The World Bank has forecast a sharp contraction of negative two percent for the local economy this year, adding that Cambodia’s unfavourable growth outlook alongside disruptions to jobs and lower household incomes means poverty is likely to increase.
The bank added that “significant uncertainty” remains for Cambodia’s economic growth outlook with downside risks including a local COVID-19 outbreak, deeper and prolonged decline in tourist arrivals as well as increased global trade tensions and protectionism.
“Cambodia’s economy and its key growth drivers – namely construction, tourism and merchandise exports – continue to be severely affected by the global crisis unleashed by the COVID-19 pandemic,” the World Bank said.
“The economy is projected to register negative growth of -2.0 percent in 2020, the sharpest decline in Cambodia’s recent history, with adverse impacts on household welfare and increased poverty likely,” it added.
The outlook was made at the “World Bank’s October 2020 Economic Update for East Asia and the Pacific” launch held yesterday.
On a positive note, the World Bank said Cambodia’s domestic demand had been gradually returning, as well as having good prospects with current bilateral trade negotiations, forecasting economic growth of 4.3 percent in 2021 and 5.2 percent in 2022.
“With the easing of social distancing measures, Cambodia’s domestic economic activity has been gradually returning to normalcy. Domestic demand including domestic travel and tourism is picking up,” the bank said.
“Cambodia and China announced the conclusion of negotiations of the Cambodia-China Free-Trade Agreement (CCFTA) that will likely enter into force in 2021,” it added.
The bank said that in response to the economic downturn the Cambodian government is having to undertake “unprecedented” action, such as the rapid expansion of the IDPoor card, to assist the poor and vulnerable who have fewer mechanisms to cope with shocks.
However, it also warned that while the social security scheme was playing a vital role in economic assistance, a long-term continuation of the programme in its current form would put considerable pressure on the national budget.
“Government fiscal intervention is unprecedented, amounting to 5 percent of GDP (gross domestic product), alongside accommodative monetary policy. An extension of the social assistance scheme beyond the currently planned timeframe would put significant pressure on the budget,” it said.
The bank recommended that the Cambodian government now needs to focus on preparing for the country’s economic recovery through promoting regional trade, creating jobs and protecting public health.
“It is crucial that the authorities are well prepared for post-COVID-19 economic recovery. Close attention may now focus on potential regional investment and trade expansion arising from the CCFTA. There is an urgent need to further accommodate domestic and foreign investment, boosting domestic value-addition and generating more jobs,” the bank said.
“Strengthening domestic demand, protecting the local consumer purchasing power amid external shocks of public health and/or natural disasters are the way to move forward,” it added.