Logo of Phnom Penh Post newspaper Phnom Penh Post - Economic growth may slow to 6.5% due to EBA, global risks

Economic growth may slow to 6.5% due to EBA, global risks

Content image - Phnom Penh Post
Garment factory workers commute in the evening. The government has predicted that Cambodia’s economic growth will decline to 6.5 per cent next year – down from 7.1 per cent this year – due to global challenges and the possible withdrawal EBA. Hong Menea

Economic growth may slow to 6.5% due to EBA, global risks

The government has predicted that Cambodia’s economic growth will decline to 6.5 per cent next year – down from 7.1 per cent this year – due to global challenges and the possible withdrawal of the EU’s “Everything But Arms” trade agreement.

The prediction was made in a 27-page report – signed by Prime Minister Hun Sen on June 12 and obtained by The Post on Wednesday – detailing the preparation of a draft financial law for next year.

It said increasing uncertainty and global economic challenges put Cambodia’s economy at risk. The Kingdom also faced external challenges, including uncertainty over the possible withdrawal of the EBA agreement by the EU.

It said the factors contributing to a decline in economic growth were the downturn in the Chinese economy, the negative effects of the China-US trade and technology war, uncertainty over US policy, global and geopolitical challenges which could lead to a new cold war, terrorism, security, climate change and natural disasters.

Domestic factors affecting the Kingdom’s economy, the report said, included its narrow economic foundation, slow economic diversification, the high price of electricity, insecure supply and a weak transport and logistics system.

Domestic challenges

Low productivity, unskilled workers, the pressure to increase salaries, complicated procedures, informal business fees and a steep increase in real estate loans were also domestic challenges, the report said.

“Cambodia’s economic growth will be around 7.1 per cent in 2019, but this will drop to 6.5 per cent in 2020. The withdrawal of EBA will exert pressure on Cambodia’s exports, particularly garment exports to the EU market.

“The garment sector will see a healthy growth of about 7.1 per cent this year, but this will decline to 3.5 per cent next year,” it said.

Government spokesman Phay Siphan said the Ministry of Foreign Affairs and International Cooperation and the Ministry of Commerce were negotiating with the EU on the EBA agreement.

“However, we maintain our stance that Cambodia is a sovereign state and will not allow foreigners or any group to interfere with the Kingdom’s sovereignty,” he said.

‘Worse than the government thinks’

Political analyst Lao Mong Hay said that if the EBA agreement is indeed withdrawn, the situation may well be worse than the government thinks.

“The withdrawal may have a snowball effect on the confidence of the industry, which is used to the benefits of the EBA, and companies may move to other countries where they will be better off.

“A slowing economy will create more social problems with the loss of jobs and livelihoods. The new problems will add to the plenty that the government already has on its hands,” Mong Hay said.

He said that despite the government posturing to the contrary, it wants to keep the EBA agreement. One can venture to say that it is trying to make the best of the situation it is in.

“When the time comes, it would be advisable to make a compromise with the EU. This compromise may well include the release of Kem Sokha,” he said.

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