Press Release No. 09/325
September 24, 2009
Source: IMF
The following statement was issued in Phnom Penh on September 23 at the conclusion of an International Monetary Fund (IMF) staff mission to Cambodia:
“An IMF mission visited Cambodia during September 9-23, 2009 to conduct the annual Article IV discussions. During the visit, the mission took stock of recent economic and financial developments and held policy discussions with ministers and senior officials of the Royal Government of Cambodia on their macroeconomic and financial policies. The mission also met a wide range of representatives from the business community and Cambodia’s development partners.
“The global economic crisis is having a larger impact on Cambodia’s economy than previously anticipated, and as a result, real GDP growth is now projected to be negative 2¾ percent in 2009.
• Garment export volumes are projected to decline by 15 percent this year, mainly due to lower consumption in the United States (Cambodia’s key garment export market) and intense competition from regional producers, who have raised their market share by strengthening competitiveness.
• In the tourism sector, air arrivals have fallen by double digits, reflecting the global recession, rising unemployment, and falling incomes in most of Cambodia’s tourism-source countries. As a consequence, overall tourism spending is sharply lower, despite the increase in same-day and land arrivals from neighbor countries.
• With few notable exceptions, work on large construction projects has slowed significantly in the wake of falling property prices. New project approvals are sharply lower, and imports of construction materials are down significantly compared to 2008, with bank lending to the property also down.
• Agricultural production is a bright spot, with a good harvest expected in 2009. Investment in rural roads and irrigation systems should raise productivity and reduce operating costs in the period ahead.
“Looking to 2010, there are some hopeful signs that the global downturn may be bottoming out. A pick-up in external demand is expected to lead to a modest recovery in Cambodia’s economy. Growth in 2010 is projected at about 4¼ percent, though risks remain tilted to the downside, given uncertainties over the strength of the global recovery.
“With lower domestic demand and commodity prices, inflation pressures have eased in 2009, with headline inflation expected to be around 5¼ percent (year-on-year) by end-2009. Inflation should remain in the mid-single digits through 2010. However, vigilance is required to ensure that fiscal stimulus does not lead to renewed inflation pressures.
“Policy discussions focused on how best to provide adequate support targeted at priority sectors, while at the same time maintaining macroeconomic stability and low inflation.
“With respect to fiscal policy, the mission welcomed indications that the 2009 budget’s revenue target would likely be met, largely due to commendable administration efforts. However, on current trends, very large increases in the civil service and military wage bill and higher capital spending are projected to raise the budget deficit to 6¾ percent of GDP in 2009 from around 2¾ percent in 2008. The mission estimated that domestic financing of this deficit would imply a drawdown of government deposits of about 1¼ percent of GDP, reversing a long trend of deposit accumulation. This situation bears close watch, since domestic financing of deficits in the past has contributed to macroeconomic instability, placing pressure on the exchange rate and consumer prices. The mission noted that over the remainder of the year, efforts should focus on ensuring continued strong revenue collection and avoiding non-priority spending.
“For 2010, the mission recommended the budget aim to reduce the deficit to under 5½ percent of GDP. This level of deficit would eliminate the need for further large-scale domestic financing, while at the same time provide adequate fiscal space for spending on priority sectors and pursuing key development objectives. The mission cautioned against allowing significant increases in the wage bill to become entrenched, as this could risk crowding out spending on priority sectors such as health, education, and operations and maintenance, and further increase domestic financing needs if not accompanied by significant revenue gains.
“With respect to monetary policy, the mission noted that ample liquidity now exists in the banking system, and agreed with the authorities that there was no need for a reduction in the reserve requirement. The mission also noted that greater exchange rate flexibility through limiting intervention to smoothing volatility would help protect international reserves, deepen the foreign exchange market, and allow the exchange rate to play a greater role in facilitating external adjustment.
‘The mission commended the National Bank of Cambodia for taking actions to safeguard the health of the banking system. As in many other countries, the downturn in Cambodia’s growth has been accompanied by rising non-performing loans at banks. The mission and the authorities fully agreed that close supervision of banks and strong enforcement of prudential regulations needs to continue, especially proper asset classification and provisioning of non-performing loans.”
Friday, September 25, 2009
Thursday, September 24, 2009
Cambodia's economy hit hard by U.S. slowdown - IMF
PHNOM PENH, Sept 23 (Reuters) - Cambodia's economy, one of the fastest growing in Southeast Asia just two years ago, will probably contract by about 2.75 percent this year, hit hard by the slowdown in the United States, the IMF said on Wednesday. "The global economic crisis is having a larger impact on Cambodia's economy than previously anticipated," David Cowen, deputy division chief for the International Monetary Fund's Asia and Pacific Department, told a news conference.
