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World Bank highlights economic factors that are affecting the Kingdom’s economic welfare

Poovenraj Kanagaraj / Khmer Times Share:
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According to the World Bank’s recent economic and development outlook, Cambodia has sustained accommodative  monetary and prudent fiscal policy.

Senior economist, Claire Hollweg pointed out in the report that while monetary policy remained accommodative, broad money growth has eased and the pace of dollarisation has slowed as well. This was evident through the increase in riel circulation as well as a stable exchange rate.

Accommodative monetary policy refers to it being intended to stiulate economic activity by lowering interest rates.

Foreign currency deposits have also eased remaining consistent as of June 2019.

Furthermore, the report also shows that rising credit growth mainly went into the construction sector while households increasingly borrowed for consumption as well as for agriculture and non-agriculture needs.

Government fiscal deficit has narrowed and deposits have been observed to have increased, notably because of increased revenue collection and prudent expenditure. The report also highlighted the rapid growth of the central government’s revenue, driven by recorded taxes on goods and services.

However, downside risks to the country have also intensified and, despite having, a stable outlook in the short term, the World Bank points out that the momentum could weaken without strong reforms.

The risks said to arise from both domestic and external factors could include  a possible suspension of the Everything but Arms trade deal that may be revoked this month by the EU and a sharper-than expected slowdown in the Chinese or possibly the global economy.

There are also vulnerabilities arising from a prolonged construction and property boom and additionally from the increase of credit provided to the construction sector.

While both of the Kingdom’s main exports and exports could face high tariffs, during the 18th Government-Private Sector Forum (GPSF), Prime Minister Hun Sen has announced measures to improve trade facilitation and the business environment.

This was unfrttaken to tackle any possible challenges that could arise from a possible EBA suspension.

Currently, an economic and fiscal policy committee is assessing the impact of any EBA suspension and will soon be coming up with remedies to aid the country in facing likely effects.

The measures will be announced in early April at the upcoming 19th GPSF.

Furthermore, the report points out that the Chinese market is an integral part of the Kingdom’s service exports, particularly tourism.

Tourism currently contributes 32.8 percent of the country’s total economy and has created 2,911.6 jobs, amounting to 31.6 percent of total employment across the country in various sectors.

The report recommends a well designed fiscal stimulus to be financed by government savings because it will help cushion any negative impact of a possible EBA withdrawal as well as implementing further macro-prudential measures such as bank limits in terms of exposure of construction and real estate.

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