ADB: GDP to Grow 7.1% in 2017

KHMER TIMES
MAY KUNMAKARA

Cambodia’s economy is still highly reliant on the garment industry, according to the Asian Development Bank. KT/Chor Sokunthea

The latest report from the Asian Development Bank (ADB) describes Cambodia’s economic situation in 2016 as “broadly as expected,” as it predicts a slight increase in economic growth of 0.1 percent, to 7.1 percent.

Released yesterday, the update to its annual “Asian Development Outlook” for 2016 presents largely positive data and predictions for Cambodia, and in line with government projections.

In a press release accompanying the report, ADB country director Samiuela Tukuafu described Cambodia’s economy as “robust.”

“The outlook for Cambodia’s economy, after attaining lower-middle-income status in July, remains robust with exports from the garment and footwear industry rising by 9.4 percent in the first half of this year,” said Mr. Tukuafu.

“Better weather since June, following an extended drought, should help a mild recovery in agriculture.”

Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia, said that the ADB’s update is largely in line with the predictions of the World Bank and the International Monetary Fund.

“I am of the opinion that the estimates of ADB and others are agreeable. The economic situations of export destination countries, such as the US, European Union and Japan are not so bad. The most important engine of the Cambodian economy, exports, will continue to enjoy good performance for the time being,” Mr. Suzuki said.

The ADB’s GDP growth predictions are the highest among Cambodia’s neighbors, just beating Laos at seven percent, with Vietnam predicted to have 6.3 percent growth and Thailand 3.5 percent.

David Sok Dara Marshall, of research firm Mekong Strategic Partners, said that the report highlights the economy’s heavy reliance on the construction, garment and agricultural sectors, and that efforts to upscale light assembly and manufacturing work needed to be sustained.

“Cambodia needs a strong manufacturing sector as no economy has been able to lift itself out of the [lower] middle income trap without it,” Mr. Marshall said. “Cambodia needs productivity growth in the garment and agriculture sectors and it needs a robust light manufacturing base.”

The report shows the value of merchandise exports increasing by 12.3 percent in the first six months of the year, up from 9.4 percent from the same period last year. At the same time, growth in merchandise imports slowed to 7.3 percent from 17 percent last year, a sign that Cambodia’s domestic production was increasingly meeting local demand.

Regarding the financial sector, the report notes that government revenue had increase by 24.1 percent due to “improve[d] tax collection,” but that this has been offset by 15.6 percent increase in government spending, meaning that the budget deficit, minus grants, will increase to 4.3 percent of GDP.

Due to “solid domestic demand and higher food prices,” coupled with global oil prices, inflation forecasts for the year were increased to 2.8 percent, rising to 3.4 percent for 2017.

However, the ADB had revised the slight increase of inflationary rate to an average of 3.4 percent, due to the rise in global oil prices.

In another ADB report, released last week, comparing tax administration across 21 Asian and Pacific economies, Cambodia’s tax systems fared rather poorly.

Describing the tax administration structure as “largely functional,” the report notes that less that 14 percent of the country’s GDP comes from tax collection, ranking it third lowest of the countries featured ‒ just above Myanmar. It was also lower than the 18.8 percent average amongst the 21 countries, which included New Zealand, Australia and Japan, who all failed to meet the OECD’s average of 34.2 percent.

The report notes that 58 percent of Cambodian tax revenue comes from general consumption taxes, the highest in the report, and well above the 20 percent OECD average, and that government efforts to boost online tax collection had been “very limited.”

More seriously, the report notes “abnormal” funding allocations in Cambodia’s general department of taxation.