Regions and Countries

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p. 10 of 11 BACK | NEXT Executive Summary I. Recent Economic Developments II. Short and Medium-Term Economic Prospects and Policy Issues A. Growth and Investment B. Macroeconomic Management C. Risks and Uncertainties Appendix

Country Economic Review - Cambodia : II. Short and Medium-Term Economic Prospects and Policy Issues

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C. Risks and Uncertainties

72. Four types of risks could jeopardize economic performance over the short, medium, or long term. The first is political risk. In the short term, renewed political disturbances could rapidly decelerate economic performance. However, this risk is much lower than a year ago, with political conditions continuing to stabilize over the two years since the political settlement that resolved the election-year crisis. Political events that might have some impact on political stability are the proposed international tribunal to determine whether former Khmer Rouge leaders committed human rights violations and the upcoming 2001 commune elections.

73. The second type of risk is economic risk. A stalled reform program could impact economic development. However, the Government has made good progress on reforms, particularly in the areas of macroeconomic management: public finance, money and banking, and the external sector. Reform programs are continuing, albeit slowly, on the difficult issues of forestry reform and demobilization. By early 2001, the Government plans to complete formulation of a strategy for comprehensive civil service reform. Overall, the Government appears to be firmly committed to undertaking economic reforms vital to ensuring rapid economic development. Additional economic risks include an extended period of high world oil prices, and the possibility that the world economy may be slowing. In addition, the inability of Cambodia to attract additional investment in the short-term could slow economic growth.

74. The third type of risk is environmental. If, perhaps because of upstream deforestation, the frequency of severe seasonal floods increases, the impact on the agriculture sector and the vulnerable portions of the rural economy, including transportation, could be quite serious. Furthermore, the risk of irreparable environmental degradation, particularly for forestry and fisheries, is significant despite the Government’s efforts to improve management of these natural resources. Although significant progress in halting illegal logging has been made in 1999 and 2000, reform of the equally mismanaged fisheries concessions has barely begun.

75. The final type of risk is demographic. The rate of population growth, at 2.5 percent is well above the average for MHD countries of 1.1 percent per annum. Indications that the birth rate is falling, presented in CSES 1999, are inconclusive and could reflect underreporting of newborns. If the growth rate is not brought down, efforts to translate rapid economic growth into significant poverty reduction could be hampered. A potentially devastating health risk is the rapid spread of HIV/AIDS.22 Cambodia’s HIV/AIDS epidemic is the worst in Asia, with an estimated 3.7 percent of the adult population HIV infected. This could eventually debilitate the population and significantly reduce the pace of economic development.

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