Social interventions and strengthening the Kingdom’s socio-economic resilience are key to stave off the negative impacts of the Covid-19 crisis coupled with the war in Ukraine on Cambodia into the future, a UNDP policy brief reports.
The ‘2022 Economic and Social Impact Assessment of Covid-19 and War in Ukraine on Cambodia’ has used a computable general equilibrium model with real economic data to simulate shocks and examine the reaction of the economy as it battles rising fuel, food and fertilizer prices, the global economic slowdown and its impact on demand for Cambodian exports, and tourism and construction sector investments.
The report said, “As a small, export-dependent economy, the country is highly susceptible to external shocks, including the war in Ukraine and extreme weather events… The recent emergence of overlapping crises has created an environment that is both complex and uncertain, which may affect the prospects of Cambodia’s socio-economic recovery and its return to a pre-pandemic growth path and development.”
The brief stated that Cambodia’s 2022 GDP is expected to decrease from the pre-Ukraine war estimation of 5.4 percent to 4.9 percent. This takes into account the positive impact that social protection and other mitigation measures have on the economy.
The brief also predicts that social protection measures will help mitigate increases in the poverty rate, which is estimated at 15.2 percent. This is slightly lower than the pre-conflict estimation of 15 percent. However, it is 0.5 percentage points lower than the projection with no social interventions. This is the equivalent of preventing about 85,000 people from falling back into poverty.
As a result of the economy’s contraction, the brief estimates 1.25 percent of unemployment in 2022, compared to the pre-war estimation of 1.12 percent. However, the model suggests that without any social protection measures, the unemployment rate could increase to 1.45 percent.
The report said, “Uncertainty shocks, such as Covid-19 and the war in Ukraine, have reversed development gains and spurred the need to strengthen the country’s resilience, i.e. its capacity to absorb shocks and protect the most vulnerable.”
To lessen the blow of these external factors, the brief recommends increasing investment in human development, especially in the education and health sectors. “Countries that invested in public health and education have recovered faster from the pandemic. Investing in human capacities can boost productivity, which will in turn drive sustained economic growth,” the brief said.
In addition, it recommends further strengthening the social protection system, highlighting the Covid-19 Cash Transfer Programme for Poor and Vulnerable Households as an effective scheme.
Fostering an ecosystem for inclusive innovation, from the production of goods and services to community development, would also enable Cambodia to increase competitiveness and “leapfrog on its development path”. While shifting away from dependence on energy imports by increasing domestic energy resources was also recommended to boost economic competitiveness, create new jobs and promote green energy.
The report added that promoting Site-Specific Nutrient Management (SSNM) will increase the efficiency of fertiliser use, while reducing greenhouse gases and potentially enhancing crop yields. It also suggests scaling up agroecology and nature-based solutions to help counteract environmental impacts.
The assessment was carried out jointly by the UN Development Programme (UNDP), Ministry of Economy and Finance, Ministry of Social Affairs, Veterans and Youth Rehabilitation, and the UN Joint SDG Fund.