“Cambodian economy on the road to recovery”

Cambodia’s economy is expected to recover steadily in 2022, mainly due to continued expansion in the manufacturing of garments and other products, the ASEAN+3 Macroeconomic Research Office (AMRO) said yesterday in its update. quarterly update.

He said high vaccination rates have made it easier for businesses to recover, especially in the service sector.

“The strong performance of the agricultural and manufacturing sectors partially mitigated the negative impact of the pandemic and helped push GDP growth to around 2.9% year-on-year in 2021, from a contraction of 3.1% in year-on-year in 2020,” the report said.

However, despite the Kingdom’s relatively open borders, the recovery in tourism is expected to continue at a slower pace, he said.

The recovery of tourism largely depends on the global pandemic situation and the recovery of international and regional tourism, the report points out. Inflation, which remained stable at 2.9% year-on-year in 2021, is expected to increase in 2022 due to higher oil prices, although pork, fish and seafood prices are expected to decline with an expected increase in domestic supply.

“Strong exports in 2021 were driven by agriculture, apparel and non-apparel manufactured goods, as Cambodia benefited from strong external demand, particularly from the United States. Meanwhile, imports rebounded for most major products after the 2020 contraction,” the report highlights.

However, the current account deficit is estimated to have widened in 2021 to around 40% of GDP (20% excluding gold) due to weak remittances and the impact negative on tourism.

He pointed out that the current account deficit should have been partially offset by steady inflows of foreign investment. “Thus, Cambodia is estimated to have recorded an overall balance of payments deficit in 2021, leading to a reduction in international reserves. Nevertheless, external buffers remain large at $20.3 billion, equivalent to 7.9 months of imports of goods and services at the end of December 2021,” AMRO said.

With monetary policy remaining accommodative, liquidity remained abundant in 2021. Credit growth picked up across a wide range of sectors in 2021, exceeding 20% ​​since May 2021, despite rising community cases of Covid-19 . Bad loans remained weak at 2.4%, while the reopening of the economy led to a steady decline in restructured loans.

“The National Bank of Cambodia (NBC) has provided timely and welcome advice to banks on assessing the creditworthiness of increasing provisioning for restructured loans,” he said.

The report highlighted that fiscal policy continued to be expansionary in 2021, with the fiscal deficit rising to 9.2% of GDP from 5.3% of GDP in 2020. In response to the community outbreak of infections in 2021 , the government nearly doubled its Covid -19 package of interventions to $1,291 million, with the bulk allocated to treating and preventing Covid-19, while also increasing the budget for cash transfers to the poor.

Public debt is also estimated to have increased slightly to 34.6% of GDP at the end of 2021, from 33.8% at the end of 2020, as Cambodia dipped into its budgetary reserves to finance the deficit.

He also warned that risks of a large outbreak of new virus variants remain, which could derail the economic recovery.

“A slow and uneven recovery, coupled with economic scarring, can negatively impact businesses and households, leading to higher NPLs. The economic damage caused by the prolonged pandemic may result in permanent job losses and business closures, potentially leading to deterioration in the quality of outstanding loans.

According to AMRO’s projections, NPLs could increase by 1 percentage point from current levels if regulatory forbearance is lifted. However, a larger than expected shock could push NPLs higher, clouding the outlook for economic recovery.

In addition, shrinking fiscal space could limit the government’s ability to provide support should infections spike again, he warned.

“With a $1.7 billion reduction in government savings to help fund the stimulus budget in 2020-21, government savings that can be tapped for discretionary spending have shrunk by almost a third compared to at their pre-pandemic levels,” he noted.

“This steady decline in fiscal savings could limit the government’s ability to provide countercyclical support going forward, especially given the continued risk of new waves of infections from new virus variants. Reduced tax revenue compared to pre-pandemic trends has also made it more difficult to rebuild fiscal reserves,” the report adds.

  • Key words: AMRO, economic recovery

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