Impact of the Global Financial Crisis on Cambodian Economy at Macro and Sectoral Levels
Although the global economy is recovering from the financial and economic crisis that started in 2008, many countries have not returned to their pre-crisis growth rates. Cambodia is no exception. Despite its rich endowment of natural resources, especially minerals, oil and gas, the country still depends on a narrow growth base of just four sectors: garments and textiles, tourism, construction and agriculture. Agriculture apart, heavy reliance on foreign investment and markets makes these sectors vulnerable to external shocks, which have significant consequences for overall and sectoral economic growth and impact disproportionately on the employment and income of workers, who are mainly the poor. There is no evidence of adverse impacts from the global economic downturn on the banking and financial sector, though reports suggest that many foreign investors have withdrawn investment capital from Cambodian banks, which to some extent manifests a setback in the banking sector. Some economists point out that the weak linkage of Cambodia’s banking and financial sector to the world financial system has insulated it from the effects of the crisis. The financial crisis was however a wake-up call for the Cambodian government to review and rearrange its banking and financial policies to avoid a recurrence of the credit crisis that stalled the construction sector. Not everything turned out to be as bad as predicted. Garments and textiles, one of the main engines of Cambodia’s export sector, suddenly picked up amid the start of world economic recovery. Ministry of Commerce figures indicate that the sector’s export performance began to improve in 2010 as demand for Cambodia’s low price apparel products shot up at a remarkable rate. Despite sluggishness in the property market, customs and excise reports show that imports of construction materials have continued to grow. The agricultural sector has performed modestly well and provided a vital safety net for laid-off workers and returning migrants. Milled rice export is currently the focus of government efforts to develop the sector, and newly set production targets should make Cambodia one of the top three rice-exporting countries in the near future. To promote commercial rice production, the government has waived tariffs on agricultural products and encouraged private sector investment in rice processing to grasp higher value-added. National Bank of Cambodia data indicates that disruption to the financial and banking sector’s performance has been negligible while that of microfinance institutions has improved. To tackle the global economic meltdown, the government formulated a series of strategies including fiscal and monetary policies, stimulus packages, and the social equity fund that provides a social safety net to help the poor mitigate the hardship they face, all of which stand the country in good stead for solid economic growth and prosperity.