ADB downgrades economic growth estimate to 2.3%
Asian Development Bank (ADB) country director for Cambodia Sunniya Durrani-Jamal said the government can draw from the bank’s $6.5 billion initial package to address the immediate needs of its developing member countries (DMCs) as they respond to the Covid-19 pandemic.
The package was announced on March 18 and aims for the DMCs “to stimulate their economies and provide social protection”, Durrani-Jamal said in the Asia Development Outlook 2020 (ADO 2020) released on Friday.
She said the government’s focus should be on Covid-19 containment, without which the recovery of the tourism and services sectors will be difficult.
Early last month, a fiscal stimulus plan of $800 million to $2 billion, equivalent to seven per cent of the gross domestic product, was announced to ease the overarching effects of the coronavirus in six months to a year.
The allocation of funds was based on two scenarios – $800 million for six months and the full $2 billion if the pandemic lasts longer than a year.
On March 31, the government issued a second stimulus package – a three-month minimum tax exemption for the aviation sector and an exemption on all types of monthly taxes for tourism operators.
The minimum 10 per cent tax exemption applies from March to May for airlines operating in Cambodia.
Meanwhile, the government also expanded the scope of its 20 per cent sponsored contribution mechanism to workers and employees affected by the suspension of operations in the tourism sector.
On February 24, Prime Minister Hun Sen had announced that all workers employed by suspended factories should receive at least 60 per cent of the minimum wage.
Employers would be required to pay 40 per cent while the government would provide the other 20 per cent.
The ADO 2020 noted that the ADB downgraded its economic projection for the Kingdom to 2.3 per cent this year despite a strong growth of around seven per cent annually over the past two decades.
Meanwhile, the latest World Bank report sharply revised Cambodia’s forecast economic growth for 2020 to 1.0 per cent (lower case) and 2.5 per cent (baseline), from around seven per cent previously, depending on two scenarios, it said, in a report released on March 31.
The baseline scenario showed severe growth slowdown followed by a rebound to 5.9 per cent next year while the latter indicated deeper contraction followed by a sluggish recovery.
The foreboding outlook, which includes the likelihood of increased poverty, revealed the magnitude of potential economic distress and the need for urgent action.
“Containment of the pandemic would allow recovery but the risk of durable financial stress is high even beyond 2020,” the World Bank said.
The ADO 2020 said: “The slowdown is mainly affected by the new coronavirus disease [Covid-19] pandemic, the resulting economic slowdown in the major advanced economies and the People’s Republic of China [PRC] and the country’s reduced assess to export markets.”
Durrani-Jamal said: “Cambodia’s economy is expected to rebound to 5.7 per cent in 2021, assuming that the pandemic ends and economic activity normalises.
“Facing unprecedented challenges posed by Covid-19, the Royal Government of Cambodia has taken the right steps to respond to the crisis, including providing wage support for garment workers and tax and credit relief for businesses.
“The government has also created the fiscal space to minimise the economic impact of this crisis, especially on the most vulnerable people,” she said.
The ADO 2020 said the service sector is expected to contract by 1.7 per cent this year as tourism drops and growth in real estate slows.
Industry growth is forecast to slow to 6.5 per cent, with deceleration in garment production for exports and slower growth in construction.
Inflation is expected to remain low, averaging 2.1 per cent this year and remaining subdued next year, as international fuel prices remain low, it said.