The Cambodian economy could be expected to grow by around two per cent this year and five per cent in 2022 with extensive government support and a recovery in external demand, according to the International Monetary Fund (IMF).
An IMF team led by senior economist Alasdair Scott conducted virtual discussions for the 2021 Article IV consultation with Cambodia during September 13-27.
The Washington-based development lender underlined that the Covid-19 crisis triggered a sharp fall in external demand last year that dragged down the economy, and that the Kingdom’s third coronavirus outbreak in 2021 – dubbed the “February 20 community event” marking the date it was first detected – further added to the woes.
“The authorities have responded with measures to contain the spread of the virus and support livelihoods. The government rapidly redirected resources to healthcare while rationalising other current spending. It implemented a system of cash transfers to vulnerable households. Loans and guarantees, tax breaks, wage subsidies, and support for retraining were extended to affected businesses.
“The National Bank of Cambodia [NBC] introduced measures early in the crisis to improve liquidity in the banking system, and issued guidance to banks to facilitate loan restructuring,” it said.
The IMF noted that the Kingdom’s economy has sustained devastating Covid blows despite sweeping government safeguards, contracting by an estimated 3.1 per cent last year, following a decade of growth averaging around seven per cent each year.
“Although activity showed signs of picking up toward the end of 2020, the rapid spread of the virus from February this year has set the economy back again. As in many other countries, the crisis has strained the ability of households and firms to service loans.
“A slow recovery is projected. Staff projects growth of 2.2 per cent in 2021, increasing gradually to pre-crisis rates of 6.5 per cent after a few years. Inflation is expected to remain contained. With non-food and energy inflation subdued, overall inflation is projected to continue around three per cent.
“Future growth depends heavily on the course of the pandemic. Faster containment of the virus in Cambodia and other countries will facilitate resumption of tourism; slower progress would damage growth further.
“These risks appear skewed to the downside at this stage. Risks from before the pandemic include the concentration of banking sector assets in real estate. Past droughts and floods have demonstrated the vulnerability to climate change.
“The IMF stands ready to support the authorities’ reform efforts through policy advice and capacity development activities,” it said.