Logo of Phnom Penh Post newspaper Phnom Penh Post - “Prepare for the worst, hope for the best”

“Prepare for the worst, hope for the best”

Content image - Phnom Penh Post
Usually-placid Cambodians turned alarmists as community transmission occurred in Phnom Penh following the first locally contracted Covid-19 case on November 28, 2020. Hong Menea

“Prepare for the worst, hope for the best”

Just as hope in economic recovery glimmered, local Covid-19 transmission debuted, further stressing the already-troubled path

As the number of Covid-19 community transmission cases inched up in Phnom Penh at the end of November, fear gripped the capital. Up till then, Cambodia had deftly, and with some luck, avoided the scourge of an inland spread that was the bane of the rest of the world.

Within two weeks from November 28, the incident turned the usually-placid population into alarmists, donning masks, and checking temperatures and personal details at entries to doorways, while business outlets closed earlier in the evening, resulting in quiet streets as traffic volume abated.

At the time of writing, 41 locally transmitted cases were recorded although the reporting pace tapered recently, so did the initial panic. Total cases now stand at 362 with 324 having recovered. There have been no fatalities thus far.

But the worst is not over, Prime Minister Hun Sen warned on Tuesday, cautioning everyone to remain vigilant as contact tracing continues.

Contrary to earlier measures where a widespread closure order on premises that encourage proximity was implemented, this time, only schools were shut and large gatherings banned.

Assuming it instituted a state of emergency, the stern advice was perhaps the only viable option to contain the spread without further damaging the distressed economy.

Despite the comparatively small case figures in Asia, Cambodia still suffered the backlash from the pandemic as two of its key economic sectors – garment manufacturing and tourism languish on the ground, beaten by non-activity.

The government expects economic growth to recoil to -1.9 per cent in 2020, somewhat more optimistic than the more austere projections by international financial institutions such as Asian Development Bank’s (ADB) -4.0 per cent that was revised upwards in September.

The World Bank’s latest update in November 2020 saw the economy contracting by two per cent, closely treading the regional forecast of -2.2 per cent by the International Monetary Fund (IMF).

“This year’s growth is the sharpest decline in the Kingdom’s recent history,” Meas Soksensan, spokesman for the Ministry of Economy and Finance reiterated. “But even before community transmissions, the outbreak had decelerated most of our growth engines,” he said.

The hit on the economic sectors only worsened the business activities on the ground although businesses were allowed to operate after brief closures.

The economy is likely to pick up to 3.5 per cent in 2021 from negative growth due to the expected gradual recovery of economic activities, especially external demand and domestic market confidence.

However, uncertainties, like the outbreak of community transmissions, said Soksensan, are risks to recovery.

“To a certain degree, stress has been placed on the economy due to the rising number of community transmission cases, but the level of impact is dependent on the scale and length of the transmission,” he said.

Several health measures were imposed to ensure minimum impact on the economy, and balance out the implications on public health.

“Yet we [could not] assume zero impact on the economy as we strictly enforced the measures because impacts have been witnessed,” he confided.

In the first wave of the global outbreak, Cambodia saw a historical decline in international arrivals but experienced a surge in domestic travel, especially during holidays, which only happened due to the successful containment of the pandemic in the country.

Domestic Covid-19 transmission would discourage local tourists as travel becomes unsafe.

Similarly, some businesses, especially small- and medium-sized enterprises, are facing a decline in sales and revenue due to strict measures and a lack of confidence by the people, particularly in the cities and provinces where the cases have been traced and found.

Likewise, in a survey conducted by the World Bank, most businesses interviewed in June and September continued to face a large, negative impact on sales.

Content image - Phnom Penh Post
Note: Businesses were asked to indicate what happened to sales during the 30 days prior to the interview. Source: Economic Update Nov 2020, World Bank

“The share of firms with a decline in sales over that past 30 days decreased from its June level of 87 per cent but remained high at 71 per cent in September.

“In June, firms reported an average sales decline of 49 per cent, whereas, in September, the average change in sales was less severe but still negative at minus 30 per cent,” the bank said.

Economist Dr Chheng Kimlong noted that the occurrence of community transmission has had some downward spiral effects on the economic growth prospect for 2021.

The protraction of community transmission or the failure to prevent greater outbreaks in other areas or sub-communities in the country will have some “tremendously” negative impact on businesses, travels, and to a larger extent the production and export growth potential.

“Therefore, it depends on the duration and severity of the transmission. If by the end of December 2020, the community outbreak is contained successfully, the incident will not likely affect or disrupt much of the trading activities.

“However, if and only if the containment measures largely fail, a major proportion of trade will likely be damaged, driving down the economy,” opined Kimlong, who is vice president of independent think-tank Asian Vision Institute (AVI).

But Soksensan said despite Cambodia recently having its early stage of community transmission, the fiscal measures formulated including intervention packages were part of the approach best described as “prepare for the worst, but hope for the best”.

“It was in anticipation of the worst-case scenario since the first outbreak in the first quarter of the year,” he said.

