9/12/2009
WASHINGTON — The International Monetary Fund called on Cambodia Tuesday to strengthen a banking system hammered by the global economic crisis as the country struggles to pull out of deep recession.
The IMF projects Cambodia's economy will contract at a 2.7 percent annual rate this year
The recession and a sharp decline in property prices have further weakened bank balance sheets, even though they are not directly exposed to toxic assets abroad, the IMF said in a report following bilateral discussions with Cambodian authorities.
"As the economy recovers, immediate priorities include safeguarding macroeconomic stability and reinforcing the banking system," the Washington-based institution said after the talks, known as an Article IV consultation.
The report summarizes the conclusions of the IMF executive board, which completed the consultation with Cambodia on November 18.
"Executive directors noted that the global recession has contributed to a sizable contraction in economic activity, after nearly a decade of strong growth and poverty reduction," the report said.
The IMF projects Cambodia's economy will contract at a 2.7 percent annual rate this year before recovering to gross domestic product (GDP) growth of 4.3 percent in 2010.
Like many emerging Asian markets, Cambodia had enjoyed strong growth in recent years before the global financial crisis erupted in 2007, pitching the world economy into the worst recession since the 1930s Great Depression.
"Following a decade of high economic growth -- 8.0 percent per year on average -- and significant poverty reduction, Cambodia's economy has been hard hit by the global crisis," the IMF said.
The IMF noted plunging export and tourism receipts amid soft global demand, lower foreign inflows that have spurred a contraction in construction activity and falling agricultural commodity prices that have depressed rural incomes in one of the world's poorest countries.
"Directors expressed concern over the deterioration in the health of the banking sector and the continued rise of nonperforming loans," the IMF said.
A shrinking economy and declining property prices have exacerbated strains caused by weak risk management, earlier supervisory lapses, and excessive credit growth.
"As in other countries, credit risks and nonperforming loans at banks are rising, while profits are being compressed by a lack of lending opportunities," the 186-nation institution said.
While praising the authorities for responding with onsite inspections and supervisory noncompliance letters, the IMF encouraged them to continue strengthening banking supervision.
"Immediate priorities should include strict enforcement of the new asset classification regime, prompt implementation of corrective action plans, development of a comprehensive bank restructuring framework, and increased supervision capacity."
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