ADB forecasts economic rebound for Cambodia

Apr 20, 2010, 6:58 GMT

Phnom Penh - The Asian Development Bank on Tuesday predicted Cambodia's economy would return to growth this year, following an estimated 2-per-cent contraction in 2009 due to the global economic crisis.

The ADB forecast economic growth of 4.5 per cent this year and 6 per cent in 2011. The economy grew by an annual average of 9.1 per cent from 1998 to 2008.

ADB country economist Eric Sidgwick noted signs of recovery in the first quarter of 2010, with indications of growth returning to the three key economic pillars that were hit: garment manufacturing, construction and tourism.

But he said Cambodia must broaden its economic base and add value in all four key sectors including agriculture, which alone accounts for about one-third of gross domestic product.

He said tourism provided an example of a key industry needing to diversify.

'If you look at the rates of growth of tourist arrivals over the last several years, that rate of growth has been gradually declining - growth is still positive, but [the rate of growth] is declining,' Sidgwick said.

'That is an indication that the tourism industry is maturing, in a sense.'

To boost that growth rate would require a new wave of investments, to diversify away from its focus on the temples of Angkor Wat and to encourage visitors to stay longer.

'And I think there are good prospects for developing the tourist industry further in Cambodia, but it needs more than just Angkor Wat,' he said.

Sidgwick said recovery in the key garment export markets of the United States and the European Union would dictate the extent of local recovery in the sector.

But he said to improve Cambodia's overall economic prospects, the government must ensure that reforms that have been on the table for years are now implemented. Integrating its economy into the region, where strong growth is expected, is also vital.

Sidgwick said the government's doubling of the budget deficit from 3 per cent in 2008 to 5.9 per cent last year was the right response as a short-term measure to the global economic crisis and 'probably manageable,' but warned it had not all been well-targeted.

'The fiscal stimulus impact of those measures could probably have been greater had the expenditures been targeted more to more productive investments and less on consumption,' he said.

The ADB report said Cambodia's poverty rate, measured at 30.1 per cent in 2007, had likely risen due to the global economic crisis, although a lack of coordinated data meant that precise figures were not available.