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p. 20 of 54 BACK | NEXT I. Developing Asia and the World - Economic Developments and Prospects II. Economic Trends and Prospects in Developing Asia Newly Industrialized Economies Central Asian Republics, Azerbaijan, and Mongolia People’s Republic of China Southeast Asia Cambodia Indonesia Lao People’s Democratic Republic Malaysia Myanmar Philippines Thailand Viet Nam South Asia The Pacific III. Asia's Globalization Challenge

Asian Development Outlook 2001 : II. Economic Trends and Prospects in Developing Asia : Southeast Asia

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Cambodia

Due to severe seasonal flooding, economic growth slowed slightly in 2000 to 4.5 percent. With greater political and macroeconomic stability, the Government is focusing on accelerating socioeconomic development. Future prospects depend on expanding tourism, the area under cultivation, and the garment sector.

Recent Trends and Prospects

Severe seasonal floods hampered otherwise good economic performance in 2000, slowing real GDP growth to an estimated 4.5 percent from 5.0 percent in 1999. A contraction in agricultural production is estimated in 2000. This was due to loss of crops in the floods as well as poor forestry performance, which stemmed from the reduction in the legal limit of timber that could be felled. Strong growth in industrial value added is estimated on the basis of rapid expansion in garment exports, primarily to the US. Robust growth in tourism continued in 2000, contributing to an estimated moderate expansion of the services sector.

Since 1997, droughts, political volatility, and the Asian financial crisis have hindered broad-based economic development. Average real per capita GDP growth during 1997–2000 amounted to about 1 percent a year. In addition, growth was somewhat uneven, with average real growth in value added during 1997–2000 of about 14.1 percent in industry, 2.3 percent in agriculture, and 1.2 percent in services. Recent economic performance has been too low and urban-biased to bring about broad-based poverty reduction or to create enough jobs for a rapidly expanding labor force. The proportion of the population below the absolute poverty line remained at about 36 percent during 1997–1999, while the wages of unskilled labor fell in real terms by 5–10 percent in the same period. (The absolute poverty line is defined as the food poverty line—sufficient income to buy a food basket equivalent to 2,100 calories a day—plus a nonfood allowance.)

Macroeconomic conditions were stable in 2000. The Government’s domestic debt fell and inflation remained low. The Government generated public savings of about 1.7 percent of GDP in 2000 as revenues increased to an estimated 12.0 percent of GDP in 2000 from 11.7 percent in 1999. Expenditures rose to an estimated 17.4 percent of GDP in 2000, from 16.1 percent in 1999. The fiscal deficit is estimated at 1.7 percent of GDP in 2000, up from 1.5 percent in 1999. However, concessionary financing more than covered this deficit with the result that domestic government debt to the central bank fell.

Average consumer price inflation fell from 4.0 percent in 1999 to register price deflation of 0.8 percent in 2000, despite rising fuel prices. This is because the prices of food items that dominate the consumer price index, particularly rice, were lower in 2000 than in 1999, partly because of low world prices. The riel was generally stable against the dollar in 2000. Total liquidity increased by about 28 percent, yet did not fuel inflation as the velocity of money fell. Foreign currency deposits and private sector credit grew rapidly, reflecting increased confidence in the political and economic situation.

Vigorous growth of merchandise exports of about 31 per-cent in dollar terms and of tourist arrivals of 34 percent, as well as higher capital inflows, produced an overall balance-of-payments surplus, raising gross official reserves to about $492 million in 2000 from $422 million in 1999. However, the current account deficit is estimated to have risen to 4.6 percent of GDP as the value of imports increased by about 33 percent, in part because of higher world oil prices.

Economic growth in the range of 5–6 percent in 2001–2002 is possible. Weather permitting, modest agricultural growth is achievable because of expansion of the area cultivated to annual crops and because of increased investment in rural development. Over this period, the garment sector should continue to lead the expansion of industry, while tourism is likely to remain a source of employment and income growth, foreign currency earnings, and government tourism income (e.g., from the Angkor Wat temple complex). Because the effects of a post-conflict baby boom are now expanding the labor force more rapidly, significant poverty reduction will require better economic performance than that seen in 1997–2000.

Issues in Economic Management

To accelerate socioeconomic development, the Government is undertaking comprehensive fiscal reforms. This includes measures to increase revenues, which grew from less than 5 percent of GDP in 1993 to an estimated 12.0 percent in 2000, and steps, such as a military demobilization program, to shift public expenditures from defense and security—where spending fell from 4.3 percent of GDP in 1998 to an estimated 3.6 percent in 2000—to health, education, and rural development—where spending rose from 1.4 percent of GDP to an estimated 2.5 percent over the same period.

The Government needs to improve public expenditure management, particularly budget planning and execution. To protect aid-financed public investment projects and maximize their development impact, the Ministry of Economy and Finance, working closely with the Ministry of Planning, will initiate a three-year rolling medium-term expenditure framework in 2001. This will provide estimates of incremental recurrent costs based on planned investments identified in the three-year rolling public investment program. These recurrent costs can then be incorporated into budget plans. To streamline the budget process and improve budget execution, the Ministry of Economy and Finance created the Budget Strategy and Enforcement Center in 2000. The Center will facilitate bid screening and cash disbursement, particularly in health, education, agriculture, and rural development.

Policy and Development Issues

Refined budget planning and a sharper focus on target outcomes are critical to successful implementation of the (second) Socioeconomic Development Plan 2001–2005, which the Government is currently preparing. The Plan’s proposed poverty reduction agenda, based on the October 2000 Interim Poverty Reduction Strategy Paper, has three principal policy objectives. First, to expand economic opportunities for the poor, the Government will promote broad-based, equitable, and sustainable economic growth, aiming to (i) maintain a stable macroeconomic environment; (ii) improve public sector efficiency; (iii) develop the supporting infrastructure and institutions for the private sector; and (iv) promote employment creation in light manufacturing, tourism, and agriculture.

The second main objective is to improve the ability of the poor to take advantage of this wider range of economic opportunities. The Government and international aid agencies are already beginning to devote more public resources, historically skewed toward infrastructure and urban development, to social and rural development. The recently formed state-owned Rural Development Bank is expected to significantly increase the supply of loan funds to rural areas over the next five years by providing wholesale funding to microfinance institutions in rural areas. Access by the rural poor to traditional community forestry and fisheries resources has been increasingly threatened over the last few years by abusive commercial exploitation. The Government is, therefore, canceling some concessions and improving oversight of concession management.

Third, to protect the most vulnerable groups against any adverse effects of accelerated structural transformation, the Government will work toward the provision of a limited social safety net. Many nongovernment organizations and bilateral aid programs offer some social protection to vulnerable groups. However, it is important for the Government to begin developing a more comprehensive and sustainable basic safety net.

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