Cambodia Investment Review

Cambodia’s worst-case economic scenarios avoided in 2021: UNDP

Cambodia’s worst-case economic scenarios avoided in 2021: UNDP

Brian Badzmierowski

Governmental and aid organization efforts to mitigate the economic impact of Covid-19 have been largely successful over the past year in Cambodia, according to a joint policy brief.

The brief was published by the UN Development Programme (UNDP), the Ministry of Economy and Finance, and the Australian Embassy in Phnom Penh.

Two post-recovery scenarios were created by using simulation models run by the UNDP and pointed to a potential GDP growth of between 1.7 and 2.3 percent for 2021, an unemployment rate of between 2.9 and 3.3 percent, and a poverty rate of between 11.5 and 12.5 percent.

The “moderate scenario” assumed a longer-than-expected delay to tourism recovery and slower growth for garment exports and construction, while both the moderate and “baseline senario” took into account continued social protection measures, stimulus packages, and efforts to bridge the gender wage gap.

These projections paint a more positive picture of Cambodia’s economic short to medium-term economic outlook than reported in last year’s policy brief on the socio-economic impacts of Covid-19 in Cambodia.

Last year’s report, published in October 2020, estimated the poverty rate at 17.6 percent and the estimated unemployment rate was 4.3 percent, according to the UNDP.

Per the Asian Development Bank, Cambodia’s GDP shrunk by 3.1 percent in 2020.

The 2021 UNDP joint study used different statistical models to analyze the economic climate of Cambodia in the context of the pandemic and the lockdowns imposed in April and May as well as their spillover effects into the economy.

Key factors that will dictate the reality of the situation is how long it takes for tourism to return to the Kingdom and how quickly garment exports and the construction sector can recover, the UNDP said.

According to incoming UNDP Resident Representative in Cambodia Alissar Chaker, economic relief measures deployed by the Cambodian government — including stimulus packages and revamped social protection schemes — helped avoid a potentially disastrous economic situation where unemployment and poverty levels could have spiked.

“The analysis reveals that social protection measures and the economic stimulus package adopted by the Royal Government of Cambodia were effective in counteracting significant challenges caused by the pandemic,” she said.

“These are laudable achievements worth reinforcing and expanding to promote sustainable, inclusive, and resilient socio-economic recovery powered by development financing, innovation, and digitalization to build forward better.”

Under Secretary of State at the Ministry of Economy and Finance H.E. Tep Phiyorin, said the the UNDP’s analyses had helped guide the government as  it dispensed “considerable fiscal support to protect firms, households, and vulnerable populations”.

UN Development Programme (UNDP), the Ministry of Economy and Finance, and the Australian Embassy in Phnom Penh.

Last June, UNICEF teamed up with the government to offer cash payments to the most vulnerable households hit by Covid in Cambodia in its Cash Transfer for the Poor and Vulnerable Households during COVID-19 program.

According to the National Social Protection Council, $430.2 million has been handed out to about 2.6 million citizens in 673,487 households as of September 27.

Also on September 27, the World Food Programme (WFP) and the German government announced a partnership to assist lower-income Cambodian families affected by Covid-19 and severe flooding.

The German development agency Deutsche Gesellschaft fuer Internationale Zusammenarbeit (GIZ) has committed about $6 million to vulnerable households in Cambodia as part of the program, which will be conducted with data-driven insight from the Cambodian government to identify the most vulnerable groups.

The Australian government has also played an important role in Cambodia’s Covid recovery.

Andreas Zurbrugg, the Deputy Ambassador of the Australian Embassy in Cambodia, said: “Cambodia’s targeted response to Covid-19 has been critical in stabilizing the socio-economic consequences of the pandemic. Australia is pleased to be supporting Cambodia to design and implement an inclusive response, demonstrating that investing in social protection can stimulate economic growth and protect the most vulnerable from deeper poverty.”

Australia’s Department of Foreign Affairs and Trade (DFAT) is heavily involved in investing in Cambodia’s future with a range of projects, including a $9.5 million Australia-UNDP Resilience Fund for Cambodia which acts partly as a fund for the country’s Covid-19 response.

DFAT is also responsible for an $84.2 million Agricultural Value Chain Program which is set to finish this year and a $49.4 million infrastructure project aimed at supporting electricity and water projects which is also scheduled to be completed this year.

Cambodia’s international business community remain ‘bullish’ on the local economy despite the recent GDP growth downgrade citing an ultra-fast vaccination drive and multiple bilateral and multilateral trade agreements to be implemented next year.

Prior to the pandemic Cambodia’s economy had sustained an average real growth rate of 7.7% between 1998 and 2019, making it one of the fastest-growing economies in the world.

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