Short to Medium Term Economic Prospects

Moderate Growth Scenario (II)

The moderate scenario assumes: (i) a reasonable improvement in the security situation, but (ii) modest economic management performance; and (iii) a slower streamlining of revenue collection.

In this scenario, agricultural growth is assumed to be slower than in the strong growth scenario, at 4.0 percent in 2003, 3.0 percent in 2004, and 2.5 percent annually thereafter. Therefore, the transformation away from the agriculture dependence is slower. By 2010, GDP will be composed of 36 percent agriculture, 29 percent industry and 35 percent services. This scenario translates into GDP growth rates of 12.1 percent in 2003, 9.1 percent in 2004, 7.6 percent in 2005, and 6.3 percent a year thereafter.

In essence, this scenario assumes a slow pickup of the economy from the current devastated state (i.e. a slow supply response to the reconstruction investments) and a slow revival of domestic demand. Moderate growth of the type projected is possible only if exports are emphasized. Therefore, export elasticity is assumed to start from 4.0 in 2003 and gradually decline, leveling off at 2.0 during 2006-2010, which is equivalent to the estimated elasticity in the early 1990s. This translates into exports growing gradually toward 12 percent of GDP in 2010, a figure still lower than under the strong growth scenario. Correspondingly, revenue collection is assumed to respond to GDP growth more rapidly, with an elasticity of 3.6 in 2003, 3.0 in 2004, 3.0 in 2005, and to gradually decrease to 2.0 by 2010. This translates into revenue growing from 3.3 percent of GDP in 2002 and 4.4 percent in 2003, and gradually increasing to 7.2 percent in 2010. The scenario here is more conservative than Cambodia's experience: 3.5 percent in 1990, 8.4 percent in 1995, and 11 percent in 2000. Table 2 provides the two macro scenarios discussed in this section, while Tables 3 and 4 provide the parameters underpinning the two scenarios.