Asian Development Bank (ADB) has adjusted its medium-term outlook for Cambodia’s economy, projecting that it will contract by 4 percent by the end of the year. ADB’s previous outlook had projected that the national economy would decline by 5.4 percent compared with last year, as a result of the ravages of the pandemic.
However, improved agricultural performance and an increased volume of non-garment manufacturing have brightened the medium-term economic outlook.
During the webinar presentation, “On Road Map to Recovery? Cambodia’s Economic Outlook for 2021”, hosted by EuroCham on Tuesday, ADB Cambodia Country Economist David Freedman said that Cambodia has managed the COVID-19 pandemic well and is positioned for recovery in 2021.
He added that well-timed interventions have helped minimise the local outbreak of COVID-19 and prudent macro-economic management has enabled the government to use fiscal policy to mitigate its negative impacts.
The government’s stimulus in 2020, equivalent to 3.1 percent of gross domestic product, included $60 million for health measures, $300 million for social protection and $455.8 million for economic stimulus, he added.
“Cambodia’s economy will contract by 4 percent year-on-year during 2020 and growth will rebound by 5.4 percent in 2021,” Freedman said. He added that Cambodia is also diversifying its export capacity, which is key to future growth because Cambodia’s growth has been built on openness to trade.
Freedman added that the government has recognised that reforms will be needed in order to sustain growth rates after the 2020 pandemic.
Looking ahead, he said ADB identifies five fundamental drivers in sustaining the growth rate. First is a steady pace of reforms, on infrastructure, trade policies, skill developments, education, and an easing of the business enabling environment. The second driver is an improvement to infrastructure and logistics and the third is digitalisation and innovation. Freedman noted that the ADB sees significant momentum in ecommerce and the digital economy. The fourth driver is a shift in regional value chains and market access, with the fifth being urbanisation and a growing middle class.
Freedman pointed out that while the Kingdom’s economy is contracting this year, 2021 will see recovery. By the end of 2021, though, he added the economy will be significantly smaller than it would have been if the pandemic had not happened. Freedman noted: “It is a shame that Cambodia will miss out on that growth. However, any downside risks can be managed and we could easily expect quite strong growth in the medium term.”
He added key risks to the outlook are focused on the pace of global recovery and domestic re-balancing. Among those risks are a slow recovery of tourism and consumer demand, a slowdown in construction and real-estate, rising poverty and inequality from the pandemic, household indebtedness-repayment and restructuring, skills shortages and skills gaps and any risks presented regarding climate change and water resources.
“I am not too pessimistic [though]. We are trying overall to be realistic and balanced [in projecting] that the outlook is positive, but there are some risks that need to be managed and watched carefully,” he added.