At the launch of the World Bank’s annual economic update on Cambodia, held in Phnom Penh on Wednesday this week, regional economists explained that sustaining the considerable growth the country has seen over the past two decades will be a challenge for Cambodia.
And even if Cambodia does manage to maintain its consistent growth, the government’s short-term goal of becoming an upper-middle income country by 2030 is a “very tall order indeed”, World Bank lead economist Norman Loayza said.
“If we consider default ‘business as usual’ assumptions, the GDP growth in Cambodia will continue at about 7% annually [over the next 22 years],” Laoyza explained. “Will this be enough to meet the government’s targets? The answer is no.”
First of all, in order for Cambodia to maintain consistent GDP growth, the country’s economy must see increased investment and a heightened proportion of savings.
But even if that happens, the Kingdom will still miss its 2030 target by about 30% and its 2050 target by about 25% of required per capita income.
For the government to reach is current goals, the country must experience not only sustained growth, but also raise its GDP and per capita growth over the next several decades. This desired pattern of rapid growth has rarely been seen before.
“We can look back at other countries in the region to see if they would have achieved these goals that Cambodia has set for itself,” said Loayza, explaining that only Asia’s most rapidly developing countries have come close to meeting the same targets. He cited China, South Korea and Malaysia as examples of rapidly developing countries that could serve as role models for Cambodia.
Preparing for the digital revolution will be especially important for ensuring financial sector stability in a country that has relied for years on low-skill labour as a pillar of its economy
Analysing the rate at which each of these countries grew from the point of Cambodia’s current economic standpoint, Laoyza concluded that only by matching China’s rapid growth would Cambodia be able to become an upper-middle-income country by 2030, and only by matching South Korea’s growth could Cambodia reach its high-income goal by 2050.
“The main message I want to convey… is that only if Cambodia were to grow at the rate of China would this [2030 goal] be achievable,” he said. “But this is impossible. This is almost impossible.”
The reason for this, he explained, is that even when China’s GDP matched that of Cambodia’s current economy, Chinese rates of investment and savings were far higher than the Kingdom’s own.
Malaysia and South Korea offer far more comparable and reasonable patterns of economic growth for Cambodia to potentially emulate, he added. If Cambodia were to set its goal of becoming an upper-middle-income country back by five years to 2035, then it could in theory follow South Korea’s projected growth to meet both of its economic targets – if it were to increase its levels of investment and per capita savings at the same rapid rate.
“If Cambodia were to follow this nice path, they would exceed the growth necessary to meet their 2050 target,” Laoyza said. “But I have been telling you as though it is easy that Cambodia should sustain its growth rates… sustaining growth is very hard.”
Future government policies must focus on emphasising market sustainability, addressing income inequality, and managing export orientation if growth in the Kingdom is going to be sustained, he added.
Bronwyn Grieve, program leader for the World Bank Group, added that Cambodia must prepare for future shocks that could derail its potential economic growth. Preparing for the digital revolution will be especially important for ensuring financial sector stability in a country that has relied for years on low-skill labour as a pillar of its economy.
According to Inguna Dobraja, the World Bank’s Cambodia country manager, political and macroeconomic stability are also of paramount importance for sustainable growth in the Kingdom.