Oil-importing nations such as Cambodia should be first in line to benefit from the oil-price decline provided they swiftly enact reforms to reinvest savings into strengthening fiscal policy and human capital, according to the World Bank.
The World Bank yesterday published its biannual Global Economic Prospects report. According to the report, developing nations are forecast to grow at an average of 5.1 per cent over the next three years.
“In this uncertain economic environment, developing countries need to judiciously deploy their resources to support social programs with a laser-like focus on the poor and undertake structural reforms that invest in people,” World Bank Group president Jim Yong Kim was quoted saying in a media statement.
The bank urged oil-importing nations to use the declining oil price as an opportunity to install fiscal and structural reforms, such as strengthening government accounts, reducing public debt and investing in infrastructure.
“Lower oil prices will lead to sizeable real income shifts from oil-exporting to oil-importing developing countries,” Ayhan Kose, director of development prospects at the World Bank explained.
“Low oil prices present an opportunity to undertake reforms that can increase fiscal resources and help broader environmental objectives.”
According to data collated by the consultancy Rhodium Group and published in the Wall Street Journal, when oil prices were at $71.30 a barrel, Cambodia stood to save $650 million, or 4.2 per cent of its GDP, if prices remained at that level for much of 2015. Crude oil has since dropped further to $44 a barrel.
Hiroshi Suzuki, chief economist at the Business Research Institute of Cambodia, last week told the Post that it would be prudent for the Cambodian government to use the oil-price plunge as an opportunity to stockpile the commodity.
“Based on the Japanese experience, the government role would be to start and to increasing strategic reserve of oil,” he said in an email.
“This strategic reserve could be released at the time of crisis and/or at a very drastic increase of the oil price.”