Prime Minister Hun Sen . Photo: AFP/Tang Chhin Sothy

Cambodia, despite reporting fewer coronavirus cases than most of its neighbors, could be among the region’s biggest Covid-19 losers due to economic and financial contagion effects.

The country’s most crucial business sectors, including tourism and garment manufacturing, have ground to a virtual halt since the pandemic first emerged in China in January and thereafter spread worldwide.

Cambodia’s tourism industry, which usually contributes around one-third of gross domestic product (GDP), is now dead in the water due to the lack of mainly Chinese tourists, who make up the bulk of visitors.

Air passenger numbers fell by more than 90% in April, according to the State Secretariat of Civil Aviation, while ticket sales at Cambodia’s world famous Angkor Wat temples fell by 99.5%.

Cambodia’s other vital sector, apparel manufacturing, the largest contributor to economic growth, has been hit by a double whammy as raw material imports dwindled because of virus-caused supply chain problems in China, and then as Western brands cancelled orders en masse as the pandemic took hold in Europe and the US.

Local media reports from early May say that 180 apparel factories have now suspended operations, and another 60 are thought to be close to suspension, adversely affecting as many as 150,000 workers.

Labor Ministry Spokesman Heng Sour said in late April that apparel exports are likely to be down around 60% in the second quarter of this year compared to 2019.

More bad economic news is on the way. An International Monetary Fund (IMF) worst case scenario forecast made in April projected a possible economic contraction of 1.7% this year, representing potentially the first year of negative growth since the late 1980s.

People wear face masks amid concerns over a spread of the Covid-19 coronavirus, at a market in Phnom Penh on March 14, 2020. Photo: AFP / Tang Chhin Sothy

Government officials are looking towards better days. Phay Siphan, the government’s chief spokesman, asserted last month that Cambodia is heading for a “V-shaped” recovery, marked a sharp decline this year and followed by an equally sharp recovery in 2021 and beyond.

Economists, however, say it’s more likely that Cambodia will experience a so-called “U-shaped” recovery, wherein growth rates won’t return to pre-crisis levels for several years.  

Cambodia has been here before. In 2009, amid the global recession, GDP growth fell to 0.1% compared to 6.7% the previous year, according to World Bank figures. The economy bounced back quickly the following year and by 2011 was higher than in 2008.

Not so this time around. In April, the World Bank forecast that, under a “baseline scenario”, Cambodia’s economy will grow by just 2.5% this year, the worst since 2009, and then slightly recover afterwards, with growth of 5.9% in 2021 and 6.3% in 2022.

But that might be optimistic.

Ou Virak, founder of the local Future Forum think tank, reckons that many economic forecasts, including those made by the World Bank and the Asian Development Bank in March and April, were made “too early” and probably presented a “much rosier” picture than is the reality.

The World Bank’s forecasts vary significantly – from contraction at worst and decent growth at best this year – and there is no reason why if the global crisis continues for longer than projected that Cambodia’s propsects won’t be downgraded even further.

“I expect a very slow recovery as Phnom Penh realizes that the country’s economy doesn’t have a leg to stand on. Garments, tourism, and construction are basically decimated. Even the Chinese can’t save Phnom Penh,” said Sophal Ear, associate professor of diplomacy and world affairs at Occidental College at Los Angeles.   

An employee checks the temperature of a man before he enters a bank in Phnom Penh on March 17, 2020. Photo: AFP/Tang Chhin Sothy

The health crisis has been relatively moderate in Cambodia, with zero confirmed deaths so far and authorities claiming no new recorded Covid-19 cases since April 13, which may or may not be true.

But as an export-driven economy, Cambodia’s recovery depends on what happens worldwide. Indeed, Cambodia’s economy won’t begin to return to normal until the economies of China, Europe and the US return to normalcy.

The first big question for Cambodia concerns how quickly the tourism sector can recover, which depends largely on how soon Chinese tourists resume travelling outside of China.

“When the Chinese government allows its people to go out or resume their flights, we think there will be a big flow of Chinese tourists to Cambodia,” Tourism Minister Thong Khon optimistically predicted in late April, according to local media reports.

The local Khmer Times newspaper quoted industry experts saying this week that they don’t expect the tourism sector to recover until at least next year. Many tourism-related businesses, meanwhile, are going under, reports say.

Banruptcies could rise even further considering the delicate state of the microfinance industry.

An estimated 2.6 million Cambodians have outstanding microfinance loans worth more than $10 billion collectively, according to figures from the Cambodia Microfinance Association quoted in media reports. 

Cambodia reportedly has the highest microloan debt per borrower rate in the world at around US$3,804, representing more than twice Cambodia’s GDP per capita.

Anecdotal reports suggest many Cambodians are already selling off assets like land, vehicles and gold to ensure they have enough money to meet basic expenses in the months ahead.

Many are doing so just to keep up with debt repayments; several others are already falling behind. There have already been several protests outside micro-finance institutions (MFIs) at which borrowers have called for a suspension of their loan repayments.

A Cambodian woman holds a stack of riel bank notes. Photo: AFP Forum

Human rights activist Hun Vannak and several other demonstrators were arrested last weekend for protesting in Battambang province outside of the offices of PRASAC and AMK, two of Cambodia’s largest MFIs.  

The National Bank of Cambodia has asked MFIs and banks to offer loan deferments on a case-by-case basis. Prime Minister Hun Sen has suggested the same.

But a statement by 135 civil society groups in late April called on the government to “ensure that MFIs immediately suspend all loan repayments as well as interest accrual on loans for at least three months and return the millions of land titles currently held as collateral by MFIs to their owners.”

But many microfinance lenders, as well as formal banks, argue they cannot accept delayed payments from all clients and warn that a blanket amnesty would endanger the financial sector longer-term if it prompts a rise of non-payment or over-indebtedness.  

Some analysts thus now expect a major finance system shock later in the year, as economic weakness in other sectors transmits to small businesses and households.

The Cambodian government does have some agency. Like elsewhere, Cambodia has implemented various Covid-19 relief measures, including tax holidays for companies in select sectors and pay guarantees for affected workers.

But Hun Sen has been forthright in saying his government cannot afford to bail out the economy. In April, his government vowed to provide $70 per month to laid off garment workers, representing about 40% of the national minimum wage.

Yet months earlier his government said it would pay $114 per worker per month, a figure it has since downgraded most likely because it underestimated the scale of the problem. So far more than 100,000 garment workers are thought to have been at least temporarily laid off.

Analysts believe Hun Sen’s government will need to dig deeper to avoid a worst case scenario of thrusting hundreds of thousands into unemployed poverty.

Workers in a Cambodian garment factory. Photo: Facebook

But analysts are already skeptical that his government has the wherewithal to set aside the $2 billion in Covid-19 crisis funds it claimed to have done in March.

Sophal Ear, for one, doubts the government has the financial resources it says it does, especially since Hun Sen instructed ministers and government-aligned tycoons to contribute to a national “disaster fund.”  

“It isn’t there…it’s all pretend money” Sophal Ear said, referring to the government’s emergency reserve claims.

Ou Virak said there has “not been a lot of openness about the impact of Covid-19”. But, he noted, the ruling Cambodian People’s Party (CPP) is for now “riding popular support” as many see the government’s response as credible.

The crisis has been something of “a blessing for Hun Sen in terms of popular support,” he added. Whether that lasts when the health crisis becomes an economic and financial one, however, is yet to be seen.