However, the economy will rebound next year with growth of 4.25 percent, added Cowen, who led a team that recently met with local finance officials as part of an IMF mission to Cambodia.
After decades of war and upheaval, including the Khmer Rouge "killing fields", Cambodia witnessed an unprecedented boom before the global financial crisis struck, its economy expanding at around 10 percent annually in the five years leading up to 2008.
The growth, fuelled mainly by garment manufacturing, tourism and real-estate development, came to an abrupt halt during the global recession. Garment export volumes are likely to fall by 15 percent this year, hit by the weak U.S. economy, Cowen said.
Tourist arrivals have fallen by double digits, Cowen said, noting that recent signs of improvement may reflect day-tripping arrivals from across the border rather than wealthier tourists from other parts of the world whose spending lifts the economy.
"Exports are contracting. So we are likely to see negative export growth in Cambodia in 2009. Imports are contracting at an even faster rate," he added, noting that some of that reflected falls in fuel prices.
"The overall level of petroleum imports will be down quite significantly this year," he said.
He expected annual inflation of more than 5 percent near the end of 2009, rising further to about 6 percent next year.
Even though the economy remains one of Asia's smallest, with gross domestic product of around $8.9 billion, international investment had been rising sharply, flowing heavily into the hotel sector, before reversing course in the financial crisis.
Foreign direct investment probably nearly halved to an estimated $490 million this year from $815 million in 2008, with the drop led mainly by construction investment, Cowen said.
Large construction projects have slowed, new project approvals are sharply lower and imports of construction materials are down significantly from last year, he added.
"There's negative growth in construction imports and negative growth in consumer imports."
Bank lending for property was also down, he said, following a real-estate boom that turned the once-sleepy capital into a building site.
But Cambodia's vast agricultural sector, which makes up about 34 percent of the economy, has held up well, with a good harvest expected this year.
And there's ample liquidity in the banking system.
"There has been healthy deposit growth in the system as a whole this year, in part due to very attractive term deposit rates that banks are paying in Cambodia. We have expressed some concern that these high deposit rates could have some impact on bank profitability going forward."
(Writing by Jason Szep; Editing by Alan Raybould)
However, the economy will rebound next year with growth of 4.25 percent, added Cowen, who led a team that recently met with local finance officials as part of an IMF mission to Cambodia.
After decades of war and upheaval, including the Khmer Rouge "killing fields", Cambodia witnessed an unprecedented boom before the global financial crisis struck, its economy expanding at around 10 percent annually in the five years leading up to 2008.
The growth, fuelled mainly by garment manufacturing, tourism and real-estate development, came to an abrupt halt during the global recession. Garment export volumes are likely to fall by 15 percent this year, hit by the weak U.S. economy, Cowen said.
Tourist arrivals have fallen by double digits, Cowen said, noting that recent signs of improvement may reflect day-tripping arrivals from across the border rather than wealthier tourists from other parts of the world whose spending lifts the economy.
"Exports are contracting. So we are likely to see negative export growth in Cambodia in 2009. Imports are contracting at an even faster rate," he added, noting that some of that reflected falls in fuel prices.
"The overall level of petroleum imports will be down quite significantly this year," he said.
He expected annual inflation of more than 5 percent near the end of 2009, rising further to about 6 percent next year.
Even though the economy remains one of Asia's smallest, with gross domestic product of around $8.9 billion, international investment had been rising sharply, flowing heavily into the hotel sector, before reversing course in the financial crisis.
Foreign direct investment probably nearly halved to an estimated $490 million this year from $815 million in 2008, with the drop led mainly by construction investment, Cowen said.
Large construction projects have slowed, new project approvals are sharply lower and imports of construction materials are down significantly from last year, he added.
"There's negative growth in construction imports and negative growth in consumer imports."
Bank lending for property was also down, he said, following a real-estate boom that turned the once-sleepy capital into a building site.
But Cambodia's vast agricultural sector, which makes up about 34 percent of the economy, has held up well, with a good harvest expected this year.
And there's ample liquidity in the banking system.
"There has been healthy deposit growth in the system as a whole this year, in part due to very attractive term deposit rates that banks are paying in Cambodia. We have expressed some concern that these high deposit rates could have some impact on bank profitability going forward."
(Writing by Jason Szep; Editing by Alan Raybould)
Wednesday, September 23, 2009
Drought could have destroyed ancient city
2009/09/23
AP
A PROLONGED and intense drought may have contributed to the demise of Cambodia’s great ancient city Angkor, an American researcher said .
Brendan M Buckley said bands on tree rings that he and his colleagues have examined show that Southeast Asia was hit by a severe drought from 1415 until 1439.
