Tuesday, September 21, 2010

Cambodian Gross Domestic Products Increases 5 Percent in 2010

BY BUTH REAKSMEY KONGKEA

The International Monetary Fund (IMF) has predicted that a broadening export-led recovery is taking hold since the beginning of the year. Real Gross Domestic Products (GDP) growth is projected to reach 4 ½ to 5 percent in 2010, a significant turnaround from 2009.

Olaf Unteroberdoerster, Senior Economist in Charge of IMF’s Asia and Pacific Department, said that garment exports and tourist arrivals, notably by air, are bouncing back, both growing between 10 percent to 20 percent in the second quarter of 2010. Construction activity, however, appears to remain sluggish with the growth of most related imports still negative, while a late start of rainy season may dent agricultural output growth.

Amid ample liquidity in the banking system, credit growth has turned the corner and, on current trends, could run well above 20 percent in the second half of the year. Headline CPI inflation is projected to average 4 percent this year.

“Significant risks continue to cloud growth prospects. The fragility of the global recovery exposes Cambodia’s narrow export base with its heavy reliance on the United States and European markets to significant downside risks. Over the medium term, efforts to strengthen the business environment and enhance public sector revenues and services delivery are important to overcome major downside risks to growth. On the other hand, a better-than-expected return to medium-term investments in the power sector and rural infrastructure could offer significant upside potential,” he said at a press conference on September 10th in Phnom Penh.

Against this background, discussion focused on the dual policy challenge to safeguard hard-won gains in macroeconomic stability and policy credibility, and lay the foundations for broader-based and inclusive growth, he said, adding that with regard to fiscal policies, the mission was encouraged by fiscal outturn through July suggesting that budget target of a gradual fiscal consolidation is on track. The rebound in tax revenue is broadening, with both direct and indirect cumulative tax collection through the first seven months rising by 8 and 18 percent, respectively.

However, the mission advised that further fiscal adjustment is needed for 2011 and the medium term. As the economic recovery gains traction, the recourse to domestic financing, and thus the injection of significant additional riel liquidity, should be eliminated to avoid undue external and inflation pressures. Moreover, further consolidation would enable Cambodia to retain its favorable dept sustainability outlook and rebuild its capacity to absorb potential further shocks.

“The mission strongly supports the government’s emphasis on further improving revenue administration. Gains in tax collection offer the best hope for Cambodia to meet dual objective of securing fiscal sustainability and mobilization resources for its development needs. In addition, further progress along the government’s public financial management reform program will be critical to secure gains from enhanced revenue administration and improve the effectiveness of social priority spending,” he said.

He emphasized that on monetary policies, the mission discussed ways to enhance Cambodia’s monetary independence, including elements of a strategy to address the high decree of dollarization. To a large extent dollarization reflects Cambodia’s unbalanced and narrow growth over recent need decades that were driven by dollarized urban export and tourism centers. Therefore, a more diversified development with greater emphasis on agriculture and rural areas, where the riel is commonly accepted, could over time produce a significant decline of dollarization. In addition, based in international experience of countries with a successful de-dollarization strategy, the incentives for greater use of riel could be increased.

Cambodia’s sources of growth and make further development more inclusive and sustainable, he said, adding that improving the quality and dissemination of the key economic statistics will serve to further enhance policy creditability and result in better informed business decisions.

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