Groundhog Day for Cambodia’s economic rebound

Groundhog Day for Cambodia’s economic rebound | East Asia Forum

As 2020 drew to a close, major global finance authorities projected cautious optimism in their economic outlook for Cambodia in 2021. The profound impact of COVID-19 caused Cambodia’s economy to contract by 3.1 per cent in 2020, but Cambodia’s successful containment of the virus until that point meant that prospects of a sharp rebound of the economy in 2021 were bright and GDP was expected to grow by about 4 per cent.
But come April, the tune had changed. In response to a massive COVID-19 outbreak related to the ‘February 20 Community Event’ involving a breach of quarantine in a Phnom Penh hotel, strict lockdown measures were introduced. This included a night-time curfew, the closure of borders and prison sentences for those who failed to comply with the rules.
At the same time, a mass vaccination program was rolled out, starting with Cambodia’s 850,000 garment workers in order to spur the country’s post-pandemic economic recovery. The textile industry is Cambodia’s largest employment sector with nearly one million workers and the main revenue supplier, contributing 17 per cent of GDP in 2019 (US$7 billion).
The of COVID-19 cases severely affected Cambodia’s economic recovery. The cautious optimism in the early days of 2021 has faded and growth expectations have been adjusted downward. According to the latest Asia Development Bank (ADB) Outlook update, Cambodia’s economy is projected to grow by just 1.9 per cent in 2022. Factory closures and disruption in logistics during the lockdown period affected production in the garment sector where exports slipped by 6.5 per cent year-on-year to US$2.4 billion.
It was another harsh year for the tourism sector too, Cambodia’s second biggest GDP earner. International arrivals in 2021 plunged by 91.3 per cent year-on-year, which sent ripples throughout the entire economy. On the bright side, the agricultural sector is expected to expand by 1.5 per cent as agricultural exports rose by 30.3 per cent in the first half of 2021. Overall industrial growth is projected at 5.3 per cent in 2022, driven by non-garment manufacturing and an imminent recovery of the construction sector.
The COVID-19 outbreak has claimed lives, overwhelmed Cambodia’s public health system and profoundly affected people’s livelihoods. Job losses have been staggering in the tourism, garment and construction sectors, which cumulatively employ about 40 per cent of the workforce. In the tourism sector alone, nearly 3000 businesses have suspended activities wiping out 45,000 jobs. In the informal economy, an estimated six million workers have either lost or are expected to lose their jobs.
In response, the Cambodian government continues to provide financial support to businesses, households and workers in need, accruing to nearly US$1 billion according to government sources. When Cambodian Prime Minister Hun Sen declared Cambodia ‘fully reopened’ as of 1 November 2021, the country boasted an accelerated vaccination rate. Approximately 88 per cent of the entire Cambodian population has been vaccinated, ranking sixth globally and only behind Singapore among ASEAN countries.
With the end of 2021, Cambodia is preparing to live with the virus while cautious optimism about the country’s economic recovery has returned. Having regained a measure of trust in the Cambodian government because of the ongoing social protection arrangements and what was viewed as a successful containment of the recent outbreak, major financial institutions issued positive growth prognoses for 2022. The ADB forecasts Cambodia’s economic growth to accelerate to 5.5 per cent, a figure that resonates with the projections by other financial analysts ranging from a cautious 4.7 per cent to a soaring 6.9 per cent.
Cambodia is in a situation similar to the end of 2020. The European Union’s (EU) partial withdrawal of the implied the loss of the 20 per cent tariff preference for Cambodian products and a drop in EU exports — once Cambodia’s largest export market. But this will likely be offset by an increase in Cambodia’s exports anticipated due to rising Chinese demand for agricultural products and growing shipments of garments, footwear and travel goods to the United States. In particular, the Regional Comprehensive Economic Partnership (RCEP) and free trade agreements (FTA) struck with China and South Korea are expected to provide strong incentives for the Kingdom’s economy this year.
These prospects will have a beneficial effect on Cambodia’s industrial production, which is expected to rise by 7 per cent and agricultural production which will likely increase by 1.2 per cent. But services will recover more slowly by 6.2 per cent as the future of the tourism industry is highly uncertain.
In the recently launched ‘Post-Covid-19 Economic Recovery Plan 2021–2023’, the government outlined strategies for achieving sustainable and inclusive growth. It identified agriculture and agro-processing, the digital economy, manufacturing, and domestic tourism as growth-driving sectors and substitutes for the volatile international travel market.
From a regional perspective, the recent outbreak of COVID-19 across Southeast Asia has exposed the lack of coordination and support within the ASEAN community. With porous borders rendering border closures ineffective, member states acted without consulting their neighbours, delaying regional aspirations to quickly recover from the pandemic. The weaknesses of the regional bloc exposed that the central priorities for Cambodia’s year-long of ASEAN — which commenced at the end of October 2021 — will undoubtedly focus on cooperation for economic recovery from the global pandemic.