Cambodia’s small economy means it will continue to be reliant on exports for economic growth, but needs to do a much better job diversifying its economic base and boosting production
AS new data coming out around the world begin to point cautiously towards early signs of a global economic recovery, debate is intensifying about the merits of export-led development.
This month the International Monetary Fund (IMF) urged Asia to "rebalance" its growth model to reduce its reliance on exports and instead focus on boosting domestic demand. The call came as the fund slashed its growth outlook for Asia after the region's merchandise exports fell at an annualised rate of 70 percent between September 2008 and February this year, substantially worse than during the 1997-98 Asian financial crisis.
Although the fund noted that economies with a heavy reliance on high-tech exports had been hit hardest - it singled out Malaysia, the Philippines and Thailand as the most affected economies in Southeast Asia - Cambodia has not escaped unharmed.
In the wake of the global downturn, a decade of nearly 10-percent GDP growth per year has come screaming to a halt. Some international institutions have predicted a 2 percent contraction this year.
"It is apparent that the country's economic boom did not have a solid grounding, with the origins of growth being narrow and restricted to four sectors - garment exports, agriculture, real estate andconstruction, and tourism," Danny Richards, the Economist Intelligence Unit's (EIU) Cambodia analyst, said Thursday by email.
The most recent official figures available show garment, textile and footwear exports dropped almost 20 percent in the first two months of this year compared with 2008.
Tourism, another key export earner, was also hit hard. Figures from the Ministry of Tourism show arrivals fell 1.2 percent in the second half of 2008 after growing 12.6 percent over the first six months. Cambodia Association of Travel Agents President An Kim Eang told the Post last month that tourist arrivals dropped 6 percent in the first two months of 2009.
If Cambodia was to follow the IMF's advice and attempt to rebalance to get away from a reliance on export dollars, it would do well to look at China.
Previously a textbook example of how a country could export its way out of poverty, it has led the way since the crisis began by boosting domestic demand on the back of a $580 billion stimulus package announced in November.
But as Stephane Guimbert, the World Bank's chief economist for Cambodia, points out, Cambodia's small domestic economy will prevent it following China's lead. "In Thailand or China you can rethink your model because you can live on your domestic market, but we don't think it is a viable option for Cambodia," he said. "The model might be adjusted somewhat, but at the end of the day exports will remain key for Cambodia's growth in the future."
Friday, 15 May 2009