The World Bank presented a bleak outlook for Cambodia’s economic prospects on Friday, with its annual update for the country projecting a growth rate of between negative 1.0 percent and negative 2.9 percent, the worst slowdown, it said, since 1994.
The development bank’s annual Cambodia Economic Update was released on Friday. It projected that the coronavirus pandemic-induced slowdown had affected three of Cambodia’s economic engines – tourism, manufacturing exports, and FDI inflows. The three sectors account for 70 percent of growth and 40 percent of paid employment.
“The global epidemiological and economic crisis unleashed by COVID-19 poses the greatest threat to Cambodia’s development in its 30 years of modern history,” reads the first sentence of the report.
“As a result, the economy in 2020 is expected to register its slowest growth since 1994, contracting by between -1.0 percent and -2.9 percent,” the World Bank reported.
The report presents a relatively dire outlook for the Cambodian economy compared to the Asian Development Bank, which in April projected the economy to post positive growth of 2.3 percent. The International Monetary Fund in April projected Cambodia’s growth to shrink by 1.5 percent, an 8.5 percent swing away from its 2019 growth of 7 percent.
According to the World Bank report, the slowdown would worryingly increase poverty between 3 and 11 percent, on account of a 50 percent loss in income for households engaged in tourism, wholesale and retail trade, garment, construction, or manufacturing.
The potential increase in poverty would be in line with the findings of the United Nations Development Program’s report on multidimensional poverty, which showed that while Cambodia had made progress on reducing income poverty, 13.2 percent of the population was living in severe multidimensional poverty and 21 percent was vulnerable to slide back into poverty.
“The collapse of growth drivers has hurt economic growth and put at least 1.76 million jobs at risk,” reads the World Bank report.
Other worrying signs reported by the development banks was the halving of approved FDI investment for the first two months of the year, the continuing trend of rising domestic bank credit to the construction sector, and immense pressure on the job market on account of returning migrant workers.
The government has revealed that around 90,000 migrant workers have returned since March and Interior Minister Sar Kheng hinted last month that many could return to poverty without government intervention.
To mitigate the downsides, the World Bank said it was critical to provide support to households to stave off poverty and facilitate policies to ensure economic recovery, but also to ensure economic and social resiliency once the outbreak has been brought under control.
Despite some measures to provide monetary relief directly to individuals, the government has relied on tax relief and support for the financial sector. Plans to help identify poor Cambodians have yet to materialize.
Chan Sophal, president of the Center for Policy Studies, said the situation of the disease cannot improve because other countries were still facing the effects of the virus-induced global slowdown.
“It affects our market and tourism and exports. The situation can be more than six months,” she said.
In Channy, president and group managing director of Acleda Bank, said the current economic slowdown will reflect the experiences of the 2008 global financial crisis. He said Cambodia was able to bounce back to positive growth in 2009 and had relatively recovered by 2010.
He did admit that the impact of the 2008 crash was limited to housing, property, and land sector, but that COVID-19 had brought all sectors to a grinding halt.
“I can’t predict whether it [COVID-19] is worse than the crisis in 2008. But it is similar,” he said.