Cambodia’s gross domestic product (GDP) is set to expand by 6.5% in 2011 and 6.8% in 2012, but the country needs to address several major development challenges if it is to achieve poverty reduction goals and sustainable growth, the Asian Development Bank (ADB) says in its new macroeconomic analysis of Cambodia’s economy.
The Asian Development Outlook (ADO) 2011, ADB’s flagship annual economic publication released today, says a rebound in tourism and clothing exports, and steady agricultural sector growth, will combine to drive growth in 2011.In 2010 the economy grew 6.3% .
Agriculture is estimated to expand 4.3% in 2011, thanks to continuing investment in irrigation and broader access to fertilizers and high-yield seeds. Growth in industry is projected at around 10.8% based on positive indications for future garment orders from the US and EU. In the EU case, this is partly due to relaxed rules of origin requirements on imports of Cambodian clothing. Services growth is forecast at around 5%.
Higher tourism receipts will contribute to a surplus in services trade. The current account deficit is projected to narrow to 10.7% in 2011 and 10.2% in 2012. Gross international reserves are projected to grow to $2.84 billion in 2011, covering about 4.4 months of imports of goods.
“The continued recovery of exports and tourism in 2011 is expected to help Cambodia sustain its return to a longer-term growth path of 6-7%. However, the pressure is now on to intensify efforts at meeting the long-standing challenges of accelerating economic diversification and improving the general investment climate,” says ADB Senior Country Economist Peter Brimble.
Inflation is forecast to average 5.5% this year, up from 4% in 2010. Risks to the forecasts,the report says, center on external events such as unexpected global economic weakness or higher than assumed oil prices, which could hurt prospects for Cambodia’s tourism and clothing exports and push up inflation. The budget deficit is set to increase marginally to 6.2% of GDP in 2011.
The ADO 2011 warns that lack of progress on fiscal consolidation, combined with low tax revenue and the absence of government debt securities, may eventually lead to problems in funding the fiscal deficit.
“This will require continued prudent handling of monetary policies and government expenditures, combined with intensified efforts to build capital markets and to broaden the tax base and increase the low levels of revenue collection,” says Mr. Brimble.
The ADO highlighted the government’s recent rice policy and endorses the need to promote rice production and milled rice exports in order to ease Cambodia’s reliance on clothing markets in the US and Europe. Improved rural-urban links are also called for to ensure an inclusive growth process and to support the entry of Cambodia’s farming sector into national, regional and global markets.
The ADO stresses the potential benefits of enhanced connectivity with regional neighbors Thailand, Lao PDR, and Viet Nam, and emphasizes the need to improve the competitiveness of the garment, agriculture, and tourism sectors by reducing the high cost of transport, energy, and related infrastructure, raising the quality of existing products and services, and developing skills to add value to products.
“Regional cooperation will be an increasingly important contributor to Cambodia’s future growth in all sectors,” stressed Mr. Brimble. “And to harness this potential, the country needs to continuously work to cut transport and logistics costs, streamline bureaucratic procedures at the ports and border crossings, and reduce unofficial fees.”