil and food prices were likely to become more apparent in coming months.

“Against this background, it will be important for policy makers to maintain prudent monetary and fiscal policies and move away from the current easing bias in the event that inflation pressures firm,” he said.

Garment Manufacturers’ Association in Cambodia Secretary General, Ken Loo, said the industry would be hit by rising fuel prices, as would any large importing or exporting sector.

Suzuki Hiroshi, CEO at the Business Research Institute for Cambodia, also raised concerns that rising oil costs could lead to price inflation.

“Inflation is one of the important points for the Cambodian economy this year,” he said. However, he added that Cambodia faced lower inflationary pressure than other nations such as China, India and Vietnam.

National Bank of Cambodia Director General and spokeswoman Nguon Sokha said inflation rates were manageable compared to neighbouring countries. “Presently, we are very carefully checking changes [in global oil prices] and how they will impact our inflation and economy,” she said.

ADDITIONAL REPORTING BY JEREMY MULLINS AND BLOOMBERG

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