World Bank Downgrades Cambodia’s GDP Growth to 6 percent

By Sok Lak

The World Bank downgraded Cambodia’s GDP growth from an estimate of 6.8 percent to 6 percent this year. Samdech Hun Sen this week also lashed out at the prediction from the World Bank. “We have experienced difficulties in the past years after different financial institutions configured Cambodian economic growth statistics differently. So we should not believe this too much,” he added.

According to World Bank East Asia and Pacific Economic Update 2011, released on November 22^nd, the downgrade is mainly driven by a result of the destructive flood impact and the slowdown of the EU and US economies in the second half of 2011, and it is expected to be offset by the strong performance of the first half- year.

Enrique Aldaz Carroll, a Senior Country Eco omist of the World Bank, said that Cambodia continued its strong recovery from the 2009. In the first half of 2011, growth has been led by growth of the export garment and footwear sector, which also continued the strong recovery of the tourism sector with moderate growth of the agriculture sector.

“Regarding to second half of this year, the growth downward rate is off, with the forecast from 6.8 to 6 percent, accounted for in the EU and US slowdown, not to mention the impact of flooding,” he added.

The agriculture sector, which account for a third of the economy, experienced strong growth over the past five years, averaging 5.1 percent per year, and is expected to be interrupted again by the recent flood in September and October, which is the largest flood in a decade.

“The flood damaged hundreds of thousands of hectares of rice seedlings, paddy rice plantations, and other agriculture crops. Furthermore, over 240 people lost their lives and over a thousand livestock perished.

Moreover, the agricultural sector was previously expected to grow by nearly 4 percent, but now it is projected to grow by a mere 1.5 percent for 2011, on the assumption that floods will recede fast enough to allow some flooded areas to be replanted quickly,” it stressed.

According to authorities’ reports, around 390,000 hectares of rice seedlings and paddy rice plantations are inundated, threatening some 13.5 percent of the country’s total paddy rice production.

The report also showed that the external sector continues to grow as merchandise exports are estimated at 17 percent growth in 2011. However, the current account deficit would edge down slightly to 13 percent of GDP which is down from 13.5 percent of GDP in 2010.

It added that FDI inflows are forecasted to increase by 15 percent in 2011 to nearly US$ 900 million or 7.1 percent of GDP which is up from 6.7 percent of GDP in 2010. The gross foreign reserves continue to pursue its ascending trend, projected to grow by 22 percent to US$ 3.2 billion or 4.4. months of imports by the end of 2011.

The reserves amount to 54.4 percent relative to the stock of broad money, and 75 percent relative to gross external debt as of June 2011. For the net capital inflows, it increased by 25 percent to US$ 1.3 billion in 2010 and by 8 percent to US$ 368 million in the first quarter of 2011 which reflects the continued pick up of FDI inflows and loans from foreign banks.

The report explained that in the first half of 2011, the construction and real estate sectors remained subdued after experiencing negative growth last year as the real estate sector fell 15.8 percent and construction dropped 25.5 percent in 2010. “While new approved construction projects in Phnom Penh rose by 12 percent in the first half of 2011, the number of flats, houses, and buildings built or being built remained sluggish, which fell 49 percent compared to the same period before. “This slowdown is reflected in a 6 percent decline of import of construction materials,” it said.

The growth prospects for 2012 and 2013 remain strong in which the projection of 6.5 percent per year include exporting which is expected to promote growth because of greater market access granted by relaxing the EU’s rules of origin and the assumption that the EU foreign debt crisis and US financial woes will subside

Source: The Southeast Asia Weekly, Nov 27-Dec 3, 2011, Vol. 5, Issue 48, Page 3