Economic growth to ease to 7.0 percent in 2008, inflation remains high: IMF

Written by Meixner, Seth

Friday, 06 June 2008

Cambodia's economic growth is expected to dip into the single digits this year, dropping more than three points to 7.0 percent, the International Monetary Fund said on June 6, citing a slowdown in the Kingdom's key garment sector. But the decrease from 2007's growth of 10.25 percent is not likely to hurt Cambodia's position as one of the region's most robust economies, it said in a statement released at the end of a round of talks between IMF and senior government officials. "Economic activity in Cambodia remains robust, although the pace of growth is expected to ease. ... The moderation mainly reflects slowing garment exports due to weaker external demand and heightened regional competition," the IMF said. The garment sector is impoverished Cambodia's largest industrial employer – giving jobs to more than 330,000 people – and one of the main sources of foreign exchange. But while exports topped $2 billion in 2007, orders plummeted by 46 percent in the last quarter of the year, raising fears that the industry would be badly shaken by increasing competition from China and Vietnam. Inflation, which in January rose to 18.7 percent, will also hold back growth and continue to affect mostly poor Cambodians who have been hit hard by spiraling food and fuel costs. "The mission shared authorities' concern with rising inflation and its adverse effect on the poor," the IMF said. More than a third of Cambodia's 14 million people remain mired in poverty, living on the equivalent of $1 a day. While record-high international oil and food prices have contributed heavily to inflation in Cambodia, domestic commercial bank lending, which increased 100 percent year-on-year in early 2008, has also flooded the economy with cash and added to inflationary pressures, the IMF said. The government has tightened its monetary policies in an attempt to rein in inflation – including raising bank reserve requirements in a bid to curb high credit growth and reduce the demand for loans.