Cambodian has joined the ‘Olympians of growth’, the World Bank stated in its October Economic Update. Growing at an average of 7.7 per cent per year over the past two decades, the World Bank says Cambodia is the sixth-fastest growing country in the world over that period.
Dr Hing Thoraxy is a secretary of state at the Council of Ministers and a senior researcher at the Cambodian Institute for Cooperation and Peace, where he lectures on Cambodia’s economic development. The Post’s Hor Kimsay sat down with Dr Thoraxy this week to talk about the Kingdom's rapid growth over the past 20 years and the challenges that lay ahead.
Do you think the World Bank’s labelling of Cambodia as an ‘Olympian of growth’ is an accurate assessment of the Kingdom’s economic development?
What we can’t deny for Cambodia’s improvement during this period is that the county has maintained good political stability and macroeconomic stability.
Looking at the country’s economic performance, we can see that Cambodia has had a GDP growth rate in double digits every year for the last two decades, except in 2008 and 2009 when we were impacted by the world financial crisis.
In terms of the macroeconomic point of view, in addition to the strong GDP growth rate, Cambodia has a stable inflation rate in between 3 to 4 per cent annually, stable currency exchange and noticeable improvement of public investment in to roads, bridges and other infrastructure.
What are the main drivers of Cambodia’s rapid growth?
The opening up of Cambodia to welcome the world has been one big help. Big capital from abroad on official development assistance (ODA) and foreign direct investment (FDI) has helped Cambodia a lot.
After the Paris Peace Agreement in 1991, many foreign countries started to contribute funding for Cambodia’s infrastructure development. It was about $200 million to $300 million per year in the first few years, and expanded to about $500 million per year from 2005 to 2007. Since 2008 until now, money of ODA from abroad has expanded to nearly $1 billion annually. All ODA is used mainly for infrastructure development and this helps to attract foreign investment in to the Kingdom. Now the actual FDI flow to Cambodia is about $700 million to $800 million per year.
Strong economic development is positive, but it is important to ensure equitable growth. Is inequality a problem in Cambodia?
Regarding Cambodia’s current situation, I don’t think it is a big issue. If one just compares a few rich families in the city to few poor families in rural area, he or she might say there is big gap of development. But, if we talk about inclusive growth, we should look at Gini Index, an indicator that measures inequality or represents the income distribution of a nation’s residents.
In comparing the average income of the richest people from 20 families and the average income of poorest people from 20 families, Cambodia’s GINI ratio is 12.2 per cent. And comparing 10 families, the ratio is 7.3 per cent. This is a good ratio, reflecting that the development gap in Cambodia is not serious.
What are the challenges you foresee for Cambodia’s economic development?
Some major challenges are the high electricity cost, a lack of infrastructure, and quality human resources are still what the government needs to develop.
What about the level of government debt, are you concerned about this?
Up until 2014, Cambodia government debt is at $5.5 billion, amounting to about 32 per cent of GDP. It should be very much of a concern when debt is more than 40 per cent of GDP.
So far our government debt is used for infrastructure development which is a backbone for the country’s development. Most of our government debt is soft loan – lowest interest rate.
For this year, after calculating revenue and expenses, and including interest rates we have the ability to pay back about $100 million, which will not affect the national budget. When the deadline for repayment arrives, we are managing this and we have the ability to pay back our loans. So the current national debt is manageable.