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Mixed reactions over 2020 outlook

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Cambodia’s garment sector – the main pillar of its economy – is actively seeking ways to offset the impact of the EBA removal. Heng Chivoan

Mixed reactions over 2020 outlook

Reactions to Cambodia’s economic and political outlooks for this year have been mixed as the possible loss of the EU’s Everything But Arms (EBA) scheme in February looms.

The risks and challenges related to the uncertainty over the possible withdrawal of EBA and the country’s heavy reliance on capital inflow could dampen growth prospects.

However, government officials and representatives of the private sector have expressed optimism that the economy will continue to grow this year. They have urged the government to further diversify the economy.

Hong Vannak, a business researcher at the Royal Academy of Cambodia, acknowledged that EBA removal would hurt the Kingdom’s economy.

He told The Post that the government had put safeguards in place to minimise the impact and preserve economic health.

“We cannot deny” the impact that EBA withdrawal will have on the economy. “We stand to lose nearly $1 billion in tariffs to the EU market.

“The government already put in place the proper reforms to mobilise revenue. We will have another source of revenue in the form of oil, of which the first drop will be extracted by mid-2020,” said Vannak.

Offsetting the costs

Cambodia currently depends on its garment and textile sector for economic growth. The sector employs more than 700,000 workers across the Kingdom.

Transparency International (Cambodia) senior programme director Pech Pisey said Cambodia’s economy depended largely on the construction, garment and service sectors and that EBA withdrawal would land a blow to the Kingdom’s economic growth.

However, he said, the government can offset the costs incurred by the loss of EBA by reducing the unofficial cost of doing business in Cambodia and stamping out corruption, which have been a long-time burden for the industry.

“The government should also diversify the economy, strengthen competitiveness and improve productivity. To attract more investments, the government should also revisit the Investment Law and make necessary amendments to it,” said Pisey.

He said the increase in tax revenue last year is also a good sign as it enables the government to be financially self-sustained.

Cambodia exported more than $7.97 billion worth of garment, textile and footwear products in the first nine months of last year – up 13.18 per cent year-on-year from $7.044 billion – a report from the Ministry of Economy and Finance’s General Department of Customs and Excise said in mid-November.

Most of the exports went to the US and the EU markets. Government officials have said that under EBA, the Kingdom saves more than $700 million per annum in tariffs exporting to the bloc.

‘We still have potential’

The EU has repeatedly called on the government to restore democracy and human rights, and drop all charges against former leaders of the Supreme Court-dissolved Cambodia National Rescue Party.

It also wants the party to resume its operations – all these in exchange for keeping the EBA scheme.

However, Vannak said the government appears to stand firm as its position is clear on the issues, and the Ministry of Economy and Finance is prepared in the event the EBA is withdrawn.

“We still have a lot of potential sectors and all kinds of investments to support economic growth,” he said.

However, Garment Manufacturers Association in Cambodia president Van Sou Ieng told The Post that Cambodia’s economy will not suffer much, as the Kingdom’s garment sector – the main pillar of its economy – is actively seeking ways to offset the impact of the EBA removal.

“I would dare say that our economic situation will remain good in 2020. We are now trying to solve the issue by reducing production costs and increasing productivity.

“Our logistics costs are too expensive compared to Vietnam and Thailand, which makes us lose out in terms of transportation,” Sou Ieng said.

International Monetary Fund (IMF) senior economist Jarkko Turunen said in its latest Regional Economy Outlook published late last year that the Cambodian government is proactively addressing economic risks and uncertainties through a structural reform plan aimed at improving competitiveness and diversification.

He said a government project is currently in the works to address spending on job creation, human capital development and infrastructure spending.

Cambodia’s economic growth is projected to be highest in the Asean region despite facing several challenges, the IMF said.

The IMF and the World Bank have both predicted that the Kingdom’s economic growth will ease to 6.8 per cent this year.

The World Bank Global Economic Prospects report last week said Cambodia’s domestic demand will continue to benefit from generally supportive financing conditions, amid low inflation and robust capital flows.

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