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Negative Growth to ‘Challenge’ Cambodia: World Bank

[Editor’s note: Cambodia was at first insulated from the financial crisis thanks to its lack of ties to the global finance system. However, as the crisis spread, and US and European consumers slowed their spending, Cambodia’s factories began to feel the pinch, along with agriculture and construction. International finance experts now project Cambodia’s economy will shrink in 2009, a major shift from the galloping growth the country had enjoyed in recent years. Cambodia’s World Bank country director, Qimiao Fan, sat in a recent interview with VOA Khmer in Phnom Penh.]

Q. How has Cambodia’s general economy performed since the economic crisis hit the country?

A. As you know, Cambodia’ economy has been growing very rapidly in the last decade. It had experienced double-digit growth before the economic crisis. However, the global economic crisis has impacted Cambodia very significantly, because Cambodia’s economy depends very much on external demand and on the inflow of foreign direct investment. So the global economic crisis is likely to impact Cambodia’s economy growth in 2009. We are now forecasting about minus 1 percent growth in 2009 for Cambodia.

Q. How will a contraction impact Cambodia as a whole?

A. The negative growth in 2009 is going to impact first and foremost on the poor people. Clearly with the slowdown in the economy and with negative growth in a sector like garments, there are going to be significant lay-offs of existing workers from the garment sector, perhaps also from tourism and construction. So those people who used to be earning an income, sending their salary back to rural areas, will no longer have that income. Secondly, as the economy decelerates, there will be few opportunities for new entrance into the labor market. Therefore, these people will find it very difficult to find a job that can earn them a living. They are likely to find less paying jobs in the informal sector.

Q. Do you think the economic crisis will become a challenge for Cambodia to implement its poverty reduction policy?

A. I think the economy has hit small, open economies, like Cambodia, and now the country has to deal with perhaps a negative growth rate in 2009. Clearly this is going to be a challenge, because the economy needs to grow to create employment for the 250,000 or so new entrants into the market. The economy needs to grow in order for the country to achieve its poverty rate further. So it is going to be a challenge for Cambodia, as it is for other countries around the world.

Q. Under the circumstances, with the economic hit hard by the crisis, what should the Cambodian government do to cope?

A. What I think it would be important for the government to do is to be able to continue to maintain the kind of public expenditure, such as in agriculture, infrastructure and a social safety net. Secondly, I think the crisis is also an opportunity. The country should take this opportunity to further improve its investment climate, so that when the global economy rebounds, Cambodia will be in a better position for that rebound and can become a favorable destination for foreign direct investment.

Q. Do you think it is necessary now for the Cambodian government to plan any stimulus package?

A. Like many other poor developing countries, the country doesn’t…have a lot of money to stimulate the economy. The government needs to make sure whatever expenditure it has goes to priority sectors like agriculture, infrastructure and training workers who have been laid off from the garment sector.

Q. What is the role of the World Bank in helping Cambodia fight the crisis?

A. The World Bank is helping Cambodia in three ways. First, we are working with the government and other development partners to try to have a better understanding of the impact of the crisis, particularly on poverty, on employment and on growth.

Second, at the request of prime minister, the World Bank, together with other development partners, are examining our existing support programs to Cambodia to see if we can accelerate the implementation of existing programs, because we believe it is the best way to help a response to the economic crisis. At the same time, we are currently working with the government, and we will soon be negotiating a $13 million budget support program to Cambodia to help small-holder agriculture and social protection.

Third, we are also working to provide timely advice and analysis to the government to deal with the short-term impact of the crisis, to see how we can help to position Cambodia better when the economy rebounds.