Economic growth in Cambodia along with its other Asean neighbours is expected to accelerate further with the kingdom’s current account deficit narrowing, according to an Asian Development Bank report yesterday.
“Annual GDP growth is projected to be slightly higher at 7.1 percent this year and next. With growth firming up in the major industrial economies this year, Cambodia’s export prospects are robust,” stated ADB’s “Asian Development Outlook 2017”.
According to the ADB, Cambodia’s exports are expected to expand by 11 percent this year, outpacing import growth at 9 percent, with tourism revenues remaining strong this year and next. “The current account deficit is thus likely to narrow to the equivalent of 9.4 percent of GDP this year and 9 percent next,” added the report.
In its outlook for Asean, the ADB stated that after rising 0.1 percentage points to 4.7 percent in 2016, growth will continue to improve to 4.8 percent in 2017 and 5 percent in 2018, “with nearly all Southeast Asian economies showing an upward trend”.
Recovery for global food and fuel prices and in agricultural output will help commodity producers such as Indonesia, Malaysia, and Vietnam,” added the report. “Robust domestic demand – particularly private consumption and investment – will continue to support growth in the sub-region.”
The inflation forecast for Southeast Asia is 3.3 percent for 2017, as projected in the Asian Development Outlook 2017, despite some revisions for individual economies. It said that the upward revisions for Cambodia, Malaysia, and Singapore were balanced by downward adjustments for Brunei, Laos and Thailand.
“Strong domestic demand and increases in local food prices underpinned the upward revision to Cambodia’s inflation forecasts,” the report said. “Higher international prices for oil and other commodities should nudge inflation up to 3.4 percent this year and 3.5 percent in 2018,” it added.
The ADB cautioned that since Cambodia is a highly dollarised economy, it must be careful to align minimum wage adjustments with productivity increases to keep wage costs in check and stay competitive as a manufacturer for export markets.
The report also pointed out that Cambodia is subject to downside risks, both domestic and external. “Domestic risks stem from vulnerabilities in the financial sector partly traceable to its rapid expansion, in particular the proliferation of microfinance institutions,” stated the report.
“On the external front, the risks are weaker growth in the euro area, a sharper-than-expected global tightening of credit, and a surge in the US dollar, which could constrain exports and stiffen competition from other low-cost producers,” it added.
In mid-March, the National Bank of Cambodia set the interest rate cap of 18 percent per annum for microfinance institutions, deposit-taking MFIs and licensed rural credit institutions. It came into force on April 1.
The cap was intended to back government policy that helps the poor, curbs indebtedness and alleviates poverty, as well as protects customers from being charged high interest rates from financial institutions. The interest rate cap also encourages MFIs to exercise caution when making out loans to its clients.