Cambodia reaffirms ambitious 2030 roadmap commitments - Khmer Times (2024)

It was the best of times, it was the worst of times… thus Covid-19 re-played a small part of Dickensian history where Cambodia is not left behind.

Yet, the Kingdom aspires to wriggle out of the despair unleashed by Covid-19, war and other global crises and raises its head to march ahead setting new targets for 2030 and then graduating itself to 2050.

Khmer Times looks at the blueprint enunciated by the government and economists.

Cambodia’s resolve to become an upper-middle-income economy by 2030 and a high-income economy by 2050 even as the country has been affected by the complex global storms remains unshaken, said senior officials of the Ministry of Economy and Finance (MEF). The government has set macroeconomic and financial strategies on the strong economic resilience base in response to these hard times.

The official termed the year 2023 as a ‘special year for Cambodia’ and a test for the government’s leadership to overcome the subsequent crises that have been transformed from risks into reality—rising inflation, rising interest rates and the Russia-Ukraine war, while the economy has strived to recover the severe effects caused by the Covid-19 pandemic—an “ongoing nasty storm”.

Addressing the opening session of the Macroeconomic Management and Budget Law 2023 at Sofitel Phnom Penh Phokeethra on Wednesday last week, MEF’s Secretary of State Vongsey Vissoth termed the challenges as “perfect storms” — geopolitical, economic and climate crises — have also happened for the first time ever over the last 70 years, even as the previous storms have not gone yet.

“The geopolitical and security crises have not been mitigated, but more tightened,” said Vissoth, adding that these crises include the Russia-Ukraine war and the crisis in Taiwan. “These crises have deepened and as a consequence economic crisis has deteriorated, while the nasty climate issues have happened in many parts of the world amid weakened global economies,” he said.

“The ambition is high and difficult due to the complicated issues to come, but we have a philosophy saying difficulty does not make us afraid, but it is the base or reason why we need to work harder. This is our strength. So, we must not be afraid of difficulty, but we need to work well together… That’s why the macroeconomic and budget management will respond to all concerns and challenges that our country has been facing,” Vissoth said.

During his keynote address at the opening of the 14th Cambodia Outlook Conference in early October last year, Prime Minister Hun Sen raised the question of whether Cambodia can achieve its goals of becoming an upper-middle-income economy by 2030 and a high-income economy by 2050 or not, amid the economic uncertainties the country has been confronting the negative effects of the global economy.

Prime Minister Hun Sen further said Cambodia has been passing through a challenging phase mainly due to the impacts of the Covid-19 pandemic, Russia’s invasion of Ukraine and economic sanctions imposed by the US and European Union.

“So, it should be assessed beforehand to see whether or not the targets are achievable. If the targets are achievable, what preparations should be there in place? This should be discussed and studied on behalf of the government that takes thinking ahead with ownership to respond to possible measures including things that have not happened such as nuclear war as there are daily warnings daily from certain quarters,” said the Premier.

The Premier added that previously the GDP growth was over 7 percent per year as the situation was normal then, but after that, the economy was attacked by Covid-19, the Russia-Ukraine conflict, sanctions, oil crisis, food crisis, inflationary pressure and disastrous climate change. “The government has been striving to transform the crisis into opportunity through in-depth reforms to promote the business environment and enhance the competitiveness of the country,” he said.

The government has also released and expedited the implementation of strategic policies for the development of major industries such as garment, automobile, electronics, agriculture, tourism, posts and energy efficiency, Mr Hun Sen said.

According to experts and officials, Cambodia’s goals to become an upper-middle-income economy by 2030 and a high-income economy by 2050 are achievable if the country’s GDP recovers to 7 percent per year.

Senior advisor of the Supreme National Economic Council (SNEC) Mey Kalyan said Prime Minister Hun Sen’s suggestion was discussed among panelists. “If the economy is run by the current model, it would be impossible and thus the economic model needs to be changed with well-recommended models as our economic base is not broad enough. It is still a narrow base and the base needs to be widened further with new industries, strengthening agriculture, improving agro-processing and productivity,” he said.

Vissoth said the world’s Gross Domestic Product (GDP) has been re-forecasted by World Bank (WB) to 1.7 for 2023, which is more sceptical than the International Monetary Fund (IMF) that has forecasted that the GDP Growth for this year would be percent 2.7 percent after it estimated that the global economy would grow by 3.2 percent. “The figures have been lower and lower,” he said.

The Permanent Secretary of State of MEF and Minister attached to the Prime Minister also said the economic growths of the world’s main economic engines—US, China and East Asia—have all declined,while one-third of all countries all over the world would fall into economic recession, but the economy of the Association of Southeast Asia (ASEAN) looks good.

Vissoth went on to add that the US, EU and China’s economies are expected to grow by 1 percent, 0.5 percent or less, 4.5 or 5 percent respectively in 2023 and the world’s public debt has reached 100 percent of the global GDP, while on average those of developed countries have grown to 115 percent of GDP, but about 50 percent of GDPs of developing countries.

The world’s supply chain or trade volume has been projected to grow by one percent—the lowest ever—for 2023 after being forecasted at 3.5 percent last year, while the world has fallen into both political and economic fragmentation due to trade, investment and technology wars, especially between the US and China, which may result in two scenarios in the future, he said.

