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42.
Since 1999, Cambodia has followed and made significant progress in
implementing a macroeconomic framework aimed at achieving equitable
long-term economic growth and sustainable development. The focus of this
framework has been on maintaining macroeconomic stability, strengthening
the banking and financial institutions, implementing fiscal reform
measures, ensuring a sound management of public property, and increasing
public investment to develop the physical and social infrastructure and
human resource of our nation. Since the Tokyo CG Meeting in June 2001,
Cambodia has made impressive strides in strengthening political and
economic stability and re-integrating itself into the international
community. 43.
For the RGC, growth is the most powerful weapon in combating
poverty and it remains committed to pursuing policies that encourage
macroeconomic stability, shift resources to more efficient sectors, and
integration within the global economy. The renewed political stability, a
greater sense of security in the country and the pace and pattern of
economic recovery in the region have helped Cambodia consolidate, broaden
and deepen the reforms underway and to maintain the momentum for
sustainable social and economic development. 44.
The RGC’s focused efforts to strengthen macroeconomic management
and a focused implementation of the fiscal reforms have resulted in a
robust real GDP growth of 5.3 percent in 2001, in spite of a decline in
the fourth quarter of 2001 caused by the deterioration in the world
economic environment and the short-term impact of the terrorist attacks of
September 11. The rate of inflation has been contained below the last year
level. Monetary developments in 2001 have reflected the improved fiscal
position. Gross international reserves reached the equivalent of over 3
months of import coverage at the end of 2001. The market exchange rate has
been broadly stable against the U.S. dollar and in real effective terms. ECONOMIC
GROWTH 45.
In 2001, the overall economic performance has been buoyant despite
the terrorist attacks and global slowdown. Preliminary estimates for the
first quarter of 2002 indicate a reversal of the setbacks experienced in
the last quarter of 2001. Following
the September 11 terrorist attacks in the US, some sectors were hard hit,
particularly the tourism sector and, to some extent, the garment industry.
The potential indirect effects of the attacks – on consumer sentiment
and spending, on business confidence, and risk aversion – are likely to
be significantly more important. Overall, the impact of the terrorist
attack has led to slower growth in garment exports and the tourism sector
in the last quarter of 2001, but we hope it will only be a temporary
setback. To cope with the aftermath, the RGC has taken steps to
promote tourism and the garment sector. At the same time, concerted
efforts have been made to improve the agriculture sector that was hard hit
by last year’s floods and drought. As a result of the unforeseen developments, although real GDP
grew by a robust 5.3 percent in 2001, it fell short of the planned target
of 6 percent. 46. Over the last twelve months our monetary and fiscal policies have remained prudent with a focus on fiscal consolidation. It should be noted, however, that the Cambodian TABLE 1: SELECTED MACRO-ECONOMIC INDICATORS
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economy remains vulnerable to domestic political developments. The elections scheduled for 2003 will be crucial to improving the investment climate for domestic and foreign investors alike. Long-term political stability is needed to ensure an enabling environment for economic growth. INFLATION 47. During 2001, inflation has remained subdued as prices of food and beverages declined, except in April during the Khmer New Year. The floods that brought alluvial soil to farming areas have contributed to increased agricultural productivity. There was a greater supply of agricultural products such as vegetables, fruits, eggs, chicken and pork. The annual inflation rate declined by 0.6 percent, compared to 2000, reflecting lower prices of food and beverages, petroleum products, clothing and foot ware. 48. Consumer Price Index (CPI) decreased by 3 percent in the first quarter, mainly due to a decline in food and beverage prices by 5.7 percent. This was offset by an increase in prices for housing and utilities, which increased by almost 2 percent. In the second quarter of 2001, a further increase in housing and utilities prices, as well as higher prices for transport and communication; and personal care drove up the CPI by 0.15 percent. The increase in domestic retail oil prices, reflecting the conditions in world oil markets, drove up transportation and communication prices by almost 1 percent. Inflation showed upward trends in the third quarter of 2001. Weakening local currency, the Riel, induced price increase in August-September 2001. |
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