PHNOM PENH (Khmer Times) – The strong dollar might cause pain to Cambodia’s economy by reducing margins and purchasing power for both importers and exporters.
The garment and agriculture exporters who rely on European and Asian consumers will be able to sell fewer goods, while the need to pay workers in dollars cuts into their margins.
Analysts say that the current macroeconomic situation may push the dollar up against the euro. Businesses that pay for foreign goods in dollars but sell them for riels will lose their margins, forcing them to raise prices to compensate.
“This could affect those small producers, who mainly sell small products in riels,” said Srey Chanthy, an independent economic analyst.
The strong dollar is bad for Cambodia’s dollarized export industry, which pays its workers in dollars but sends its export to countries whose currencies are weaker. Europe is the biggest garment importer and growing.
“A stronger dollar isn’t going to cause the sky to fall in, but clearly it isn’t going to help Cambodia’s export industries, such as garments and tourism,” said Stephen Higgins, founder of Mekong Research Partners.
Companies sometimes employ currency hedging to protect themselves against such fluctuations. But both Mr. Chanthy and Mr. Higgins say currency hedging in Cambodia is in its infancy.
“With the USD so dominant in global trade, and Cambodia being a dollarized economy, currency hedging by companies in Cambodia isn’t as common as it is in other countries,” said Mr. Higgins. “It’s growing, and that’s why some banks here offer RMB hedging for example, but it’s from a low base.”
Mr. Chanthy said the dollar’s strength against other Asian currencies will not exclude Cambodia – the riel is likely to depreciate. The dollar increased against the riel from a low of 3,984 riel per $1 in early April, to a high of 4,139 riel per $1 on August 12.
If the dollar makes more gains against the riel, it may affect those businesses that purchase their goods in dollars but sell them predominantly in local currency, such as shops that sell imported goods, from food to cosmetics, to predominantly Cambodian customers.
Srey Navy, a grocer in Phnom Penh, said she buys 99 percent of her goods with dollars. “It is very difficult but I have to adapt. It makes me lose money on some products every day,” she said, adding that she buys the goods one day, then the riel falls the next day and her margin declines with it. “Sometimes I lose money but sometimes I also gain.”
Kim Ly, the manager of a convenience store in Phnom Penh, said that she compensates by increasing prices in riel.
Chan Sophal, an economist and director of the Center for Policy studies, said the riel experiences cyclical fluctuations against the dollar – it’s often weakest during the rainy season due to lower demand. He said that while a strong dollar may impact local businesses and consumers, it’s not a huge problem for the country.
“It’s not difficult for the central bank to intervene – the riel proportion is small in the economy [compared to the dollar],” he said.
The dollar rose against the euro and yen on yesterday as upbeat US data kept hopes for an interest rate rise as early as next month.The euro slipped to $1.1097.
Additional reporting by Va Sonyka and Srey Kumneth.