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Government forecasts economic dive

Sok Chan / Khmer Times Share:
Future not so bright. The government says the clothing sector may suffer this year. KT/Chor Sokunthea

The Cambodian government has forecast the Kingdom’s real economic growth at an average of 6.1 percent this year, down up to a percentage point on last year, according to a senior official of the Ministry of Economy and Finance.

It cites as reasons the trade war between China and the US, the Coronavirus pandemic, climate change, lower geopolitical and global security after Iranian attacks on US interests, widespread protectionism, the uncertainty over the Everything but Arms (EBA) trade deal between Cambodia and the European Union and a general economic slowdown.

Locally, the ministry points to slow diversification of the Cambodian economy and limited competitivesness, especially over the cost of electricity and poor logistics. The loss of the EBA deal alone could cost 35,000 jobs and $500 million, it added.

“We achieved economic growth at 7.1 percent in 2019, but for 2020 we are lowering the forecast of gross domestic product (GDP) growth from 6.5 percent to around 6.1 percent,” said Phan Phalla, undersecretary of state at the Ministry of Economy and Finance.

Phan was speaking yesterday at the Public Forum on Macroeconomic Management and Budget Law 2020 at the Ministry of Economic and Finance.

“In 2020, the growth of the agriculture sector is expected to be 0.9 percent, construction growth around 14.5 percent, compared with 18.4 percent in 2019, growth of the garment industry around 5 percent, compared with 7.1 percent in 2019, and for the service sector [hotels and restaurants] 2.7 percent this year, compared with 5.3 percent in 2019. The nongovernment sector will increase to around 11.8 percent,” Phan added.

Ministry of Economy and Finance Permanent Secretary of State Vongsey Vissoth said that although the global GDP dropped from 3.4 percent to 2.9 percent in 2019, Cambodia’s real economic growth still remained robust at 7.1 percent.

However, Vongsey added that the Kingdom’s GDP is forecast to grow at 6.1 percent in 2020. He said events of the last two months in the global economy will affect the Kingdom’s economy in 2020 and the country faces challenges.

“The slowdown of global economy, geo-politics, the Middle East, climate change, Wuhan’s Coronavirus in China – it affects the tourism sector. When the tourism sector slows down, it brings the other sectors down such as logistics, accommodation, food, as well as the construction sector,” he said.

“Although there are internal and external shocks, if we implement the macro policy effectively, we forecast the country’s GDP growth will be at 6.1 percent in 2020,” Vongsey added.

He added that Cambodia might be affected by a drop of 20 percent in the garment sector among total export value to the EU and 30 percent in the shoe industry. The construction sector is also declining and the tourism sector is expected to drop this year.

“However, our economy will not collapse,” he insisted. “Our economic growth will slow down some sectors, but it will increased in some sectors. Therefore, we are not much concerned over these issues,” Vongsey stressed.

The Secretary of State said last year Cambodian exports to the EU dropped to around 10 percent, but exports to the US increased to 30 percent. The non-industrial sector is also increasing to 12 percent per year. That includes assembly, motors, electronics, solar panels, so Vongsey said the nation is starting to diversify export products fast. He noted garment exports grew 5 percent.

“We have already prepared a fiscal policy to cope with uncertainty and continue the  implementation of the government’s policies and enforce them stronger to prevent shocks or crises. We want to transform the shocks or threats or other crises into opportunities and reform the economy and implement effectively the government’s policies,” Vongsey said.

This year, he said if the government implements effectively its macro policy, and other policy packages, it forecasts GDP at 6.5 percent. Under worse international conditions it could be lower.

Vongsey said that though the EBA trade deal withdrawal will affect from 20 percent to 100 percent of the garment industry – but government has already prepared for it. He said that Cambodia would lose around $500 million a year – around 35,000 jobs among 750,000 in the garment industry. However, there are other industries that can absorb employment especially in the manufacturing and non-garment sectors.

“We are not concerning much about this. It will affect those factories that are not competitive, but for those factories that are highly competitive, it will be fine,” he said.

Kaing Monika, deputy secretary-general of the Garment Manufacturers Association in Cambodia (GMAC), told Khmer Times the GMAC strongly believes the government will introduce mechanisms as well as support policies aimed at minimising the impact of an EBA trade agreement withdrawal.

“We also anticipate the second round of reform at the coming Government-Private Sector  Forum scheduled for April 1, 2020,” Kaing said.

“If import duties are imposed on specific tariff lines, there would be the possibility that we can increase production onn other lines not subject to the import duty and some workers, if not all, can be absorbed into those lines of production,” he added.

He said that even with all these predictions, before an EBA decision is made next month, the GMAC still hopes the EU, especially the Trade Commissioner, would relook at the possibility of exempting the garment sector which so far, he said, has been recognised as having a high level of labour compliance in comparison with garment industries of other Asean and South Asian countries.

“Putting our sector among others to be partly subject to preference withdrawal would greatly demoralise our efforts so far through the Better Factories Cambodia Programme. It would discourage further improvement, if not make things worse – the working conditions in our sector,” he added.

“It could also send a bad signal to other countries that good working conditions do not really help.  So I appeal to the EU to exempt our sector from preference withdrawal,” Kaing added.

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