The International Monetary Fund (IMF) has released projections indicating that global growth is expected to worsen and bottom out in 2023, as “stubbornly high” interest rates, banking stresses in the US and Europe, and the Ukraine conflict cool activity and add uncertainty into an already complex economic situation.
“But despite the sombre backdrop of a challenging year for the world economy, Asia and the Pacific remains a dynamic region,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department (APD), said in mid-April.
Economic growth in the Asia-Pacific region is forecast to rebound to 4.6 per cent in 2023, revised up 0.3 percentage points from the figure that the IMF put forth in October largely as a result of China’s post-Covid-19 reopening, he noted.
Davide Furceri, new Article IV Mission Chief for Cambodia, sat down with The Post’s May Kunmakara in Washington DC on the sidelines of the 2023 World Bank Group-IMF Spring Meetings to discuss the Kingdom’s economy, as well as the related risks and challenges.
What does the economic outlook look like for Cambodia in 2023 and 2024?
We’re currently projecting growth to accelerate from five per cent in 2022 to 5.8 per cent in 2023, and then 6.2 per cent in 2024. These are upgrades of 0.4 percentage points for 2023 and 0.1 for 2024 compared to the latest Article IV that we published at the end of last year.
These upgrades were basically motivated by stronger projected growth in the tourism and service sectors, which is mostly credited to China’s reopening at end-2022.
However, there’s considerable uncertainty in the outlook. On the one hand, we have significant downside risks associated with a sharper-than-expected slowdown in the US and Europe. But there’s also upside potential, as the tourism sector may perform even better that our current projections.
How damaging could a sharp slowdown in the US and Europe – key importers of Cambodian goods – be for the Kingdom, and what steps could it take to create an adequate cushion for growth against possible shocks?
I believe the US accounts for 40 per cent of Cambodia’s exports, and the Euro area about 20 per cent. Thus, if these economies were to decelerate, this would lead to significant slowdown for Cambodia.
Our estimates suggest that a one percentage point drop inUS GDP (gross domestic product) growth would translate into a 0.5 percentage point decline in Cambodia’s GDP growth.
These are significant numbers, and we’ve already seen exports contract in the first part of 2023 compared to last year. We expect that the US and Euro area economies will recover towards the end of this year going into the next. We also expect export growth to pick up at some point later this year.
What I believe countries should do is: to continue doing what they’re doing – in some sense.
They should set up policies to diversify export markets, encourage more investment in high-value manufacturing sectors and human capital, and also strengthen reforms that could improve business climate and governance, which will additionally help to attract more FDI (foreign direct investment) in the short term.
What will be the key to offsetting headwinds to growth, given the state of Beijing’s economic reopening as well as the Kingdom’s arsenal of bilateral and regional free trade agreements – including two bilateral deals with China and South Korea?
All these trade agreements are expected to bring higher growth. I see them increasing the resilience of the involved economies, in different ways, while simultaneously improving and diversifying export markets.
Even amid a hypothetical idiosyncratic slowdown in the US and Europe, the ability to trade with other markets will make your growth more stable, while also attracting more FDI.
I believe there’s a study by the Economic Research Institute for ASEAN and East Asia which quantified that the RCEP (Regional Comprehensive Economic Partnership) could increase GDP in Cambodia by two-to-three per cent in the longer term.
These are important benefits, and the RCEP represents positive development as well as a stepping stone for inter-regional trade cooperation and agreements as well as broader multilateralism.
The IMF has announced that Cambodia’s general government gross debt (GGGD) is projected to increase from 36.5 per cent of GDP at last year’s close to 37.5 per cent at end-2023. Any thoughts?
We’re still discussing with the authorities what exactly is underpinning all these metrics – how much can be attributed to higher revenues, extra collection efforts, or faster GDP growth.
But, as we’ve said before, Cambodia does not face high public debt distress, and these days there’s been lots of talk concerning this issue.
I feel that the authorities have managed to sustain the economy in the short term while pinning down a fiscal consolidation plan over the medium-term. We’ll continue discussing the fiscal stance with the authorities.
What is the IMF’s projection for inflation in Cambodia?
We’ve seen a huge decline in headline inflation in the last year, reaching 2.2 per cent year-on-year in February. We don’t believe there are any particularly potent forces driving increases in inflation, hence we foresee inflation of about three per cent for 2024.
But we also recognise that commodity prices may increase in tandem with the pick-up in economic activity in China, a possible source of risk for the inflation outlook.
This interview has been edited for length and clarity.
