How about if Cambodia uses oil wealth as a gate way to escape from economic crisis by COVID 19?

• 8 June 2020
• Local News
• 2027 Views

How could we come out from the predicting poverty ahead?

We still remember the World Bank report predicting the Cambodia’s economic growth in 2020 will slow to between -1% and -2.9% and the poverty rises to between 3% and 11%. These figures are enough that one can see how severe the economic down will be especially the poverty that will be contributed to mostly for the garment workers,

Given this greatest threat as the world bank called it, there are different sources discussed on the country’s ability to recovery its economy which rely mainly on tourism, garment exports, and the SEA operation of the FDI.

Some views including the latest meeting of Mekong Tourism Advisory Group (MeTAG) held last month suggest that Cambodian economy pins hope on the return of Chinese visitors.

Whereas the World Bank recommended a few policy options to undertake which basically focusing on human resource development and strengthening economic infrastructure, the UN Resident Coordinator has made a statement currently commenting that

“…Cambodia is exposed as a highly open economy for trade, but also one with a narrow economic base with few fallback options,” said Tamesis of the UN Resident Coordinator.”

Within these few fallback options, what should be the best option Cambodia should opt for?

Relying on the country’s three main economic engines to recover?

The hit is too much pressuring the economic back bone until the Phnom Penh administration cannot deny the fact that the country could no longer rely on foreign sources of income any more.

We know that the three sectors – garments, tourism and construction are the backbone, which account for almost 40% of all jobs. It is hard to imagine if all of the three could resume its momentum as it previously used to grow and all of them are mostly foreigner backup.

Let’s talk about construction first, the sector’s main source of investment is from China Cambodia’s top source of remittances and foreign direct investment which is still at-risk a plus with Nonperforming loans as the World Bank puts it in an increase which will result in severe decline of real estate development. The other fact is the 47% annualized drop in steel imports in the first two months of 2020 is evidently proved that the sector could be hardly managed to resume after the virus gone.

Other foreign source of income is remittance through which workers sending money home, accounting for 5.9% of Cambodia’s GDP. Yet, the World Bank also predicts that it is also going to fall 13% this year in Southeast Asia.

Could the first oil drop be a bless for this crisis?

Yet, the first drop of oil that the country has been waiting for long ago could be one of the best options, aside from all the mainstreaming policy scenario recommendations.

There are a few reasons could be enough to convince the government to tap on this unveiling and yet one of the most expecting potential.

To sell her first oil has been viewed as Cambodia economy’s easiest way to escape from the expecting poverty as the World Bank projected. With billions of dollars of oil revenue would help at least lessening the country’s pain and could also be used to finance more rapid economic development, as aficionados in energy sector claimed.

For the second benefit, the government can use this chance of oil to tank the economic drawback to improve institutional transparency since it has been ranked in Transparency International’s index. Therefore, COVID – 19 can be likely a bless with oil promising in Cambodia to redesign its economic and political structures.

However, the COVID-19 has also strike oil prices to decline dramatically to almost 20$ per barrel by mid-April, it is predicted to rebound to around 50$ or 60$ per barrel as the OPEC and its allies have agreed to lower their crude oil production by a total of 9.7 million barrels per day (bpd) starting from May 1.

If the oil dream is still believable, it first drops to be extracted in 2020 as promised can help narrowing a current-account deficit of Cambodia that is around 16% of GDP each year. Notably, the first oil drop had just been announced suspended by the top officials of Ministry of Mine and Energy about a month ago awaiting the COVID 19 cease.

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