The World Bank forecasts that the Cambodian economy will return to positive growth in 2022 at 4.5% and 5.5% in 2023 according to a recent report.
In the Macro poverty outlook for East Asia and the Pacific report, the World Bank states that in 2022, economic growth in East Asia and the Pacific will be only 5.1%. However, for Cambodia, the World Bank has set a growth target of 4.5% in 2022 and 5.5% in 2023.
Compared to other ASEAN countries, Cambodia will grow faster than Thailand, which the World Bank has projected to grow by 2.9% in 2022.
According to the World Bank report, Cambodia’s economic growth is projected at 4.5% this year due to the opening up and socio-economic recovery, ultra-high vaccination rates, and the lifting of the travel bans for domestic and foreign travelers.
In addition, Cambodia’s exports of garments and agriculture are still growing, while the tourism sector is also reopening.
Return to strong economic growth
Dr. Ky Sereyvath an economist and chairman of the Chinese Studies Center at the Royal Academy of Cambodia, told Cambodia Investment Review that Cambodia remains one of the countries in the region with ample opportunity to boost its economic growth in 2022.
He said that there is a good chance that the Cambodian government has reopened the economy and society, especially to learn to live with the pandemic in a new normal path and ultra-high vaccination rates across the country are also on target.
He added that this year, the Cambodian economy can have a lot of positive effects because at the beginning of this year, the momentum of foreign investors came back and the volume of exports of Cambodian goods to international markets is still high, especially trade in agriculture, garments, footwear and travel goods.
“We do not think the Cambodian economy can suffer again because Cambodia’s social process has moved forward with the new mechanisms that the government has put in place,” he said.
“But what worries us is the prolongation of the Russia-Ukraine invasion. This war crisis can cause the price of goods to increase, especially it can further disrupt the process of exporting Cambodian goods to international markets,” he added.
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According to the economist, the disruption of Cambodia’s exports to international markets due to declining global demand and rising shipping costs.
The World Bank forecast of Cambodia’s economic growth rate of 4.5%, is similar to the forecast of the Cambodian government. The Cambodian government has forecast that Cambodia’s economy will grow by 4.8% in 2022. This is according to the draft national budget for 2022.
At this level, the Cambodian government is referring to the resumption of normal visits to the country, as well as references to several economic sectors, such as industry, services and especially agriculture. The agricultural sector, which the government claims is less affected by the Covid-19 crisis.
According to Phan Phalla, Secretary of State of the Ministry of Economy, who confirmed in his last press conference, the Cambodian economy will be able to run back to the status quo at around 7% in 2024. However, this forecast has not been made by any international economic institution yet.
Trade agreements with major countries can boost Cambodia’s economy
The World Bank has expressed expectations that in the medium term, the Cambodian economy is likely to return to its high potential of 6% growth.
In particular, under the new investment law, a free trade agreement between Cambodia-China (CCFTA) and Cambodia-South Korea (CKFTA) and a regional comprehensive economic partnership (RCEP), Cambodia will be able to attract more foreign investors to invest and trade in the coming years. And on the positive side, Cambodia will be better resilient to the global crisis.
Penn Sovicheat, a spokesman for the Ministry of Commerce, told the Cambodia Investment Review that Cambodia now has export markets and trade with many of the world’s major countries. Those major countries include the United States, the European Union, China, Canada, Korea and Japan.
According to Penn Sovicheat, in the next five years, the Ministry of Commerce will strengthen existing products and promote the diversification of new products to meet market demand, while the current market in the region with high expectations is especially the market of China and its trading partners under the RCEP agreement and the Cambodia-China Free Trade Agreement.
He said that to ensure sustainable economic growth, we have continued to cooperate with partner countries to promote more exports of Cambodian products and duty-free. And the capture of the international market is an important catalyst for Cambodia’s growth, especially to achieve 7% growth again.
He added that the Ministry of Commerce is also ready to increase the productivity of companies and workers, encourage more domestic investment, and especially the expansion of export diversification. Diversification of exports by investing in human resources, improving the capacity of market institutions, as well as improving public investment management.
Impacts that Cambodia may face in the future
Although the forecast for Cambodia’s economic growth in 2022 seems to be good image. However, the World Bank said that Cambodia’s manufacturing exports in the coming months could face heavy rainstorms. Difficult due to declining demand from the United States and the slowdown of general structural in China
In particular, rising energy and commodity prices caused by the war in Ukraine will also hinder Cambodia’s poverty reduction mechanism, as Cambodia can reduce the country’s poverty rate by 1.6% per year and also this issue places an additional burden on the costs of the entire population.
The World Bank also said that commodity and energy prices were also pushing up inflationary pressures in Cambodia. While inflation in Cambodia in January continued to surge to around 4.1%, while inflation is generally around 3%. However, with the support of the National Bank of Cambodia for open market operations, the exchange rate continues to stabilize at KHR 4,100 per dollar.
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The World Bank also stated that economic growth of 4.5% in 2022 may also be at risk if the pandemic continues to spread again. The World Bank says that for the economy to recover, Cambodia needs to reform a number of key areas, including the introduction of clear rules and regulations for learning to live with Covid-19.
According to the “new normalization path”, regulatory and fiscal measures to help revive the tourism sector, and the immediate introduction of regulations for the implementation of new employment laws.
To tackle this chronic economic crisis, the World Bank urges Cambodia to take concrete steps to strengthen external competition, as well as boost manufacturing and exports, especially to take advantage of new investment laws and trade agreements with China and south-Korea.
In the previous report, World Bank told that Cambodia needs to address supply constraints by reducing logistics and energy business costs. In addition, Cambodia must eliminate the softness in the implementation of key labor-related regulations that hinder the robustness of the recovery of the labor market.
Sam Oudom is a Prince Foundation Young Business Journalist.