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ADB says Cambodia to grow at 7% in 2018, 2019

May Kunmakara / Khmer Times Share:
Cambodia has sustained an average growth rate of 7.7 percent between 1995-2017. KT/Valinda Aim

The Asian Development Bank (ADB) forecasts that Cambodia’s gross domestic product (GDP) will grow by 7 percent in 2018 and 2019, backed by strong export growth, robust tourist arrivals, buoyant domestic demand, and an expansionary fiscal policy.

In an update of its flagship publication, Asian Development Outlook (ADO) 2018, released yesterday, ADB said the local economic growth rate was in line with the stable growth seen across most of the developing Asia, which has taken place despite only moderate growth in major industrialised economies.

ADB’s growth forecast was slightly higher than the Cambodian government’s projection. The government has predicted that the country’s economy will grow by 6.9 percent in 2018, expanding the nation’s GDP to about $24.5 billion.

ADB country director Sunniya Durrani-Jamal, however, cautioned that rapidly rising wages without increased productivity could pose a major domestic risk, eroding Cambodia’s external competitiveness, which still mainly relies on cheap labor.

Cambodia’s exports rose by 13.3 percent, while imports grew by 25.7 percent following strong domestic demand in the first half of 2018, ADB said in a media release.

It added that the current account deficit – excluding official transfers – will rise to 12.1 percent of GDP this year, up from 10.9 percent in 2017. However, it is expected to narrow next year, although it will still exceed the April 2018 ADO forecasts of 11.1 percent in 2018 and 10.8 percent in 2019.

The recovery of the tourism sector was mainly supported by tourist arrivals from China, ADB said.

In line with ADB’s findings, Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia (GMAC), told Khmer Times that a rise in wages must be accompanied by a similar rise in productivity in order for employers to remain competitive.

He said Cambodia must boost its productivity if it is to remain competitive against countries like Vietnam, Myanmar, and Bangladesh, who are also vying for a share of the global apparel trade.

“In Cambodia we experienced the strongest increase in wages in the world over the past 3 or 4 years, with wages rising from $100 to $170. No country in the world can offset such a huge wage increase with productivity gains,” he said.

He said the country has already plucked the low hanging fruits needed to improve efficiency and productivity, adding that now the country “must strive for further gains through investment in newer technology as well as human resources training.”

To improve productivity in response to the rapid rise in wages, Mr Ken said, GMAC has established the Cambodian Garment Training Institute (CGTI), a vocational training institute that targets skills relevant to the garment industry.

The association has been promoting training courses diligently and even providing scholarships to attract capable young Cambodians to jobs in the sector, he said.

“Going forward in order to remain competitive internationally we have to lower the pace of wage increase and link future wage hikes to productivity gains. There must be more investments in training and skills development of our workforce for continued productivity gains,” he added.

Last week, Labour Ministry spokesman Heng Sour said employers had agreed to increase their minimum wage proposal from $175 to $176, while unions had agreed to decrease their proposed figure from $192 to $189. A final decision on wage increase is set for October.

ADB also said Cambodia’s overall balance of payments will remain in surplus due to strong inflows of foreign direct investment, leading to a further buildup in foreign reserves, from $9.1 billion in July 2018 to $10 billion by the end of 2018, which will provide six months of import cover.

Despite strong growth, inflation has been moderate, averaging 2.4 percent in the first six months of 2018, down from 3.4 percent a year earlier, ADB said.

The average inflation rate is forecast to come in at 2.6 percent this year, and edge up to 3 percent next year.

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