Analyzing the Cambodian economy through the balance of payment | |
| Author | Samnang Chea |
| Call Number | AIT RSPR no.SM-03-65 |
| Subject(s) | Cambodia--Economic conditions Balance of payments--Cambodia |
| Note | A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration, School of Management |
| Publisher | Asian Institute of Technology |
| Series Statement | Research studies project report ; no. SM-03-65 |
| Abstract | This research study will focus solely on the analyzing the overall economic situation of Cambodia tlu·ough the balance of payment. This study does not intend to look into the detailed in all aspects of Cambodian's structure economy; nevertheless base on the balance of payment analysis allows this study cope the big picture of the entire economy. In point of fact, we focus on the examining the current account deficit. Why a deficit? Does this current account deficit matter? How is this current account deficit financed? Will the government adjust the trade policy or use capital and financial flow, to react in order to response to the attitude of the current account deficit? By looking the reaction of an economy regarding to how the deficit has been financed, the foreign investors can evaluate how much they give the confidence to the economy of the country. Indeed we can link this approach to assess the level of country risk. First, this research will concentrate on how does the cmrnnt account deficit come from? The answer of this question will provide the broad aspect on the international trade of Cambodia. In addition this aspect will primarily look into the trade balance by showing the structure and the geographic of imports and exports, which is important to formulate an appropriate policy to improve the trade balance. The current account deficit of Cambodia is due to the huge demand of imported goods and services and the lack of capacity to export. In fact the imported goods are mainly the petroleum products and the product serve to the constructions, whereas the garment is the main exports of Cambodia and the rest are the logs, saw timber, fish products, rubber and other agriculture products. According to the statistic appendix ofIMF, the current account deficit accounts excluding the official transfer accounts for 12.3 percent to GDP in 2000 and expects to be 13.4 percent in 2001 which reaches the red flag signal of 8 percent. The trade deficit tends to be persistent or not is depended on how good the exports of Cambodia are expected to improve, since the high demand of imported goods is there due to the demand for goods to improve the infrastructures, the base of productions and basic need. "Starting in 2005, Cambodia will no longer enjoy special access to American markets and it must compete directly with large textile producers like China," said George White, director of the Office of International Labor Affairs of the U.S. State Department. Thus the tackle of this issue will fall into hand of government to boost the export. Cambodia is expected to be WTO's membership at September, 2003. The current account balance depends strongly with the garment sector and tourism sector. Second, this research study gives attention to the ways how the cmrnnt account deficit has to be financed. Beside the official transfer which is the huge flow to finance the cmTent account deficit ( exl: official transfer), Capital and Financial flow is in charge. For instance the foreign direct investment, foreign debt, and reserve and others exceptional financing. The foreign direct investment defines as the capital flow that does not create the debt obligation and contribute to the sustainable economic development, was booming since 1993 when Cambodia opened its door to the world economy. Its figure was skyrocket in 1996, but dropped down sharply from 1997 primarily due to the politic instability and regional economic crisis. FDI rebounded again in 1998 to 1999 because of the recovery of regional and world economic. Optimistic with politic stability after the new election in 27 July 2003 and the strong growth of the country and region will bring more foreign investment. The foreign debt is used to finance the current account deficit. The amount of external debt of Cambodia is difficult to estimate. According to the statistic appendix of IMF, the external debt accounts for 66 percent to GDP in 2001. The ability of countly to borrow abroad is limited. If country is trick with the high level of debt, countiy may face the vulnerabilities to service its obligation. The overall balance of payment is negative but, is estimated to positive in 2001. The flow of gross official reserves is negative over the last several years, indicated that Cambodia cumulatively gained to improve the stock of reserve position. The Gross official reserves in months of imports of goods and services meet the requirement of the thumb's rule which set the standard of 3 months. Finally, the research study concludes the overall situation of Cambodian economy by linking to the country risk assessment. In 1997, the war between the political parties sends the bad signal to the market; affects the rating Cambodia in terms of country risk. This war has an extremely impact to Cambodian economy, FDI declines considerably since 1997 because the foreign investor loss the confidence with the stability of Cambodia, waste the resources to pay the compensations of company's destruction. Again in 2003, the Thai riot causes both politics and economy which hits hard the investor confidence especially Thai's investors. Cambodia must pay full compensation caused by the riot to normally the politic situation. In the same year, SARS also hits the tourism and tourism-related industries such as the airlines, travel agencies, hotels and restaurants. In term political iisk, generally Cambodia made a significant progress regarding to improvement of the democracy, terminating the civil war. The general election was organized by the national authority which recognized internationally. In general, Cambodia was improved in many aspects such as economy, politics and social. |
| Year | 2003 |
| Corresponding Series Added Entry | Asian Institute of Technology. Research studies project report ; no. SM-03-65 |
| Type | Research Study Project Report (RSPR) |
| School | School of Management (SOM) |
| Department | Other Field of Studies (No Department) |
| Academic Program/FoS | Master of Business Administration (MBA) (Publication code=SM) |
| Chairperson(s) | N. Ramachandran |
| Examination Committee(s) | Tang, John C.S.; Broustail, F.J. |
| Degree | Research report (M.Sc.) - Asian Institute of Technology, 2003 |