By May Kunmakara
Monday, 23 April 2012
Phnom Penh Post
Olaf Unteroberdoerster, a senior economist at the International Monetary
Fund’s Asia and Pacific Department, talked to Post reporter May
Kunmakara about the Cambodian economy and the future of growth during
the IMF and World Bank spring meetings in Washington.
What is the IMF’s forecast for Cambodia given the current state of its key export markets in the West?
This
is one of the reasons why we have lowered somewhat the growth focus for
Cambodia to 6.5 per cent this year. It is true that Cambodia remains
exposed to the United States and to Europe. One thing working in
Cambodia’s favour is that the access to the European market is not yet
fully exhausted. So, even if growth in Europe is sluggish, Cambodia can
still achieve a reasonably high growth rate because it might capture a
lot of market share in the European market. And that’s what we are
hearing from garment exporters in Cambodia.
What do you predict for inflation in Cambodia?
We
believe that the National Bank of Cambodia should stand ready to
normalise its monetary policy stance ... We think that [the low reserve
requirement] is just the kind of support to growth that is now no longer
needed. Growth in 2011 was very strong. If you [subtract] the impact of
the flood on overall GDP growth and just look at non-agricultural GDP
growth, it was 7.5 percent – that’s very high. And we also see that
growth in 2012 is likely to be fairly robust at over 12 per cent. So
it’s important the NBC take a firm stance on its commitment to price
stability. We believe that it should be ready to raise reserve
requirements and to signal that it is committed to the price stability
goal.
What are the main challenges facing Cambodia’s financial sector?
Cambodia’s
financial sector has come out of the global financial crisis relatively
unscathed. We had seen in 2008 that deposits slowed at some points, and
also credit growth slowed, but the banking system had remained
relatively strong. And when confidence returns, your credit growth
resumes. So these are positive developments, but we also have to be
mindful that the banking system is still at the early stage of the
development.
What about Cambodia’s current-account deficit?
Our
view is that Cambodia’s current account reflects the early stage of
development and a need for further investment in the country. And it
also reflects the need of funds for the investment and power sector –
hydropower plants. Our view is that as long as these investments remain
productive and pay off and allow Cambodia to develop, and as long as
such finance is [long-term and stable], the current-account deficit does
not pose a problem.
What can you say about the Kingdom’s ability to attract foreign direct investment?
What
we see is that in the past FDI was mainly in tourism and garments. But
what we are seeing now is more diversification and also other
manufacturing firms outside the garment sector are beginning to invest
in Cambodia. And we expect this trend to continue if Cambodia makes
improvements in infrastructure, in power generation, improvements in
investing in education and skills in the labour force and continuing the
improvement in all governances and service delivery.
How do you see the Cambodian business environment?
We
hope that the business climate continues to improve and that these
investments will materialise and help Cambodia to grow and catch up in
the other economies in the Asian region. We have to be careful when we
talk about business climate because we see all the global rankings and
Cambodia does not rank very high. But I think we also need to be seeing
that the country is moving in the right direction. Cambodia has been
doing very well in attracting garment companies and investors. But what
we would like to see is more diversifying in the economy. That will help
Cambodia be more resilience to shock in the future.
To contact the reporter on this story: May Kunmakara at may.kunmakara@phnompenhpost.com
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