As a small country that relies on external sectors, the Kingdom’s economic growth in 2021 depends on the recovery of the rest of the world, the evolution of the pandemic situation and global trade patterns, which are largely influenced by Sino-US trade disputes, the National Bank of Cambodia (NBC) said in its latest Financial Stability Review 2020 (FSR 2020).
However, it said, the ongoing tensions may encourage international firms to diversify their production across countries, and the ASEAN region, which includes Cambodia, could emerge as a potential destination for those diverted investments.
“Although domestic economic activities are also at risk due to successive community outbreaks of Covid-19, the rollout of vaccinations would help alleviate the situation,” according to the FSR 2020, released on May 31.
Following two community outbreaks on November 3 and 28, the country has suffered from the impact of a third one – first identified on February 20. The novel coronavirus, and especially concerning variants, remains a big threat to socio-economic activity in Cambodia, it said.
“To mitigate the impacts of Covid-19 on businesses and workers in Cambodia, the government has introduced eight rounds of fiscal measures, including tax exemptions, cash transfers, wage subsidies, the SME Co-Financing Scheme [SCFS], the Credit Guarantee Scheme [CGS], et cetera.
“The protracted Covid-19 pandemic could put pressure on the government’s budget at a later date. Moreover, given that a significant increase in private debt has been observed in recent years, as illustrated by the credit-to-GDP [gross domestic product] ratio, the prolonged Covid-19 situation may cause several households and firms to fall into an over-indebted situation and may increase NPL [non-performing loan] ratios and loan restructurings.
“Nonetheless, the country’s recent access to Covid-19 vaccines would help alleviate these risks,” it added.
Given the escalation in daily cases, and limited testing, the lockdown is “imperative” to curb the outbreak, which is reaching “disturbing” levels, Anthony Galliano, the CEO of financial services firm Cambodia Investment Management Co Ltd, told The Post early last month.
“This has always been a strategy of balance, keeping the economy breathing while containing the spread and the options available to the government are now greatly limited as transmission accelerates,” he said.
The Kingdom’s 2021 business confidence index fell to 46.1 per cent from 52.9 per cent in 2019, according to the European Chamber of Commerce in Cambodia (EuroCham).
On the other hand, businesses are optimistic about future economic recovery as 56 per cent plan to invest further in the Kingdom over the next 12 months, the trade body said in its Business Confidence Survey 2021: In the Time of Covid-19.
It noted that while 56 per cent of businesses forecast growth over the next 12 months, compared to 72 per cent in 2019, this should be considered a positive indicator given the ongoing challenges posed by Covid-19.
According to the FSR 2020, Cambodia’s economy is projected to grow 4.0 per cent this year, backed by the expected improvement of external conditions and export diversification.
It said the country’s top export destinations, such as the US, EU and Japan, are anticipated to gradually recover as a result of the rollout of vaccination programmes and additional policy supports.
As a result, the report pointed out that Cambodian exports of garments and footwear, which dropped significantly in 2020, are expected to recover in 2021.
In addition, Cambodia was recently granted duty-free and quota-free access to the UK market, which will offset the partial withdrawal of the EU’s ‘Everything But Arms’ (EBA) scheme. Exports of electrical parts, bicycles and other non-garment items are expected to keep their growth momentum.
Garment Manufacturers Association in Cambodia secretary-general Ken Loo told The Post on May 31 that with the trade preferences granted by other developing countries, the Kingdom would remain a tantalising place with a special draw for investment.
“Cambodia continues to enjoy trade preferences from many developing countries. Once the matter of Covid-19 comes under control, I am confident that Cambodia will continue to be an attractive place for investors and buyers,” he said, pitching travel goods as an investment option.