The first scenario is that there would no longer be globalisation as the world would divide its supply chain into two systems—one composed of US in the middle and one composed of China in the middle—for the world to choose, Vissoth explained. “Or, would there be a group in the middle between the two systems,” he said, referring to the non-US and non-China.

Consequently, these scenarios would force the global economy to fall approximately 7 percent on average—about 5 percent lost by developed countries and around 12 percent by developing countries—within ten years, said the legendary economist at MEF. “However, there could be another trend, which means that there would no longer be globalisation and the world would not be deglobalised, but re-globalised,” Vissoth said.

“The current globalisation would no longer work and so the world would need to reset it by applying the centre-based principle to reduce risks of the supply chain the world through being not too dependent on one country. This means diversifying risks in the new international trade system. However, which way would we go? But the first scenario is most likely,” he said.

“However, there is understanding that the first scenario would not provide gain but all loss,” said Vissoth, adding that the re-globalisation trend is currently being led by the World Trade Organisation (WTO) and requires consensus and multilateralism rules. “So, we will continue our tracking how the situation would be, while climate change has also become the world’s topic,” he said.

Vissoth pointed out that the sufferings of China, US, EU and ASEAN would negatively affect Cambodia as the country is an open economy in trade, tourism, investment and official development assistance (ODA) including grants and loans, but Cambodia’s resilience is still strong as its economic growth have been high such as 5.2 percent in 2022 even though it was lower than projection at 5.6 percent, while the world got 3.2 percent. “It is not little,” he said.

Cambodia’s GDP Growth is re-projected at 5.6 percent—approved by Prime Minister Hun Sen—from 6.6 percent for 2023, according to Vissoth. “It is the figure similar to the projections by the main international institutions,” he said, adding that the global economy is expected to grow by 2.7 percent, while WB estimated at 1.7 percent and the ASEAN is the bright spot.

“Last year, tourism and domestic trade such as wholesale and retail recovered, while the manufacturing industry is still strong and non-garment exports and production increased remarkably even though the apparel exports have gone down,” said Vissoth, adding that the growth rate of apparel, footwear and travelling bags has fallen to about 57 percent from about 80 percent.

Vissoth also said exports of agricultural products through both formal and informal channels have grown over 10 percent, while the non-garment manufacturing exports such as bicycles, solar panels, furniture, wooden boards, cables, optic fibres and chips have increased by nearly 30 percent. “The export structure … has been diversified. So, our growth is good,” he said.

The economist also pointed out that Cambodia’s tourism grows generally when that of Thailand and Vietnam grows, while the Southeast Asian Games would play an important role in attracting more tourists, but the construction and real estate have still been in hard times in both 2023 and 2022. “These sectors have still been very tough and could continue if the inflow of foreign investment is still slow especially China,” Vissoth said.

Cambodia’s inflation is expected to fall to 3.2 percent in 2023 from 5.3 percent as the world is hoping on three factors that include falling inflation, China’s withdrawal of zero Covid-19 policy that could be needful for the world’s economy and lastly the winter in Europe would not be so cold. “So, the crises would be slightly mitigated,” he said.

Generally, the exports would grow well this year at about 15 or 16 percent similar to 2022, while the foreign direct investment (FDI) is estimated at a very slightly lower rate—12 percent of GDP or $3 or $4 billion per year and the public debt is still low at approximately 30 percent of GDP, according to the economist, adding that Cambodia’s financial sector is healthy.

Vissoth also indicated that the private debt stock in the country’s banking system has risen to about 180 percent of GDP, which is far higher than the average figure of around 70 percent in poor countries, while about 110 percent among ASEAN countries. “We are at the highest level among developing countries. At one side, it would support the economy,” he said.

The high level of private debt stock—loans provided by banks to private firms—could make risks as currently, the interest rate has risen and so some sectors have started to be affected, especially construction and real estate, while the growth of deposits has also grown even though the pace—about 10 percent last year—is not as much as the credit.

Presenting the Budget Law 2023, Director General of General Department of Budget at Ministry of Economy and Finance Hav Ratanak said external debt represented 99.82 percent—$9,955.08 million—of the total amount of the public debt stock in 2022, while domestic debt took 0.18 percent.

Ratanak also said the debts have been made through bilateral and multilateral agreements, the World Bank, the Asian Development Bank, China and old debt—legacy debt inherited from the previous governments and in Cambodia—in 2022 under its five key rules of public debt management. In Cambodia’s context, old debt refers to ones incurred before 1993.

“Firstly, the demand for public investment has been increasing and so Cambodia has to mobilise more financial resources to fulfill the demand to re-boost the economic growth. Secondly, development projects to be signed this year would be the public investment projects in prioritised sectors such as physical infrastructure, economic productivity and production,” Ratanak said.

The government, however, is set to get more financing at a high concession level and enhance effectiveness in the management and implementation of the projects, while Cambodia’s public debts in the current and medium terms would be still sustainable at low risk and the debt-GDP and national revenue budget ratios are approximately 40 percent and 18 percent respectively.

However, Vissoth said that Cambodia’s international reserves have been reduced to approximately $17 billion in 2022 from over $20 billion in 2021—about $3 billion loss—most probably as the National Bank of Cambodia use the reserves to prevent rising interest rate, depreciation of riel by selling US dollar and buying riel and make payment of foreign debts.

The international reserves are expected to grow back to about
$20 billion based on the assessment made by National Bank of Cambodia. “So, all these reflect
our economic resilience,” Vissoth said.

• Tags: 2030 roadmap, Cambodia