That would coincide with the time period during which many archeologists believe Angkor collapsed. From the city of famed temples, Angkorian kings ruled over most of Southeast Asia between the ninth and 14th centuries.
During that time, they oversaw construction of architectural stone marvels, including Angkor Wat, regarded as a marvel of religious architecture and designated as a World Heritage Site by Unesco.
“Given all the stress the Khmer civilisation was under due to political reasons and so forth, a drought of the magnitude we see in our records should have played a significant role in causing its demise,” said Buckley, a research scientist at Columbia University’s Tree-Ring Laboratory in New York. Scientists have a historical record of droughts with the thickness of a tree’s rings. Since trees grow more during wet periods, the rings will grow thicker at those times. Trees grow less in dry times, so those rings will be thinner.
While the 1431 invasion from Siam – now Thailand – has long been regarded as a major cause of Angkor’s fall, archaeologists working at the sprawling temple site have long suspected that ecological factors played a role. The Greater Angkor Project is run by the University of Sydney in collaboration with the French archaeological group Ecole Francaise d’Extreme Orient and Apsara, the body responsible for the management of the Angkor World Heritage Park. The project concluded in 2007 that ancient Angkor had become unwieldy and that efforts to expand rice production to support a population of one million had led to vast deforestation, top-soil degradation and erosion.
Last year, the group went further to show that the deforestation resulted in flooding and huge amounts of sediment clogging the network of canals that was at the heart of the city’s vital water management system.
Dan Penny, a University of Sydney researcher who is a director at the Greater Angkor Project, said the new findings on drought will help researchers gain a greater understanding of why Angkor collapsed.
“Angkor was a civilisation obsessed with managing water. It was an agrarian society,” Penny said. “It’s hard to imagine that a society like that could have shrugged off 20 or 30 years of drought.”
However, Penny said it was likely that the drought was more of a contributing factor to the kingdom’s demise than a driving force. Not only was it forced to contend with the impacts of deforestation, but also attacks from the Siamese and the Cham of southern Vietnam.
“We have these droughts occurring on top of pre-existing pressures,” Penny said.
“Climate change was an accelerant,” he said. “It’s like pouring petrol on a fire. It makes social and economic pressures that may have been endurable disastrous.”
AP
A PROLONGED and intense drought may have contributed to the demise of Cambodia’s great ancient city Angkor, an American researcher said .
Brendan M Buckley said bands on tree rings that he and his colleagues have examined show that Southeast Asia was hit by a severe drought from 1415 until 1439.
That would coincide with the time period during which many archeologists believe Angkor collapsed. From the city of famed temples, Angkorian kings ruled over most of Southeast Asia between the ninth and 14th centuries.
During that time, they oversaw construction of architectural stone marvels, including Angkor Wat, regarded as a marvel of religious architecture and designated as a World Heritage Site by Unesco.
“Given all the stress the Khmer civilisation was under due to political reasons and so forth, a drought of the magnitude we see in our records should have played a significant role in causing its demise,” said Buckley, a research scientist at Columbia University’s Tree-Ring Laboratory in New York. Scientists have a historical record of droughts with the thickness of a tree’s rings. Since trees grow more during wet periods, the rings will grow thicker at those times. Trees grow less in dry times, so those rings will be thinner.
While the 1431 invasion from Siam – now Thailand – has long been regarded as a major cause of Angkor’s fall, archaeologists working at the sprawling temple site have long suspected that ecological factors played a role. The Greater Angkor Project is run by the University of Sydney in collaboration with the French archaeological group Ecole Francaise d’Extreme Orient and Apsara, the body responsible for the management of the Angkor World Heritage Park. The project concluded in 2007 that ancient Angkor had become unwieldy and that efforts to expand rice production to support a population of one million had led to vast deforestation, top-soil degradation and erosion.
Last year, the group went further to show that the deforestation resulted in flooding and huge amounts of sediment clogging the network of canals that was at the heart of the city’s vital water management system.
Dan Penny, a University of Sydney researcher who is a director at the Greater Angkor Project, said the new findings on drought will help researchers gain a greater understanding of why Angkor collapsed.
“Angkor was a civilisation obsessed with managing water. It was an agrarian society,” Penny said. “It’s hard to imagine that a society like that could have shrugged off 20 or 30 years of drought.”
However, Penny said it was likely that the drought was more of a contributing factor to the kingdom’s demise than a driving force. Not only was it forced to contend with the impacts of deforestation, but also attacks from the Siamese and the Cham of southern Vietnam.
“We have these droughts occurring on top of pre-existing pressures,” Penny said.
“Climate change was an accelerant,” he said. “It’s like pouring petrol on a fire. It makes social and economic pressures that may have been endurable disastrous.”
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