IMF Says GDP Growth Still Vulnerable

The International Monetary Fund said Friday that Cambodia's economy is expected to grow as much as 5 percent this year, with slightly higher annual growth pro¬jected for the following years, but cautioned that the country contin¬ues to face significant risks due to the fragility of the global economic recovery.
The estimate follows a two-week consultation between the govern¬ment and the IMF to discuss ways the government can growthe economy, which some economists say is still narrowly based and especial¬ly vulnerable to external shocks.

'We expect that over the median term from 2011 to 2012 and on¬ward, growth will return to its po¬tential, which the estimate is about 6 to 7 percent," said Olaf Unterober-doerster, senior economist for the IMFs Asia and Pacific department Double-digit growth in garment exports, tourist arrivals and growth in agriculture will account for the continuing expansion, he said. "There are risks to this outlook; the global recovery is fer from be¬ing assured as...the Euroarea crisis in May has made clear," he said, adding that further renewed finan¬cial instability could hurt exports in Asia. "This in turn could have an ad¬verse impact on the recovery in Cambodia." A "sluggish" construction sector will keep the GDP from reaching its pre-crisis heights, he said. A late rainy season could also hurt agri¬cultural growth this year, he warned.

In June the World Bank predicted 4.8 percent growth for 2010. Discussions with the govern¬ment focused partly on the need to increase tax collection to improve education and infrastructure, there¬by strengthening the economy, he said. Corruption and the govern¬ment not fully exploiting the tax law continue to keep tax revenues low, Mr Unteroberdoerster said.

"At the moment, Cambodia col¬lects about 5 to 7 percent of GDP in taxes less than a country would normally do sharing the same char¬acteristics of Cambodia," he said. He said improved tax collection
would improve debt sustainability but also help fund areas in need of economic development "[Cambodia] needs to have more roads. It needs a better irrigation system for agriculture to enhance productivity. It needs to have better, more reliable electricity for compa¬nies and manufacturing to be com¬petitive on the world market And it needs a skilled labor force," he said.

Mr Unteroberdoerster said it's difficult to determine how large of a role corruption plays in keeping down tax revenue. "Its a big problem, but I cannot tell you whether this is the single biggest problem or whether this would account for 50 percent of the loss in revenue," he said, adding that the government has made strides but can extract "substantially more revenue though improved ad-ministratioa" He said the passage of the anticorruption law could help.

Finance Ministry Secretary of State Chea Peng Chheang said he did not participate in the consulta¬tion. Several other ministry officials could not be reached for comment In Channy, president of Acleda Bank, said he has few doubts about the recovery, noting that sector-wide loans have grown 20 percent "1 see the economy comes back already," he said noting that more Asian investors will help keep Cam¬bodia less vulnerable to fluctuations in Western economies. "It comes through the growth in the banking sector and there are many new in¬vestors from Vietnam, China and from South Korea," he said.

Ken Loo, Secretary General for the Garment Manufacturers Asso¬ciation in Cambodia, said that garment export growth in the first seven months of the year may not be sustained. 'The growth has not recovered from the decline we experienced in 09. Even if you were to compare 08 and this year you will see a decline of less than five percent" he said. He said some of the growth earli¬er this year was due to expectations that cotton prices would rise, which caused a spike in orders.

Kang Chandararot, executive director of the Cambodia Institute of Develop ment Study, said Cam¬bodia has continued to diversify its agriculture and garment export markets since the crisis began, de¬creasing its vulnerability to the global marketplace. "The risk that our economy will not recover is very low," he said. Mr Chandararot agreed that better tax collection is key to improving the economy.
"Collection will be the central point for the government policy in maing revenue, and making public expenditures." he said

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