Speech of Mr. Ajay Chhibber, UNDP Regional Director for Asia and the Pacific, at the 4th Cambodia Economic Forum

Speech by Mr. Ajay Chhibber
UN Assistant Secretary General, UNDP Assistant Administrator and
Director, UNDP Regional Bureau for Asia and the Pacific
Cambodian Economic Forum 2011

1.    Opening and welcome

Your Excellency Prime Minister Hun Sen, Honoured Guests, Distinguished Participants. I am honored for the opportunity to speak to you at this important event.

Cambodia has made great progress since the early 1990s. Following more than two decades of isolation and conflict, the government turned its attention to ensuring peace and security, rebuilding institutions, and improving the lives of Cambodians.

The Cambodian government should be applauded for successfully managing the country’s transition and economic expansion. GDP growth was robust at an average annual rate of 9% from 2000-08, while per capita incomes more than doubled in real terms over the same period, from $870 to $1,820 (PPP). And the proportion of people living in extreme poverty fell from 47% in the mid-1990s to 30% in 2007.

However, the Cambodian economy was hit hard by the global recession, and GDP growth turned negative in 2009. But the government took an active approach to the use of monetary and fiscal instruments at its disposal, including adopting a fiscal stimulus which minimized the recession’s long-term impact and avoided some of its more dire consequences. This response to the global crisis was laid out by His Excellency the Prime Minister Hun Sen at the third Cambodia Economic Forum in 2009. We are all pleased to see that Cambodia has emerged well on the road to recovery. Following the contraction of 2009, economic growth is now forecast to reach 5.5% in 2010, and 6% in 2011.

2.    Macroeconomic challenges

At this the fourth Cambodia Economic Forum we are here to discuss how best can Cambodia move forward from here. We know that significant challenges remain. The economic recovery in advanced economies, especially the United States and the European Union, remains uncertain posing difficult medium-term challenges for countries like Cambodia. There is an old saying “ never waste a crisis” and I can see that Cambodia does not intend to do so.

There are also concerns over rising inflation, driven by recent spikes in the prices of food and fuel. According to the FAO, in January world food prices hit their highest level since records began in 1990—with the expectation that these levels likely persist in the months to come. Cambodia has had lower headline inflation than many of its neighbours because it is not subject to short term capital inflows but rising fuel prices do remain worrisome.

3.    Economic diversification

Ladies and gentlemen, one big lesson from the crisis is that Cambodia’s economic recovery is  more vulnerable because of its highly concentrated export base, both in terms of products and markets. Despite the advantages of proximity and efforts to promote trade through institutions like ASEAN, Cambodia still trades largely with the more distant economies of the United States and Europe. For example, in 2008, Cambodia exported $2.3 billion worth of goods to the United States—over 40% of its total exports—compared to its exports of $210 million to Vietnam and $89 million to Singapore. It may also be noted that Cambodia has the lowest share of intra-regional trade of any ASEAN member—just 13% of total exports in 2009 compared to between 20 and 30% for most other ASEAN countries.

Cambodian exports are also largely reliant on garments, which accounted for 70% of total exports and 80% of manufactured exports in 2008—a narrow concentration that has made Cambodia vulnerable to external shocks. Studies indicate that Cambodia is potentially competitive in several other activity areas beyond garments, such as footwear, agro processing, and light engineering. Successful diversification will require investments in human capital and infrastructure.

4.    Inclusive growth

 While  Cambodia’s  growth has been impressive and has helped produce significant poverty reduction it has not been spread across all aspects of society. It has been largely urban-focused, concentrated mainly on the garment, tourism, and construction sectors—with few linkages to the rural economy where 80% of Cambodians live. Inequality as measured by the Gini Index is not only high, but it has also increased in the last two decades—from 0.35 in 1994 to 0.43 in 2007.  The share of income held by the richest 20% of the population also increased from 47-52% over this period, while the share held by the bottom 20% went down slightly—from 8-6%.

Cambodia’s progress on the MDGs has also been mixed. On the positive side, Cambodia has made great strides on improving the gender balance in both primary and secondary schools, is on track to meet the target for access to safe drinking water, and has already reached all the MDG targets for HIV and TB. But advancement has been slower in other areas. For example, while significant progress has been made since 2000 in accelerating primary enrollment, improvements in the quality of education have come less quickly—evidenced by Cambodia’s relatively high and unchanged repetition and dropout rates. Similarly, despite notable progress in reducing child and infant mortality, Cambodia still has the highest child mortality rates in the region.

