Logo of Phnom Penh Post newspaper Phnom Penh Post - Economy still on track: World Bank

Economy still on track: World Bank

Phnom Penh’s skyline photographed in 2016.
Phnom Penh’s skyline photographed in 2016. Hong Menea

Economy still on track: World Bank

Despite better than predicted overall growth for global economies, the World Bank has slightly downgraded its 2017 forecast for Cambodia due to wage and price concerns in the Kingdom’s the garment industry as well as uncertainty surrounding next year’s national election.

In its East Asia and Pacific Economic Update released yesterday, the World Bank predicts the Cambodian economy will grow by 6.8 percent this year, down slightly from the 6.9 percent it forecast in May. It attributed the slightly lower growth projection to the rise of “real” wages in the garment sector, declining export prices and pre-election jitters.

“Textile product exports growth decelerated to 5.4 percent year on year in the first half of 2017, compared with 8.4 percent in 2016,” the update said.

While the report was broadly positive, highlighting that concerns of an overheating credit market had been curbed as credit growth slowed to 18.2 percent by the middle of the year, compared to 25.8 percent at the same point in 2016. It noted that deposit growth remained strong, with total deposits in the banking sector increasing by 20 percent year-on-year.

The report, however, noted several downside risks including “a sharp slowdown in the Chinese economy and potential election-related uncertainty”.

Sudhir Shetty, World Bank Chief Economist for the East Asia and Pacific region, said that while he could not comment directly on concerns over the election, he suspected these uncertainties could hamper investment.

“Uncertainty is generally not seen as good for the flow of foreign investment and a worsening of the political sphere could hinder investment going forward,” he said.

Shetty explained that for Cambodia to continue its strong growth path the Kingdom’s $6.5 million garment sector would need to build on its export success by producing higher value-added products.

“There is overdependence on the garment industry with Cambodia’s export market being primarily built on garments, and clearly as wage rates rise and the US dollar appreciates against other currencies, it tends to weaken Cambodia’s competitiveness,” he said. “But the challenge for Cambodia is that within the textile industry, it needs to move up the value chain into more sophisticated products.”

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners, said that Cambodia needs to take a longer-term approach that would insulate the economy from any downturn in the garment sector.

“In the longer term, Cambodia needs to shift away from the garment sector, but it can’t happen overnight because it will take many years to build up more productive sectors to compensate for a shrinking garment sector,” he said. “So if you get a meaningful slowdown in the garment sector, you’re going to see a meaningful negative impact on the broader economy.”

Miguel Eduardo Sanchez Martin, senior country economist for the World Bank in Cambodia, added that there were positive signs that Cambodia was successfully diversifying its export economy and that the deceleration of garment export growth was being partially offset by an increase in higher value-added exports.

“The good news is that there are signs of export diversification with new products being exported out of Cambodia that include some automobile, television and bicycle parts and small electrical components,” he said. “What Cambodia needs to keep on working on is remaining competitive and lowering the cost of starting a business.”

Hiroshi Suzuki, chief economist of the Business Research Institute for Cambodia, said Japanese companies operating in Cambodia’s special economic zones (SEZs) were instrumental in helping the country diversify its export basket.

“Now many Japanese companies which are producing high value-added products such as parts for automobile and/or electronics have factories in Cambodia,” he said in an email. “Although the garment sector will continue to keep an important position for at least 10 years, the effort for the diversification is very important for both the government and private sector in Cambodia.”

Cambodia is expected to tick back up to 6.9 percent growth next year, according to the World Bank report.

MOST VIEWED

  • School reopening to be postponed until November

    Minister of Education Hang Chuon Naron on Tuesday wrote to Prime Minister Hun Sen requesting a delay of school reopening across the Kingdom until November, when the new academic year begins. In his letter, Chuon Naron said the postponement is warranted to avoid the new

  • Foreigners in Kingdom must now register in FPCS system

    The Ministry of Interior’s General Department of Immigration (GDI) announced that it would not grant visa extensions to foreigners staying in Cambodia if their names are not listed on the Foreigners Present in Cambodia System (FPCS) by July 1. Foreign nationals can register in the

  • Covid-19 at ‘alarming rate’, health ministry says

    The Covid-19 risk level for individual transmission is at an “alarming rate” in the Kingdom and its probability is “not low”, warned Health Ministry spokesperson Or Vandine. “Cambodia’s coronavirus scenario is classified as being at an early stage of the pandemic because of ongoing

  • Mandatory quarantine for 30,000 workers begins

    Some of the roughly 30,000 workers from factories and enterprises across the Kingdom who went on leave during Khmer New Year began their government-imposed 14-day quarantine on Monday. Speaking at a press conference while visiting workers at the Phnom Penh Special Economic Zone on Monday, Ministry

  • Unemployed to get $40 per month

    The Ministry of Labour and Vocational Training has instructed enterprises, business owners and travel agencies in five provinces to prepare the proper forms for the suspension of employment contracts. This, it said, will make it easier for the ministry to transfer $40 a month to workers

  • Gov’t travel ban flouted

    While the majority of Cambodians have paid heed to Prime Minister Hun Sen’s order to stay put and not travel during the Khmer New Year – the holidays of which were also postponed – several hundred have left Phnom Penh nonetheless. They have allegedly breached provincial

  • G20 energy ministers struggle to finalise oil output cuts

    Top oil producers struggled to finalise production cuts during a virtual summit held by Group of 20 (G20) energy ministers on Friday, despite US President Donald Trump’s mediation efforts to end a standoff with Mexico. The final G20 communique appeared to gloss over simmering divisions

  • Kingdom revises travel restriction order

    The government on Friday eased the district and provincial border restrictions issued on Thursday. People are now allowed to cross districts within their provinces. Phnom Penh and Kandal province are to be treated as a single region where people are allowed to travel freely. In

  • Private schools struggling

    The Cambodian Higher Education Association has claimed that 113 private educational establishments are facing bankruptcy because of their inability to pay rent and staff salaries in light of nationwide school closures caused by the Covid-19 outbreak. It said the financial trouble started when the Ministry of

  • Khmer New Year holidays postponed

    In an effort to halt Covid-19 infections in the Kingdom, Prime Minister Hun Sen has postponed the Khmer New Year holidays scheduled from April 13 to 16. While the people will not have their usual break, nor will there be any public celebrations or gatherings at pagodas,