Cambodia: Economic Overview

Economic Situation

Cambodia is one the poorest and least developed nations in Southeast Asia largely as a result of its years of civil war and political instability accompanying decolonialization. A lack of education, infrastructure (especially in the countryside) and a population with more than 50% of citizens under the age of twenty-one also post major challenges for economic development.  Despite these setbacks the Cambodian economy is seeing what Puneet Singh of the BBC calls “robust growth.” According to the Asian Development Bank, Cambodia’s economy grew by 7.2% in 2012.

Cambodia GDP

Cambodia Gross Fixed Investment

Growth is catalyzed by Cambodia’s four top industries: garment manufacturing, construction, agriculture, and tourism, all of which have been growing rapidly since 2004. The European Union followed by the United States are the main destinations for Cambodia’s garments and shoes, where exports grew by 11.3% in the first six months of this year. In recent years Cambodia’s economy has also seen a greater shift toward a market system, including reductions in the trade-weighted average tariff rate, which has made the country a friendlier environment for international business and trade. The current economy is structured on an open market system.

Cambodia GDP growth per sector

Cambodia Inflation

Despite these improvements Cambodia still faces many challenges impeding its economic development. The nation relies heavily on foreign aid. In fact about half the central government’s budget is made up of foreign aid. Poverty is still endemic in the area, with an estimated 31% of the population living below the poverty line. According to the World Bank, gross national income per capita is $880 USD.

Cambodia External Debt

Approximately four million people live on less than $1.25 a day and 40% of the countries children under the age of five suffer from chronic malnutrition. Like many other nations in the region, Cambodia has long suffered from chronic corruption with 37.3% of the nation’s income held by the top 10%. The country has a rating of 58.5 on the GINI index, as reported by the World Bank this year. Below is a chart made by the Heritage Foundation concerning Cambodia’s economic freedom.

cambodia economic freedom

50% of Cambodia's population is under the age of 22.

50% of Cambodia’s population is under the age of 22.

Lack of education resulting in a lack of skilled workers is another inhibitor of economic growth in Cambodia. Only 38% of students continue on to secondary education and 14% to college. All of this suggests, as stated in an article on economic growth in Cambodia by the BBC, that “inclusive growth” is a better measure than “robust growth.”

Domestically Cambodia has also been making significant developments, especially in terms of poverty and healthcare, though both are still lacking by international standards. In 2005 Cambodia met its millennial goal by halving the number of people who suffer from extreme poverty, but some 40% of the nation still lives on less than $1.25 a day. Cambodia has made significant strides in reducing maternal mortality rates, and by 2012 the number of women who die during or directly after childbirth decreased by 60%. This is due to an increase in education and health centers, and the movement to place at least one midwife in each health center throughout the country. Increased infrastructure in terms of roads and bridges has also improved the situation.

Cambodia still has a long list of millennial goals it hopes to achieve by 2015, including eradicating extreme poverty and hunger, increasing education, reducing child mortality rates, combating the spread of disease, and ensuring environmental sustainability.

 

Poverty Alleviation

Despite increasing criticism Cambodia has actually managed to exceed the Millennium Development Goal poverty target and is, as of 2014, the best performer in poverty reduction worldwide. According to a new World Bank Poverty Assessment Report the poverty rate was more than halved, from 53% in 2004 to 20.5% in 2011. In 2014, approximately two out of ten Cambodians are poor, whereas in 2004 it was five out of ten.

Even though this is a big success it is also a very fragile success. Many Cambodians who managed to escape poverty only have done just barely. There is a great risk that many of them will fall back into poverty as the price of food is only expected to rise. According to another World Bank report only a 1,200 Riel inflationary increase, which is about $0.30, per day could throw approximately three million Cambodians back into poverty, doubling the poverty rate to 40%.

In order to retain these recent successes with poverty elevation it is highly recommended that the government institutes some basic reforms, which further support rural people, such as effective management of land and natural recourses, environmental sustainability and good governance.

Cambodia poverty rate

Poverty alleviation in Cambodia has such high priority, because so many families still live in very poor conditions. Provision of education, electricity and sanitary conditions are not guaranteed to many of Cambodia’s citizens. Currently, only 19% of rural households have electricity and their water sources heavily depend on seasonal change. During the rainy season from April to November, almost 80% of households have access to clean water, whereas only 59% of households have access during the dry season. Another issue adding to the lack of adequate sanitation is the estimate that in 2010 only 43% of households actually had a toilet facility.

A 2010 Cambodia Health and Demographic survey found that only 3% of female interviewees and 6% of male interviewees had more than a secondary education. In Cambodia’s most impoverished provinces nearly half of women never received an education at all and on the other extreme most women in urban centers received a high level of education.

 

Cambodia education levels

The level of women’s education and wealth is directly linked to child mortality as this study found, so naturally the mortality rate in the country side is far higher than the ones in urban areas. This is also attributed to the lack of adequate health care in the countryside. Most of Cambodia’s hospitals all focus on urban centers such as Phnom Penh and Siem Reap.

Because Cambodia has had successes with poverty alleviation the rate of mortality has decreased dramatically since 2000. Currently, it is estimated the infant mortality rate is around 45 deaths per 1,000 live births. Compared to 83 deaths per 1,000 live births in 2005 this is a huge improvement.

Overall, the government and the abundance of NGOs in Cambodian are continuously trying to help people in dire need. The trends are only expected to continue as they have in the past decade in which case Cambodia is expected to make major improvements over the next coming years.

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