Logo of Phnom Penh Post newspaper Phnom Penh Post - Vietnam trade figures highlight deficit catch

Vietnam trade figures highlight deficit catch

Vietnam trade figures highlight deficit catch

IF business dictates that spending money is necessary to make money, then Cambodia’s spiraling trade deficit is a case in point. In the short term there is little problem if higher imports of raw materials lead to higher exports, the scenario presented by many economists and trade officials. But the key challenge lies in the fact that Cambodia is currently configuring its economy for longer term deficits that will ultimately put pressure on an already large balance of payments deficit that hit 13.4 percent of GDP last year, among the highest in the region, according to the International Monetary Fund.

Figures for trade with Vietnam released this week highlight the extent of the problem. While Cambodia’s exports to its neighbour in the first five months of this year rose just 3 percent, imports soared 139 percent leading to a trade gap that widened by more than 60 percent to some US$767 million. Given Vietnam is Cambodia’s third-largest trade partner, this is cause for alarm. Certainly skyrocketing imports from a country that recorded 20 percent inflation last month is hardly helping matters – the fact is Cambodia is spending more in Vietnam than any other country except Thailand, a country where prices are out of control, according to the IMF. That’s a bit like doing a significant chunk of your shopping at a store that, far from having special promotions, is instead regularly jacking up its prices.

Meanwhile, with the country’s biggest trade partner Thailand, the deficit jumped 25 percent in the first quarter to $606 million. How sustainable is this?

In terms of the current account, Cambodia is getting away with a widening trade deficit because investment and foreign loan capital inflows have recovered strongly during the recent recovery from the economic crisis.

And with foreign investment in industry booming in Cambodia, these same foreign companies often come with tailor-made export markets. So while this model for development generates capital inflows and demand for Cambodian exports, it also creates demand for raw materials and so far Cambodia has shown it can only supply materials in the rawest sense. Almost all remotely sophisticated components have to be imported.

To reduce pressure on the current account, Cambodia can compensate for the widening trade gap with capital inflows, usually in terms of foreign investment, but that only entrenches a longer term dependence on the import of raw materials which in turn points to the only real solution. Cambodia has to start expanding its ability to produce raw materials and to process them into a usable form, whether it’s silk, cotton, rubber, timber or metals if the reliance on imports is to be reduced in the longer term. This is surely a key goal as industry develops.

So while economists and trade officials are right that rising imports at the moment are a positive sign, in the longer term this burgeoning trade deficit simply cannot continue without harming the current account, which in turn threatens the value of the country’s assets.

MOST VIEWED

  • Ministry orders all schools, public and private, to close for SEA Games

    From April 20 to May 18, all public and private educational institutions will be closed to maintain order and support Cambodia's hosting of the 32nd SEA Games and 12th ASEAN Para Games, said a directive from the Ministry of Education, Youth and Sport. Cambodia will host the

  • Almost 9K tourists see equinox sunrise at Angkor Wat

    Nearly 9,000 visitors – including 2,226 international tourists – gathered at Angkor Wat on March 21 to view the spring equinox sunrise, according to a senior official of the Siem Reap provinical tourism department. Ngov Seng Kak, director of the department, said a total of 8,726 people visited Angkor Wat to

  • Angkor Beer strengthens national pride with golden new look and fresher taste

    Angkor Beer – the "Gold of Angkor" – has a new look, one that is more stylish and carries a premium appeal, as well as a fresher taste and smoother flavour, making it the perfect choice for any gathering. Angkor Beer recently launched its new design, one

  • PM urges end to ‘baseless’ international Ream base accusations

    Prime Minister Hun Sen urges an end to “baseless” foreign accusations surrounding the development of the Kingdom’s Ream Naval Base, as the US has consistently suggested that the base is being expanded to accommodate a Chinese military presence. Hun Sen renewed his calls while

  • Khmer ballet documentary debuts April 1

    A new documentary, The Perfect Motion, or Tep Hattha in Khmer, will premiere to the public on April 1. The documentary film follows two intertwined storylines: the creation of a show called Metamorphosis by the late Princess Norodom Buppha Devi (her very last production) and the

  • Water supply authority assures public shortages over early ‘24

    The Phnom Penh Water Supply Authority (PPWSA) asked for understanding from Phnom Penh residents in some communes where water pressure is weak. They assured residents that all supply issues will be resolved by early 2024, but have suggested that residents use water sparingly in the meantime.