IMF sees positive growth but warns of external risks for Cambodia

Jun 5, 2007, 11:23 GMT

Phnom Penh - The International Monetary Fund (IMF) praised Cambodia's macroeconomic policies Tuesday, saying positive economic growth should continue but warning that China and Vietnam could pose increasing competition to its narrowly based economy.

An IMF delegation from Washington ended a two-week high-level visit to the country Tuesday with a rosy overall impression of the national economy, IMF Asia Pacific advisor Jeremy Carter told a press conference.

However looming competitive pressures on the vital garment sector due to a lifting of safeguards on China's garment industry at the end of next year, competition in the same area from neighbouring Vietnam following its World Trade Organisation accession and the danger of poor weather affecting the agriculturally dependent nation still loomed as risks, the IMF said in a statement.

'Prudent macroeconomic policy implementation has provided stability, in turn boosting investors' and consumers' confidence, and has underpinned very strong macroeconomic performance,' the statement said.

'Impressive rates of growth have been sustained, inflation remains low, external debt is sustainable and headway is being made in a number of important structural reforms.

'The mission noted that the environment provides ideal conditions to re-energise reforms in key areas where progress has been less rapid, and to address the key constraints to broader poverty reduction.'

It said these factors had encouraged significantly increasing Foreign Direct Investment (FDI) which augured well for the economy.

The IMF said it estimates real Gross Domestic Product (GDP) to increase by around nine-per-cent this year, fanned by increased agricultural production and 'robust growth' in the areas of tourism, garment export and construction.

'Services, in particular finance and telecommunications, are increasingly contributing,' it added.

However the domestic growth in the key industries which form the narrow pedestal of the country's economy - garments, construction, agriculture and tourism - were also subject to fluctuation due to international trends and environmental factors beyond the control of the government, it warned.

International oil price hikes had also had an influence, with inflation recently ticking up to 4 per cent, the IMF statement said, but assuming broadly stable international oil prices for the rest of 2007 it said it expected this rate to remain in the low single digits.

Carter told journalists the IMF expected oil revenues to prove a positive. These may begin trickling into the economy as early as 2009 when drilling begins on promising offshore oil and natural gas fields.

The IMF team met with a range of government officials during its visit, including Prime Minister Hun Sen and senior ministers and officials, as well as non-government representatives and union representatives.

The IMF provides technical assistance to Cambodia and has focused much of its work on reforming the rapidly developing country's banking and finance sectors.