世界发展银行-Cambodia-Economic-Update,-June-2021---Road-to-Recovery_60页_6mb

Cambodia Economic Update Summary - June 2021

Core Content

This report provides an overview of Cambodia's economic developments and outlook for 2021, with a special focus on Government-to-Person (G2P) payments for social benefits. It outlines the impact of the pandemic, the government's response, and the key challenges and policy recommendations for recovery.

Main Points

Recent Economic Developments

• Economic Recovery: Cambodia's economy, which contracted by 3.1% in 2020, has gradually recovered, though the recovery remains uneven, partial, and volatile due to recurring lockdowns and local outbreaks.
• Coronavirus Outbreaks: Despite containment efforts, local outbreaks resurged, particularly in urban centers like Phnom Penh and Takhmao. As of May 31, 2021, there were 30,094 cases and 214 deaths.
• Vaccination Program: The vaccination program began in February 2021 and accelerated in May. A national strategic plan was introduced, aiming to vaccinate 5 million people by November 2021.
• Export Recovery: Goods exports (excluding gold) grew by 12.2% in the first four months of 2021. GFT (garment, footwear, travel) exports, which had contracted by 13.2% year-on-year in January 2021, recovered to 10.2% and 27.8% in March and April 2021, respectively. Exports of bicycles and vehicle/electronic parts also saw strong growth.
• FDI Inflows: FDI inflows began to recover, reaching $3.4 billion or 13.6% of GDP in 2020, up from $3.5 billion or 13.2% in 2019. The country is leveraging free trade agreements like the CCFTA and RCEP to attract more diverse investment.
• Construction Sector: The construction sector remained subdued due to excess supply, with approved construction permit values declining by 41.5% in the first four months of 2021. Cement imports also dropped by 19.2%, while steel and cooling equipment imports rose.
• Agricultural Resilience: Agricultural production remained relatively resilient, supported by increased investment and the CCFTA. However, domestic price volatility affected production, and the wet season rice output was subdued.
• Monetary Policy: The central bank maintained an accommodative monetary policy, including stable exchange rates and low reserve requirement ratios. Broad money growth reached 15.2% in February 2021, and domestic credit and deposit growth stabilized.
• Fiscal Response: The government allocated $719 million for social benefits and recovery interventions in 2021, down from $823 million in 2020. The fiscal deficit widened to 2.7% of GDP, but remained moderate. Public debt increased, though the risk of debt distress remained low.
• Tourism Impact: The tourism sector was severely hit by a prolonged lockdown and a drop in international arrivals. Domestic tourism also faced challenges, with economic activity still below pre-pandemic levels.
• Poverty Increase: Poverty is estimated to have increased due to the pandemic, with potential increases of 5.4–6.0 percentage points. This would add 859,000–950,000 additional poor and reverse six years of poverty reduction progress.

Outlook

• Growth Uncertainty: The growth outlook remains highly uncertain, depending on the course of the virus and vaccine deployment.
• Baseline Scenario: The economy is projected to grow by 4% in 2021, supported by domestic demand recovery, improved external conditions, and FDI inflows.
• Downside Scenario: If containment efforts fail and outbreaks persist, growth could be as low as 1.0%, with a significant slowdown in FDI inflows and a continued impact on export-oriented sectors.
• Post-Pandemic Trajectory: Cambodia's economy is expected to follow a new normal, with moderate short-term growth. Tourism-dependent growth is likely to be delayed until 2023.
• Structural Change: There is a shift in FDI towards non-garment manufacturing and agricultural exports, away from construction and real estate, which were previously dominant.

Key Challenges and Risks

• Ongoing Outbreaks: Prolonged outbreaks and high infection rates threaten the public health system and economic recovery.
• Uncertain Global Outlook: Delays in global vaccine distribution and travel restrictions could prolong the pandemic's impact.
• Export Dependency: Cambodia remains heavily reliant on garment exports, which now account for 45.6% of total goods (excluding gold) exports in the first four months of 2021.
• Financial Stability: High credit growth, particularly to the construction and real estate sectors, poses a risk to financial stability. Non-performing loans (NPLs) are expected to rise, especially in the construction, tourism, and transport sectors.
• Debt and Fiscal Pressures: Public debt is rising, and the country is increasingly dependent on China for loans and development assistance. Fiscal discipline will be critical for long-term stability.

Policy Recommendations

• Accelerate Vaccination: A rapid and widespread vaccination program is essential to reduce hospitalizations and deaths, and to restore economic activity.
• Strengthen Social Assistance: Expand G2P payments and improve the delivery mechanism to support poor and vulnerable households.
• Boost Public Investment: Increase pro-poor and growth-enhancing public investment, including cash-for-work projects, to support recovery.
• Improve Investment Climate: Continue reforms to improve the investment climate, especially for non-garment manufacturing and agricultural exports.
• Leverage Free Trade Agreements: Utilize the CCFTA and RCEP to diversify trade and attract more investment.
• Monitor Financial Risks: The central bank must closely monitor liquidity, capital, and credit quality, and continue macroprudential measures.
• Stabilize the Construction Sector: Address the excess supply in construction and support firms affected by lockdowns.

Special Focus: G2P Payments for Social Benefits

• Social Assistance Delivery: The government has implemented a social assistance delivery program, with over 710,000 households receiving cash transfers by January 2021.
• Improving G2P Mechanisms: The report suggests improvements in the current G2P delivery system, including better registration processes and digital payment systems.
• Digital Payments: There is a need to expand the use of digital payment systems to improve efficiency and reach more beneficiaries.
• Future Scenarios: The report explores potential future scenarios for improving G2P delivery, emphasizing the importance of strategic reforms and technological integration.

Conclusion

Cambodia's economic recovery is fragile and dependent on both domestic and global conditions. The government must continue to support the economy through fiscal and monetary policies, while also addressing structural weaknesses and improving the delivery of social benefits through G2P programs. The pandemic has exposed vulnerabilities in the economy, particularly in the tourism and construction sectors, and the country needs to adapt to a new normal with a more diversified economic model.