World Bank identifies key areas to address for growth
World Bank identifies key areas to address for growth
Amid global economic uncertainty and ongoing geopolitical competition, the World Bank’s economists have identified four key areas for local governments to address, crucial for sustaining growth and achieving Cambodia’s goal of becoming an upper-middle-income country by 2030.
Sebastian Eckardt, practice manager for Macroeconomics, Trade and Investment in the East Asia and Pacific Region at the World Bank, and Faya Hayati, senior economist for Cambodia at the bank, said the Kingdom has shown remarkable progress over recent decades.
Their December report, “Cambodia 2030: Economic slowdown offers opportunity to speed up reforms”, highlighted the country’s sustained average growth rate of 7% per annum prior to the Covid-19 pandemic, with public debt remaining below 40% of GDP.
“The rapid growth translated into equally rapid gains in poverty reduction, with the rate in Cambodia declining to 18% in 2020 from 26% six years earlier,” it said.
“This means 1.2 million fewer Cambodians live on $2.70 a day or less. Despite this impressive achievement, 50% of Cambodians still live on only $4.15 or less a day. To achieve its 2030 vision of becoming an upper-middle-income country and to further reduce poverty,Cambodia needs to maintain a high rate of growth,” it added.
The global economic landscape, burdened by tight financing, high debt and growing geopolitical and economic tensions, predicts a continued slowdown in growth for a third consecutive year in 2024.
“Anaemic global trade and investment flows dim the short-term outlook but also raise concerns over longer-term prospects, especially for developing countries. As a small open economy, Cambodia has not been insulated from these global developments,” the economists said.
The economists advise the local government to focus on four areas: further improvements to the business environment; upgrading infrastructure and logistics; enhancing learning outcomes; and addressing the complexities of climate change in the country’s development.
The report noted that enhanced advancements in the business climate are essential for bolstering the productivity and competitiveness of Cambodian firms.
It said that high business costs reduce competitive positioning on the world stage and hinder innovation and shifts into higher value activities.
“To help support increased private sector investment, Cambodia needs to strengthen the predictability of the regulatory environment and expand small and medium-sized enterprises’ [SMEs] access to finance,” the economists suggested.
According to their report, the second issue, infrastructure and logistics, is also critical.
It said Cambodia faces a substantial infrastructure financing gap, leading to inadequate services struggling to meet growing demand.
“Large investments are needed in the energy sector to address the dual challenge of meeting rapid growth in electricity demand while meeting the country’s climate change commitments,” it stated.
It added that investments are also required to upgrade basic urban services like piped water, sanitation, solid waste management, telecommunications and transport, in conjunction with strengthened urban planning.
Addressing skills shortages and developing a “future-ready” workforce is crucial for driving productivity growth in Cambodia. Firms report growing skills shortages, and labour productivity growth has declined sharply over the past five years.
The World Bank’s Human Capital Index suggests a child born in Cambodia today can only expect to achieve about half of their potential lifetime labour productivity even if they receive adequate education and health services.
Alarmingly, only a small percentage of 15-year-olds in the country reach a baseline level of performance in key subjects.
“This directly affects children’s opportunities to participate in and contribute to Cambodia’s future prosperity,” the report stressed.
On climate change, the recent Cambodia Country Climate and Development Report (CCDR) by the World Bank shows the country’s heavy exposure to climate risks.
“Our simulations show that losses from climate impacts could amount to as much as 9% of the GDP by 2050 without adaptation,” it warned.
“Fortunately, these losses can be significantly reduced through targeted … measures,” it added.
On August 24, Prime Minister Hun Manet launched the first phase of the five-year Pentagonal Strategy, aiming to transform the Kingdom into an upper-middle-income country by 2030 and a high-income country by 2050.
Reflecting on the past 25 years of rebuilding post-war Cambodia, the prime minister envisions the next 25 years as a new cycle to build a strong nation.
The strategy, with five phases, prioritises roads, people, water, electricity and technology in its first phase.
Manet outlined that phase one aims to ensure crisis-resilient economic growth, create jobs, reduce poverty, improve governance and public institutions and guarantee sustainable socio-economic development.
