ADB: Cambodia’s Economy Contracted by 3.1 Percent in 2020

Photo taken on Sept. 11, 2019 shows a view of Phnom Penh, Cambodia. Cambodia is time-honored for its rich history and representation of traditions. Phnom Penh, capital of Cambodia, lying at the confluence of the Tonle Sap and Mekong river systems, boasts of its traditional buildings and modern skyscrapers.

The potential for an economic rebound in 2021 hinges on addressing inequality, a successful vaccine drive and finally installing a reliable safety net to futureproof Cambodia from further economic shocks.



PHNOM PENH--Cambodia's economy has shown surprising resilience in the face of the COVID-19 pandemic, according to the Asian Development Bank (ADB), which released their economic outlook for 2021 on April 28.



David Freedman, the ADB’s country economist noted that Cambodia’s economic performance last year was “pretty well managed” and that in 2020 the economy had contracted by 3.1 percent, but positive growth by as much as 4 percent is expected for 2021, jumping to 5.5 percent growth in 2022.



Cambodia actually performed better than the ADB predicted back in September 2020 where estimates suggested the economy would shrink by 4 percent in 2020.



However, Freedman tempered this by noting that the ADB’s data was cut off from March 31, 2021, meaning that the economic impact of the April 15 lockdowns in Phnom Penh and Takhmao City have not been factored into these forecasts.



“Weak demand and high levels of household and firm indebtedness could place a drag on growth,” Freedman said, adding that the monitoring of the impact of this latest COVID-19 outbreak and providing social assistance in response would be “crucial.”



The Cambodia Socio-Economic Survey 2019/20 found that indebted households were on the rise, most notably in Phnom Penh where just 9.8 percent of households surveyed in 2014 were indebted versus 21.8 percent in 2019/20.



Nationwide, the average amount of outstanding loans per household in 2014 was valued at 4,043,000 riel, roughly $1,000, but by 2019/20, this had more than quadrupled to 17,739,000—around $4,730—which is significant when contrasted against the average annual household income of $6,718.



Compounding this risk is the increase in food prices which helped push Cambodia’s inflation rate to 2.9 percent in 2020, up from 1.9 percent in 2019.



Tourism is still frozen, remittance as a share of gross domestic product (GDP) has declined sharply due to migrant workers returning home and Cambodia’s closure of schools for nearly 250 days since the pandemic began all pose threats to national economic recovery, said Freedman.



“Significant impacts on learning can in turn have long-term impacts on future productivity,” Freedman observed. This comes at a time when the government is urgently trying to reopen schools within yellow zones in locked down areas as a means of getting the academic year back on track.



Industrial outputs, the ADB found, declined by 1.2 percent in 2020, with garment exports down 9.9 percent for the year after disruption to supply chains and a significant drop in demand across key export markets such as the US, the United Kingdom and the EU. This came after tax reliefs to garment manufacturers and the tourism industry helped offset worse disruption.



Entering a Period of Uncertainty



In 2020 tourism dropped off 80.2 percent as the pandemic ravaged international travel and the ADB cautioned against expecting any real recovery in this sector for 2021 and that even in 2022, the sector will not be returning back to pre-pandemic volumes of visitors.



Instead, the ADB projects that Cambodia’s tourism sector will recover in three to four years.



Minimal growth of just 0.5 percent was seen in Cambodia’s agricultural sector for 2020, which the ADB chalked up to extreme weather events—both droughts and floods—that sullied the “return to the farms” that Prime Minister Hun Sen proposed last year in the wake of job losses in industry and services.



Over the course of the year, the economic output of services fell by 6 percent, but is expected to pick back up by 3.3 percent in 2021 and then onto 6.2 percent as travel restrictions are expected to ease.



This of course all hinges on the success of Cambodia’s vaccine rollout, where—as of April 27— 1,298,851 people had received their first dose and 818,713 had received their second.



“The vaccine rollout is the key difference for 2021 and 2022, with the Cambodian government aiming to complete their rollout by the end of 2021,” said Freedman, who added that there will likely be a slippage in this due to supply chains across Asia.



While the ADB’s latest figures don’t factor in the lockdowns and additional restrictions placed on economic activity to contain the Feb. 20 outbreak, Freedman said that so far the outbreak has not significantly altered their projections for 2021 or 2022, but that could change.



“There’s much greater uncertainty now and more downside risk due to the lockdown and the outbreak,” he warned.

 




Quiet streets in Phnom Penh under coronavirus lockdown. Photo: Ou Sokmean.



No Safety Net



The outbreak now represents a policy challenge for the government on multiple fronts as protective health measures have created vast social problems.



A Telegram group chat set up by Phnom Penh City Hall to allow residents in lockdown to request support in the form of food has now grown to almost 50,000 members of as April 28 and the chaotic rollout of new restrictions, contradictory information and violent enforcement has seen the city’s most vulnerable hungry, confused and angry.



According to the ADB, some 2.7 million Cambodians have received financial support from the government over the course of the pandemic and their research suggested that these cash donations, despite being relatively small amounts, had a high impact on the well-being of the country’s poorest.



However, these cash transfers were scheduled to end in March 2021 and so the government is scrambling to assess how to provide social assistance as Cambodia faces its worst COVID-19 outbreak to date.



Many community organizations and NGOs are now rushing to fill the gaps in the government’s social assistance programs.



“The cash transfer program was an excellent emergency social protection mechanism,” said Sunniya Durrani-Jamal, the ADB’s country representative for Cambodia. “There are social protection systems in the works, technical working groups have been developing these for many years and are developing an approach where users pay into the system, but it takes time.”



Durrani-Jamal said there was no scheduled time for longer-term social schemes to be released, but that in the meantime, inequality and poverty have undoubtedly risen since the pandemic, although she deferred to the government to announce the official figures.



A social protection strategy is set to be reviewed this year, she added, noting that this will include both income poverty and multidimensional poverty—a measure that previously found more than a third of Cambodians lived in multidimensional poverty due to a lack of access to services, amenities and basic necessities.



The Ministry of Planning has previously balked at the concept of multidimensional poverty, but it remains to be seen what form Cambodia’s much-needed social protection system will take or when it will be implemented.



In the meantime, Freedman pointed to the lockdowns as a key health measure, but added that they needed to be effective in leading to a swift return of economic activity.



“Economic activity only takes place when people are moving around,” said Freedman. “Lockdown has massively reduced mobility, that’s the intention, it’s what it’s supposed to do, but the question is how quickly can mobility recover.”


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