ADB Predicts 7.2 Percent Economic Growth

The Asian Development Bank (ADB) on Tuesday upgraded its calculation of economic growth in Cambodia last year to 7.2 percent, though warned that stagnating child malnutrition rates were a significant threat to the country’s long-term development.

In its annual evaluation of econ­omies in the Asia Pacific region, the ADB’s evaluation of Cambodia’s economic growth in 2012 marked a steep rise from an October prediction of 6.4 percent. Looking forward, the ADB predicted 7.2 percent growth this year and 7.5 percent growth in 2014.

“Increased foreign investment is funding new industries, including the manufacture of automotive parts and processing of agriculture products, as well as diversifying garment production into higher value products,” the ADB said in its Asian Development Outlook report, adding that robust levels of consumption in the country were also contributing to strong economic growth.

Foreign direct investment “surged by 75 percent to $1.5 billion, contributing to an increase in gross official reserves to $3.5 billion, which covers 4.4 months of imports,” the ADB said.

Poullang Doung, a senior economics officer for the ADB, said at the release of the report that while agriculture grew at just 4 percent in 2012, industry was driving growth, as it increased by 9.2 percent.

This came despite continued sluggish growth in Western markets, which caused garment and footwear exports to the U.S. from Cambodia to fall by 1.8 percent to $3.6 billion in 2012, the bank said. Garment and footwear exports to the European Union rose by 10.8 percent to $1.8 billion, according to ADB figures.

“Exports to the U.S. is moderate, however [industry] was bolstered by the exports to the E.U., which is supported by the Everything But Arms initiative that provides duty-free access for Cambodian produces exported to those markets,” Mr. Doung said.

Fed by “remarkable” growth in private lending by banks, construction approvals also picked up last year.

“Not all the projects that were approved last year will have got off the ground, but it sends a message that the construction sector’s sort of coming back,” he said.

Credit disbursals grew an im­pressive 34.1 percent in 2012, reaching $5.9 billion. That growth—which came after 31.7 percent and 26.6 percent growth in the previous two years and has caused the International Monetary Fund to raise concerns of overheating in the banking sector—was likely to be repeated this year, Mr. Doung said.

“I’d like to mention that credit to construction and real estate for the first two months of this year, January and February, has actually expanded quite a lot, actually, 65 percent for construction and 43 percent for real estate,” he said. “It signals that the credit to the private sector, particularly construction and real estate, is going to be robust again this year. With that concern about excessive credit growth, authorities have ex­pressed their readiness to consider a range of balancing macro prudential measures just to curb the excessive credit growth.”

Despite the glowing prognosis for the economy, the ADB highlighted the challenge posed by child malnutrition, which figures show remains a stark problem that could hold back economic growth.

ADB senior social-sector specialist Karin Schelzig said government surveys conducted in 2005 and 2010 showed that, by some measures, the problem was worsening.

The proportion of children under 5 years old that are underweight was unchanged at just over 28 percent, and the proportion of youngsters classified as “wasted,” or too thin, actually rose from 8.4 percent in 2005 to 10.9 percent in 2010, she said.

“The numbers are pretty dramatic; 40 percent of Cambodian children [under 5] are shorter than they are supposed to be,” she said, adding that more than half of under-5s were also anemic.

“This is particularly puzzling because of the very strong performance in terms of GDP [gross domestic product] growth, poverty reduction and reduction in other indicators such as maternal mortality, child mortality. They’ve all come down and yet malnutrition persists,” she said.

Ms. Schelzig said the causes of malnutrition were linked to a lack of availability of nutritious food as well as access to safe water and toilets.

A failure to act would impact the economy for generations to come, she said, taking for example a Cambodian born now, who would be leaving school and entering the workforce in about 2030.

“If her cognitive abilities are seriously impaired by…malnutrition in the first 1,000 days, then her productivity levels as she enters the workforce will be certainly below potential and definitely well below the requirements of an increasingly sophisticated economy, which is where Cambodia is headed, of course,” Ms. Schelzig said.

Hang Chuon Naron, secretary of state at the Ministry of Economy and Finance, said that malnutrition was largely a behavioral and sanitation problem and should not be blamed on a lack of inclusion in Cambodia’s economic growth.

Malnutrition is “the problem of habit, the problem of diet,” he said, adding that the government was planning educational efforts to address the problem.

He cited figures from the 2011 Cambodian Socio-Economic Survey to point out that alongside impressive economic growth, the poverty rate in Cambodia has decreased dramatically.

“Since 2004, poverty has reduced from 50 percent, to 20.5 percent in 2011,” Mr. Chuon Naron said.

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