Kingdom's deficit on ADB radar

via Khmer NZ

Wednesday, 21 July 2010 15:02 Jeremy Mullins

CAMBODIA’S current account deficit and high levels of public debt are “causing concern” at the Asia Development Bank, according to a new report, but the domestic economy is on pace to grow 4.5 percent this year.

The current account deficit – measuring the difference between a nation’s exports and imports, including foreign aid – was highlighted as a cause for concern in Cambodia, along with Laos and Vietnam, in the Asia Economic Monitor report, launched in Singapore yesterday.

Cambodia’s current-account deficit has averaged 4.6 percent of GDP over the last decade, the lowest among 14 Asian countries surveyed, meaning that the Kingdom has been importing more than it exports.

However, yesterday commentators said that a trade deficit was not necessarily a problem – provided that imported goods would be used to fuel future domestic production and create exports.

“A trade deficit doesn’t always reflect a country’s economic strength,” University of Cambodia economics lecturer Chheng Kimlong told the Post.

But officials at the ADB also say that it may be time for Cambodia to consider aspects of its economic policy.

“Indications [of economic recovery in Cambodia show] that it may indeed be time to begin to draw down the economic stimulus program,” ADB Senior Country Economist Peter Brimble wrote yesterday.

His comments came just one day after Cambodia’s Finance Minister Keat Chhon projected that government spending could increase by up to 50 percent to US$2.9 billion in 2011.

But the National Assembly’s Economy, Finance, Bank, and Audit Commission Chairman Cheam Yeap said yesterday that the $2.9 billion budget was an estimate that would be continually reassessed, keeping budgetary growth in line with government income.

Peter Brimble added that Cambodia’s public deficit, how much the government spends over its income as a share of GDP, was aimed to improve to 5.3 percent in 2010, from 5.9 percent in 2009.

Some analysts believe that keeping up fiscal stimulus in the coming year could benefit the country in the long term.

Increasing the Kingdom's public expenditure despite the recovery could be positive provided the money was well targeted, Leopard Capital managing partner Scott Lewis said.

“Investing in things like infrastructure is important in Cambodia,” he said. “It’s not like in other countries, where they are just sort of throwing money around.”

The Kingdom’s economy is slated to grow to 4.5 percent this year after GDP declined 2 percent in 2009 on the back of falling garment sales and slowing tourist receipts, according to the ADB report.

World Bank trade economist Julian Clarke said Cambodia’s economy had been able to “surf the wave” of increased international demand for garments pre-crisis.

“The recession in South Korea and Hong Kong, Taiwan has also lowered Cambodia's growth,” he wrote.