The nearly $1.2 billion stimulus package focused on economic, public, and social health intervention but spending is likely to expand to ensure economic recovery.

“It is fortunate that Cambodia still has enough fiscal space and spending capability coming from our savings and budget rationalisation of unnecessary spending,” Soksensan said.

Public external debt stands at 23 per cent of gross domestic product (GDP), which is well below the threshold of 40 per cent of GDP, allowing room for more borrowing if necessary.

Content image - Phnom Penh Post

“These factors enable a budgetary space for Cambodia’s government to spend at its discretion, without undermining the fiscal sustainability if the existing intervention package requires fortification,” he said.

Presently, the government has $538 million to fight Covid-19 and aid the economy – funds that were borrowed from ADB ($250 million), Japan International Cooperation Agency ($238 million) and Economic Development Cooperation Fund ($50 million).

With key economic sectors still stressed, continued aid to affected communities and business sectors is likely to prolong.

According to the World Bank, government support to the affected population came in at five per cent of GDP, calling the increased effort unprecedented.

The broad package included health-related spending and income assistance, equity injections and loan guarantees, development spending, and tax relief.

Cambodia’s limited resources are underpinned by a 14.2 per cent year-on-year fall in revenue collection at 14.3 trillion riel ($3.5 billion) from January to August this year.

Along with a burgeoning cash outlay programme that rose 21.5 per cent to 16.2 trillion riel from the corresponding period last year, it means that the overall fiscal deficit could reach a “record high” of 6.2 trillion ($1.5 billion) this year, the World Bank said.

This deficit represents 5.6 per cent of GDP compared to 0.8 per cent in 2019.

About half of the deficit is expected to be financed by government savings, which stood at 20.2 per cent of GDP at the end of 2019 while the remaining half is expected to be financed through official loans.

“The unprecedented expansion of social assistance will substantially [though not fully] mitigate the pandemic’s impact on the poor and near-poor,” the World Bank said.

But looking forward, the bank said there is significant uncertainty in Cambodia’s growth outlook, identifying the economy as small, open, narrowly-based, and heavily-dependent on capital inflows, mainly foreign investment, and external trade.

It said globally, growing tensions among international powers and the erosion of multilateral disciplines are generating uncertainty that hurt trade and investment flows.

Content image - Phnom Penh Post

Closer to home, an extension of the social assistance scheme beyond the currently planned timeframe would put significant pressure on the budget. But not extending it will hurt the poor and lower domestic demand.

It cited downside risks as being local Covid-19 outbreaks, a deeper and prolonged decline in tourist arrivals linked to a lingering global outbreak and the speed with which a vaccine becomes widely available, and the possibility of more trade tensions and protectionism.

So would Cambodia need to fortify its fiscal war chest to save the economy and her people?

AVI’s Kimlong said in terms of outbreak prevention and containment measures, Cambodia’s effective strategies and key success stories showcased its governance of public health.

However, for fiscal interventions amid the pandemic, it has not been sufficient by any measure.

“But that is fair to say no single country – rich or poor – has devised an effective fiscal intervention as yet.

“All in all, as the economy is in life support, it needs a lot more government and inter-governmental support,” he said.


  • First Cambodian woman graduates from Japan’s NDA military academy

    A few years ago, Meach Sithyka Jessica became the first-ever Cambodian woman to graduate from the US Military Academy at West Point, and since then her courage and determination has served as an inspiration for other Cambodian women. Similarly, Ly Chansocheata became the first Cambodian

  • Construction begins on $1.5B Kampot seaport

    The International Multi-Purpose Logistics and Port Centre, principally invested by Kampot Logistics and Port Co Ltd and projected to cost $1.5 billion, has officially broken ground in Bokor town, Kampot province. The multi-purpose logistics and port centre, located in Prek Tnaot commune, will be built on

  • Cambodia eyes key role in electronics, auto hubs in SEA

    Two roadmaps, part of the LDC’s economic diversification plan, were designed to see it through its migration process, but experts say the journey might be arduous, particularly in the presence of two established hubs in the region By 2028, Cambodia hopes to have exited the

  • Hun Neng, lawmaker and PM’s brother, passes away aged 72

    Hun Neng, chairman of the 4th Commission of the National Assembly, has passed away from heart disease at the age of 72 on the afternoon of May 5, according to the Ministry of Information. Hun Neng is the older brother of Prime Minister Hun Sen, and was

  • PM meets with US business giants

    Prime Minister Hun Sen has met with a number of major US companies who have expressed interest in investing in Cambodia, in a meeting convened by the US-ASEAN Business Council (US-ABC). A delegation of companies – including Amazon, Meta, Chevron, ConocoPhillips, ExxonMobil, Ford, Visa and Pernod

  • CCC team off on US business trip

    The Kingdom’s leading economists and private sector representatives have called on the US to renew its tax preferential status for Cambodian exports, as a Cambodia Chamber of Commerce (CCC) delegation departed for a weeklong business visit to the US, where they will meet with