As the domestic economy continues its vigorous growth, Cambodia’s poor are left increasingly exposed to rising food and fuel prices, which may be greater threats for regional economies than a slowing US economy or turmoil in global financial markets, the World Bank said Tuesday.
Prospects for the Cambodian economy, which grew at an estimated 9.6 percent last year, will “remain strong” with growth forecast at 7.5 percent in 2008 despite slowing exports, the bank said in a biannual review of regional economies.
However, the depreciating US dollar and rising prices in food and fuel drove Cambodia’s inflation rate in 2007 to a nine-year high of 10.8 percent and are likely to cause hardships for those who can least afford them, the bank said.
“High food prices alone are unlikely to pose a serious threat to Cambodian growth. However in a country of mainly net food consumers, the poor—who spend approximately 70 percent of their total household consumption on food—will be adversely affected,” the World Bank said in its report.
“Dealing with high food and fuel prices probably constitutes a greater challenge to governments in East Asia than the financial turmoil in the US and a slowing global economy,” the bank said.
According to the National Institute of Statistics, food prices in Cambodia rose 20 percent in 2007. The World Bank estimates that 35 percent of Cambodia’s population lived below the national poverty line of about $0.45 per day.
Though recent economic woes in the US have caused economists to downgrade growth forecasts for Cambodia and the region due to a feared decrease in US demand for imported goods, the bank predicted Tuesday that growth in East Asia would drop just one to two percentage points in 2008 to 8.5 percent amid growing economic uncertainty.
Regional economies, however, may be well positioned to weather the storm because of their prudent economic policies and reforms of the past decade, the bank said.
While Cambodia’s projected GDP growth of 7.5 percent this year reflects slowing exports, the World Bank’s economists note that the decreasing value of the US dollar may make Cambodian goods more competitive and that tourism and infrastructure projects may continue to drive growth in the construction sector.
According to World Bank Chief Regional Economist Vikram Nehru, the collapse of mortgage-backed securities may have dried up credit markets in the US but has left East Asian banks largely untouched as they currently borrow little.
“If there were to be a sudden contraction of credit to banks in East Asia, the banks in East Asia are not likely to feel it because they’re not that reliant on credit,” he said from Tokyo in a videoconference screened at the World Bank’s Phnom Penh headquarters.
In other regions, companies’ inability to secure credit has slowed economic activity, but this has not been the case in East Asia, he said.
“Domestic credit markets in East Asia have not yet been that disturbed by what’s going on,” said Nehru. Decreasing US demand in 2007 did not cause economies to slow as much as had been feared, he said.
“This suggests that increasingly domestic demand has been a driver in these economies,” he said.
CPP lawmaker Cheam Yeap, chair of the National Assembly commission on banking and finance, said Tuesday he agreed with the World Bank’s assessment and that authorities were already on the case.
“Basically we believe that GDP growth will not stop, but in the meantime this will affect the poor,” he said.
“The government has tried its best to resolve the problem and keep things stable,” he added.
Cheam Yeap also said he doubted US consumers would cease buying clothing altogether and that the government was currently subsidizing petroleum prices at $20 million to $30 million per month and paying rice mills $10 million per year to stockpile rice.
“We will not allow rice to flow freely out of the country like before,” he said.
Prime Minister Hun Sen last week announced a ban on rice exports while lifting the ban on pork imports to boost the available supplies. State-owned agriculture firm Green Trade also opened its rice stockpile for sale to the public.
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