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Few prospects for 2021 being the year for economic recovery

(Khmer Times: December 15, 2020)

In just over two weeks, the year 2020, which has been severely hit by the pandemic will come to an end, and with that, hope that the year 2021 will bring scope for economic improvement, especially from the likely availability of anti-COVID vaccines.

In October, the Asian Development Bank (ADB), World Bank, and Cambodian government forecast that the Kingdom’s economic growth will rebound by 5.4 percent, 4.3 percent and 3.5 percent respectively in 2021. Previously made projections predicted that the national economy would decline anywhere from 5.4 percent to 1.9 percent in 2020 as a result of the ravages of the pandemic.

The ADB said in a presentation in early December that improved agricultural performance and an increased volume of non-garment manufacturing had brightened the medium-term economic outlook and that Cambodia had managed the COVID-19 pandemic well and was positioned for recovery in 2021.

According to the ADB, the government’s well-timed interventions have helped to minimise the local outbreak of COVID-19 and prudent macro-economic management has enabled the government to use fiscal policy to mitigate its negative effects. The government’s stimulus in 2020, equivalent to 3.1 percent of gross domestic product, included $60 million for health measures, $300 million for social protection and $455.8 million for economic stimulus.

Last month, the National Bank of Cambodia (NBC) said it would allow banks and financial institutions to continue loan-restructuring until mid-2021.

Observing the current progress of business, 2021 would appear to be poised to enter a recovery stage. However, this would inevitably be directly tied to the COVID-19 situation, said microfinance and deposit institution PRASAC’s Executive Vice-President and Chief Marketing Officer Say Sony.

If the vaccine is widely available and effective, the outlook will be more positive. “We keep helping our clients to fight in this hard time together and we are seeing that the trend in clients asking for loan restructuring has declined and we don’t have any problems related to liquidity,” said Sony.

He added PRASAC’s loan portfolio as of Dec 10 reached $3.057 billion and deposits were $2.036 billion. “In 2021, we estimate about 20 percent growth,” Sony added.

Song Saran, chief executive officer and president of Amru Rice, is optimistic that  Cambodia’s economy will rebound strongly in 2021 with increased exports of garments, travel goods and agricultural products and a rise in tourism.

He said that people in the US, European Union and United Kingdom, the main export destinations for garment and travel goods, will likely be receiving vaccines soon and life will return to normal by mid-2021 and with that,  consumer confidence will improve.

“China is a ready market for our agricultural products. The UK has granted the tariff benefits of the Generalised System of Preferences (GSP) to Cambodia and that will include rice from January 2021 onward, so it’s returning our market in the UK back to normal, or perhaps even stronger than before new safeguard measures were introduced,” said Saran.

However, Saran said the private sector really needs the support of banks and the government for the capital and funds needed to boost production and exports. “It really needs the government to stimulate the economy and inject funds towards boosting exports,” Saran said.

ADB Cambodia Country Economist David Freedman said that Cambodia is also diversifying its export capacity, which is key to future growth because the Kingdom’s development has been built on openness to trade. The government has recognised that reforms will be needed in order to sustain growth rates after the 2020 pandemic.

“2021 will see recovery. By the end of 2021, though, the economy will be significantly smaller than it would have been had the pandemic not happened. Freedman noted, “It is a shame that Cambodia will miss out on that missed growth. However, any downside risks can be managed and we could easily expect quite strong growth in the medium term.”

The American Chamber of Commerce in Cambodia (AmCham) President Anthony Galliano said that from an economic contraction of approximately 5 percent, he expects a rebound in 2021 into positive territory, with a slow start to the year culminating in a strong finish in the second half of the year.

“I don’t expect tourism to return to normality for the full year, with only perhaps a resurrection of a tepid high season late in the year. Garments will make a comeback when the Western economies revive. These economies are unfortunately in tatters because most Western countries are experiencing the worst days of COVID since it festered in March – and the worst is yet to come,” he said.

Galliano, added that consumer buying, which drives garment exports, will only likely revive in mid 2021. He added that Cambodia is currently looking at a trade deficit and the recovery of the garment sector is essential to return to a trade surplus.  He continued that the construction sector is likely to be a bright spot, with the earliest revitalisation driven by new projects and the completion of existing ones, as well as infrastructure development.

“Agriculture remains a small part of the economy. While its growth is helpful, it is not that impactful.  Overall I expect a couple of percentage points growth as economic traction accelerates in mid-2021,” said Galliano.

Mey Kalyan, senior adviser of the Supreme National Economic Council, agreed that Cambodia has both tightened its belt and prevented a community outbreak of the virus. He said that the issue of public health is important.

“We cannot predict when the virus will end, but what we can expect is that we will have vaccines. We can strengthen ourselves in the prevention of COVID-19 and this virus has given us a lesson in how to fight against a difficult situation,” Kalyan added.

He continued that once the vaccines are available across the globe, the virus will slow down and become more manageable, but how quickly is not yet known. However, the nation cannot develop as fast as it was before the COVID-19 pandemic.

“We do not expect 2021 to offer a speedy recovery because cash flow is drying up. We need time to build up capital. Anyway, it will recover a little, but how far and how much it is impossible to predict. Our speed of recovery is slow but it will move forward and I think, towards making a recovery, but it will take at least three years. We can survive, but we will not be strong,” he added.

Thourn Sinan, chairman of the Pacific Asia Tourism Association Cambodia Chapter (PATACC), said  “The pandemic has shown no signs of its end. We are still not sure when the vaccine will be distributed across the population.” He added that, “A lot of medium businesses have sold their properties to survive or sustain their operations. The concern is that a lot of a medium businesses may be running out of capital [and will be unable to keep their doors open waiting for the recovery].

He added, “The year 2021 will be one of government subsidy programmes. it will not be the year in which the economy recovers.”

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