‘Balance fiscal sustainability needs’
‘Balance fiscal sustainability needs’
The World Bank (WB) has warned that developing economies like Cambodia would have to balance the need for fiscal sustainability and mitigate the effects of Covid-19 and the Russian-Ukraine conflict – the two overlapping crises.
Ayhan Kose, director of the WB’s Prospects Group, said these economies should communicate monetary policy decisions clearly, leverage credible monetary policy frameworks, and protect central bank independence.
“[All of these] would effectively anchor inflation expectations and reduce the amount of policy tightening required to achieve the desired effects on inflation and activity,” said Kose.
The Washington DC-based institution’s latest report on global economic prospects maintained that Cambodia’s gross domestic product (GDP) growth at 4.5 per cent this year and 5.8 per cent in 2023.
However, global growth is expected to shrink to 2.9 per cent this year from 5.7 per cent in 2021.
East Asia and the Pacific’s growth is projected to decelerate to 4.4 per cent in 2022 and expand to 5.2 per cent in 2023, reflecting significant deceleration in China.
WB president David Malpass said the crisis in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hampering growth, and that for many countries, recession will be hard to avoid.
“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” said Malpass.
Meanwhile, International Monetary Fund (IMF) deputy managing director Kenji Okamura told The Post recently that the Russia-Ukraine conflict is affecting Asian growth as a result of rising commodity prices and trade.
Although the region has limited direct trade exposure to Russia, it has considerable ties to the rest of Europe, and spillovers from Europe are expected.
He said that policymakers are faced with difficult policy trade-offs, for instance between tackling inflation and safeguarding the recovery, and between supporting the vulnerable and rebuilding fiscal buffers.
“The most pressing challenges stem from global headwinds. Food and energy prices were already increasing. The war adds to those pressures and creates new uncertainty about consumer demand in Europe, one of the largest export markets for Cambodia,” he said.
Okamura opined that Cambodia’s economy would grow at around five per cent this year, and gradually expand to six to 6.5 per cent in the medium term.
This growth rate, he said, is relatively high, even for a developing country.
“Cambodian recovery is so far being driven mainly by external demand for manufactured goods, particularly garments and footwear. The overall outlook is positive, but we see some challenges,” Okamura added.
For Cambodia, the priority is still to protect the most vulnerable segments of the population.
Targeted social support – such as through the cash transfer programme, which was extended in March – can shield the poorest against rising prices in crucial commodities.
“Other support measures – such as measures to support credit and tax breaks – will have to be judged carefully, making sure that the economy is supported where needed but without using resources unwisely,” he said.
