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p. 6 of 11 BACK | NEXT Executive Summary I. Recent Economic Developments A. Growth, Employment, Savings, and Investment B. Fiscal Developments C. Monetary Developments and Prices D. External Trade and Balance of Payments II. Short and Medium-Term Economic Prospects and Policy Issues Appendix

Country Economic Review - Cambodia : I. Recent Economic Developments

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D. External Trade and Balance of Payments

47. Gross official reserves rose to $422 million in 1999 despite a widening of the current account deficit, including official transfers, to 4.2 percent of GDP (Table 11). The reduction of short-term outflows increased the capital account surplus, more than offsetting the current account deficit. Thus, as in previous years, there was a balance of payments surplus. Yet rapid growth in imports reduced gross official reserves from 3.6 months of total imports of goods and services in 1998 to 3.3 in 1999. Net international reserves were $349 million in 1999 or 2.7 months of total imports of goods and services.16 Gross official reserves are projected to rise again in 2000, perhaps as much as $80 million to about 4.0 months of total imports of goods and services.

48. Economic recovery increased the current account deficit, excluding official transfers, by $116 million from 1998 to 1999. Retained imports of goods grew by over 23.0 percent in 1999, widening the trade balance to $294 million or 9.8 percent of GDP from $193 million or 6.9 percent of GDP in 1998¹⁷. The deficit on the service balance also expanded in 1999, despite an increase in tourism receipts. Although official transfers also increased to $220 million in 1999, the current deficit including transfers was $126 million or about 4.2 percent of GDP, increasing from about 1.3 percent of GDP in 1998.

49. Increased economic activity and rising world oil prices expanded the value of petroleum imports from $111 million or 13.8 percent of retained imports in 1998 to $153 million or 15.5 percent in 1999. Petroleum imports are projected to reach $194 million or over 16.0 percent in 2000. Although not yet of serious concern with rising international asset reserves and sustained growth in industry and services, petroleum products are the second largest import by value after intermediate garment sector imports.

50. Domestic exports (total exports less reexports) grew at a slower pace than imports but still at a strong 13.9 percent in 1999 as garment exports continued to surge, expanding by nearly 37.0 percent to $536 million. However, forestry exports contracted by 41.0 percent from $178 million in 1998 to $105 million in 1999 because of the crackdown on illegal log exports. Rubber exports, although recovering slightly in 1999 to $28 million, are still significantly below historical levels ($41 million in 1995) as a result of aging rubber trees and inefficient operations. Exports of fish products rose from $2.5 million to $3.4 million in 1999. However, unrecorded exports of rubber and fish products (as well as forestry products) might be significant.

51. Garment exports have been expanding rapidly, and are projected to reach $746 million in 2000, a 731 percent increase since 1996. At the same time, forestry exports have been declining, and are projected to fall to $80 million in 2000, about a 46.0 percent decline since 1996. Thus, as domestic exports increased from $295 million in 1996 to a projected $890 million in 2000, or by over 300 percent, garment exports grew from about 35.0 percent of exports in 1996 to a projected 84.0 percent in 2000. A significant portion of garment exports is for the US market although some are destined for European markets as well. Thus, the US is now the major export destination for Cambodian goods, followed distantly by Singapore. Primary sources of import goods are, in order of importance, Thailand; Hong Kong; China; Taipei,China; Singapore; and People’s Republic of China.

52. The capital account surplus increased by $93 million from 1998 to 1999 because of a significant reduction in short-term outflows in 1999, accompanied by a slight rise in net official loans. The level of FDI did not change. FDI is expected to remain at about the same level in 2000, while net official loan disbursements will rise to about $86 million so that the capital account surplus rises to perhaps $200 million, assuming negligible short-term flows. Overall, FDI, falling by nearly 60.0 percent from a high of $294 million in 1996, has become less important as a source of financing.

53. Most bilateral assistance is currently through grants. Thus, low-interest debt from multilateral institutions is rising in importance as a percentage of Cambodia’s external debt, from 14.4 percent in 1997 to 18.1 percent in 1999 (Table 12). Cambodia’s two largest creditors in 1999 were the Russian Federation (63.8 percent) and the US (14.1 percent). In part because the exact amounts are in dispute, Cambodia is not servicing either set of debts and a significant portion of each is in arrears¹⁸ Both are eligible for rescheduling under the Paris Club’s Naples terms¹⁹. This could reduce debt by roughly 50.0 percent to about 35.0 percent of GDP in 2000 from 69.0 percent in 1999. Debt would be expected to stay below 40.0 percent of GDP over the next several years. Debt service is currently relatively low at 1.8 percent of exports and 4.2 percent of Government revenues in 1999. Assuming debt rescheduling occurs in 2001, and with current obligations, debt service would rise to perhaps 4.3 percent of exports by 2004. Thus, debt can currently be considered manageable.

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