World Bank predicts 4.4-per-cent growth for Cambodia this year

Apr 7, 2010, 8:15 GMT

Phnom Penh - The World Bank predicted Wednesday that Cambodia's economy would rebound this year, following a 'serious setback' in 2009 in which it shrank 2 per cent as a result of the global economic crisis.

In its half-yearly East Asia & Pacific Economic Update report, which covers its outlook for the region, the World Bank predicted Cambodia's economy would grow 4.4 per cent in 2010.

The report blamed last year's contraction on a sharp drop in garment exports, whose volumes declined 16 per cent, lower tourism receipts, and a slump in foreign direct investment (FDI), which was down 35 per cent to 515 million dollars.

Tighter credit and a severe construction slowdown also contributed. The World Bank said a survey of 400 Cambodian firms found the combination of those factors saw sales and profits drop 30 per cent last year.

Ivailo Izvorski, the author of the report, said Cambodia's predicament and the problems of reduced FDI flows were shared by most countries.

He said there were signs that global capital flows were picking up to some nations as well as into certain sectors such as equities, but stressed Cambodia must continue with reforms to ensure it attracts its share of much-needed investment.

'Countries such as Cambodia have to persist with structural reforms, try to energize the reform agenda. And as capacity in the world and region is filled up, these global flows will resume,' he said.

Those countries with better policies, he added, would get the benefit of those capital flows, making it vital that Phnom Penh continue with reforms.

The report warned that risks for Cambodia included the fragility of the global economic recovery and a lack of diversification in its economy.

World Bank economist Huot Chea said Cambodia must diversify both its export and import markets in order to reduce risk. He said 60 per cent of its exports go to the United States, while two-thirds of its imports come from Vietnam, Thailand, China and Singapore.

'Anything happening in those economies certainly has a spillover effect on the Cambodian economy,' he said.

Cambodia enjoyed strong annual growth of between 6.5 per cent and 13.3 per cent between 2001 and 2008.

However, its reliance on a narrow economic base of four sector pillars - garment exports, construction, tourism and agriculture - was exposed when the global economic crisis struck.

The sole bright spot in the country's four pillars last year was agriculture, which grew 5 per cent, helped by a doubling of agribusiness exports such as milled rice and rubber.