Cambodia’s medium-term economic strategy should thus be focused on policies and interventions that support inclusive growth, including by investing and improving services in the rural economy—where most of the poor live and where investment can have the greatest human development impact.

Another clear lesson from the recent economic crisis is the need to improve resiliency to exogenous shocks. This means securing livelihoods against unpredictable natural, human, and economic shocks as well as improving social protection systems. As stated in the MDG Summit outcome document, countries need to view social protection not as a drain on their budget, but as an investment in their country’s ability to cope with present and future shocks and sustain development momentum. It is for this reason that the speedy effective rollout of the National Social Protection strategy is of vital importance. All development partners must stand ready to accelerate the implementation of this strategy, as its elements are largely in place for scaling up. There are three areas in which there is already activity and which, if scaled up and coordinated, could lead to rapid reductions in the vulnerability of ordinary Cambodians: Cash and in-kind transfers and fee exemptions (as already being applied in health and education, with new cash transfer programmes to address high malnutrition and the worst forms of child labour); public works programmes (improved labour-intensive approaches along with revamped existing cash for work and food for work initiatives); and social welfare services for vulnerable groups. But we must recognize that today the best models on social security are under global scrutiny and that more innovative and less expensive solutions must be found.    

5.    Sustainable development

Ladies and gentlemen, achieving long-term ecological sustainability with continued economic growth and human well-being will also remain one of the biggest challenges facing Cambodia and countries in the Asia-Pacific region. Deteriorating land, water and air quality, and the loss of ecosystems and their services undermine socioeconomic development. It is also clear that climate change is exacerbating these problems. The threats posed to Cambodia by climate change and natural disasters are huge, including increased frequency and intensity of extreme weather events such as floods, droughts and windstorms as well as coastal inundation due to rising sea-levels. The poor and marginalized, particularly women and children, will be worst affected.

Disaster risk reduction is thus of critical importance to sustainable development and, within that, adapting to and mitigating the effects of climate change. But beyond just the risk of natural disaster, sound and equitable management of the environment is also integral to pro-poor growth and achieving the MDGs. Evidence shows that investing in the environment makes strong economic sense and is critical to expanding the poor’s opportunities to lift themselves out of poverty.  

6.    Extractive industries

Cambodia is also one of the newest entrants in oil, gas and mineral exploration and extraction, which offers the government an opportunity to transform people’s lives and accelerate progress towards achieving the MDGs. But for this to happen, transparent mechanisms need to be in place for effectively managing and using revenues, and channeling them for improving health, education and other development needs. Experience has shown that economic growth and successful resource exploration are directly related to sound government policy and environmentally and socially acceptable mining practices. Resource wealth can thus be an instrument to improve the lives of the poor if managed properly. Land management must also be given top priority to avoid it becoming a bottleneck for Cambodia’s sustainable development.

7.    Closing remarks

To conclude, honored guests and participants, the recent crisis marked a watershed moment for Cambodia.  It threatened the reversal not just of growth and development, but of a process of structural transformation that had displayed enormous potential for Cambodia to significantly accelerate its development efforts. But Cambodia managed the crisis well, and has returned to rapid economic growth faster than expected. UNDP, working shoulder-to-shoulder with the government and other development partners, is proud to have supported Cambodia during this critical period.

If the crisis has brought one proposition to global attention, it is this: Resilient growth is as important as high growth. Resilience comes from greater inclusion, be it of citizens, of groups, of workers or of regions, in the process by which growth is generated. It requires paying constant attention to those who are most vulnerable to reversals in economic fortunes. The Cambodian Economic Forum provides yet another opportunity to exchange views on important technical and policy options, and we are pleased to note the inclusion of the many substantial issues on the agenda. UNDP is ready to extend its technical assistance, regional analysis, south-south learning events and policy advice to help make growth more inclusive and pro-poor. By working closely with their neighbors and development partners, while simultaneously investing in their own people, the Royal Government of Cambodia can build a stronger, more equitable and more prosperous future for its citizens. Cambodia will arrive at middle income status by 2020 ; but we want it to arrive there more inclusive ; more sustainable and with strong institutions that will help propel it from there to the next stage of development.

Thank you.