The global financial and economic crisis is the latest in a series of external shocks to hit Cambodia in the space of about two decades, following on from the food crisis that struck in 2006 and the Asian financial crisis of 1997. Wrestling with the effects of these three crises has represented a major feat for Cambodia’s post-conflict economy. The global financial crisis hit Cambodia through its second-round effects on trade, private capital flows and, ultimately, the country’s growth sectors. Its overall impact has been all too clear. From being one of the fastest-growing economies in the world, Cambodia is now poised to suffer one of the steepest contractions in output in developing East Asia. In the decade before the crisis, the country experienced significant reductions in poverty, whereas the number of poor Cambodians is now expected to increase.
There have been indications that the Cambodian economy has already bottomed out and is now on the rebound, but there are significant downside risks involved in this upturn. The fate of the garment sector, the economy’s sole major export driver, remains uncertain, having lost competitiveness in the global post-quota environment. The government has not had the fiscal capacity to deliver a bigger and sustained stimulus, and the effectiveness of some of its responses has been of concern. In the end, recovery will require not only a rosier external environment but also internal improvements. Cambodia will need to go beyond traditional dependencies, latch onto neglected aspects of competitiveness, decisively implement its governance reform agenda and deal effectively with the problems facing the economy and particularly the agriculture sector.
Jalilian, H. and Reyes, G. Global Financial Crisis Discussion Series. Paper 14: Cambodia Phase 2. ODI, London, UK (2010) 66 pp.