IMF Projects 2.5 Percent GDP Contraction for Cambodia in 2009

Written by DAP NEWS -- Thursday, 24 September 2009

(CAAI News Media)

The economic growth of Cambodia is projected at a positive 4.25 percent for 2010 but this year, as a result of the global crisis’ larger than previously anticipated impact on Cambodia’s economy, real GDP growth is now projected to be negative 2.75 percent in 2009, a press release from IMF office here said on Wednesday.

“If we look into 2010, there are some hopeful signs that the global downturn may be bottoming up,” David Cowen, senior official for the Asia Pacific Department of IMF, said at a press conference. “A pickup in external demand is expected to lead to a recovery in Cambodia’s economy and growth in 2010 is projected at about 4.25 percent.

“Though risks remained tilted to the downside, given uncertainties over the strength of the global recovery, with lower domestic and commodity prices, inflation pressure have eased in 2009, with headline inflation expected to be around 5.25 percent (year on year) by end 2009.

Inflation should remain in the mid–single digits through 2010. However, vigilance is required to ensure that fiscal stimulus does not lead renewed inflation pressure,” the IMF press release said. “Agriculture is still the strongest sector for Cambodian economic growth,” Cowen said.

For 2010, the IMF recommended that the budget aim to reduce the deficit to under 5.25 percent of GDP. This level of deficit “would eliminate the need for further large scale spending on priority sectors and pursuing key development objectives,” press release said, adding that the mission “cautioned against allowing significant increasing on priority sectors such as health, education, and operations and maintenance, and further increases to domestic financing needs if not accompanied by significant revenue gains.”

The mission commended to the National Bank of Cambodia for tank- ing actions to safeguard the health of the banking system, it added. With fiscal policy, the mission welcomed indications that the 2009 budgets’ revenue target would likely be met, largely due to commendable administration efforts. However, on current trends, very large increases in the civil service and military wage bill in 2009 from around 3.75 per cent in 2008, it added.

Cambodian garment export volumes are projected to decline by 15 per cent this year, mainly due to lower consumption in the United States. And tourism sector, Air arrivals have fallen by double digitals reflecting the global recession, and rising unemployment, and falling incomes in most of Cambodia ’s tourism source countries. Moreover, the working on large construction projects ha s slowed significant in the wake of falling property prices, and agriculture production is a bright spot with a good harvest expected in 2009, the press release from IMF said.

An mission from Washington D. C. visited Cambodia September 9-23 , 2009 to conduct annual article IV discussion. During the visit, the mission took stock of recent economic and financial developments and held policy discussions with ministers and senior officials of Cambodian government on the macroeconomic and financial policies, It said.