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ADB Revises Down Cambodia’s Inflation Forecast

Tourists visit the Angkor Wat temple in Siem Reap, Cambodia, Wednesday, March 14, 2018. The temples were built between the 9th and 15th centuries. (AP Photo/Heng Sinith)

Economic growth is expected to remain steady at about 7 percent, according to the ADB.

The Asian Development Bank (ADB) has updated its forecast for Cambodia, revising down its estimate of the country’s inflation rate to 2.6 percent from 3.2 percent.

Economic growth is expected to remain steady at about 7 percent, according to the ADB.

“A stable exchange rate and only modest increases in food prices more than offset inflationary pressures from higher international oil prices, calling for downward revision of inflation forecasts for this year and next,” the ADB said in a statement.

The annual growth for the country this year and next year is forecast to remain at 7 percent thanks to two-digit export growth, hikes in tourist arrivals – notably a “whopping” 72.6 percent rise of arrivals from mainland China in the first seven months -- and robust domestic consumption, the ADB said.

According to the Tourism Ministry, Chinese tourists stood overwhelmingly on the top of the list of tourist arrivals, with more than a million out of 3.4 million tourist arrivals in the first seven months this year.

Stephen Higgins, founder of consultancy firm Mekong Strategic Partners, echoed the ADB’s forecasts on growth and inflation, but said that attention should be paid to the reliance on a single tourism market, an apparent reference to China.

“As a banker, you consider it a risk factor if a client has too much reliance on a single customer,” Higgins said in an email. “At a country level, it is no different, and Cambodia should avoid too much reliance on any single market, whether that is tourism or any other sector.”

Senior Asia economist Miguel Chanco at the researching firm Pantheon Macroeconomics said he agreed that the tourism industry’s growing reliance on Chinese tourist arrivals would impact on “future swings in bilateral ties”.

“As the example of Vietnam in the wake of its maritime stand-off with China in 2014 showed, Beijing has the ability and the willingness to limit flows of Chinese tourists to countries it is in a spat with,” Chanco said in an email, adding that it was not a problem in the foreseeable future and the current status of strong Sino-Cambodian ties would continue to support growth.

The outlook notably made no mention of Cambodia’s political confrontations with the U.S. and the E.U. over a sweeping crackdown on critics in the country and the re-election of the ruling party.

A recent non-binding resolution by the European Parliament called for Brussels to suspend the privileged non-tariff status for Cambodia’s exports to the 28-country market.

The ADB noted that exports to the E.U. and the U.S. reached two-digit growth in the first seven months of 2018, at 13.7 percent and 27.4 percent, respectively.

The international credit-rating firm Moody’s in early August warned that the election-related differences between Cambodia and Western donors could disrupt the injection of aid into the country, which has been trying to fill the gap in its annual current account deficit, which will eventually pose “significant credit-negative effects” on the country’s sovereign debt.

Stephen Higgins of Mekong Strategic Partners said the sanctions should hit individual officials responsible first. He added that the escalating trade tension between the U.S. and China could give markets like Cambodia an opportunity.

“Anecdotal evidence is that Cambodia is already starting to see an uptick in interest from manufacturers looking to leave China as a result of the trade war,” Higgins said.

A senior economist at the ADB’s local office in Phnom Penh did not return a request for comments.

Finance Ministry officials also declined to comment.