Cambodia’s potential loss of its Everything But Arms (EBA) preferential trade access to the European Union (EU) would weaken its economic growth and lead to a credit negative, Moody’s Investors Services has cautioned. With a B2/stable sovereign rating, it would undermine the price competitiveness of its garment exports unless they are offset by productivity gains.
In a recent report, Moody’s said rising costs will make the country less attractive as a production base and could weaken foreign direct investment, a contributor to its economic stability.
Competition from regional rivals also poses a significant threat, global news wires reported citing the document.
Bangladesh is more capable of scaling production and has a 6.5 per cent share of the global apparel market compared to Cambodia’s 1.6 per cent.
Vietnam’s free trade agreement with the EU and its membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership would also aggravate Cambodia’s competitive challenges, Moody’s said.
Around 40 per cent of Cambodia’s goods exports go to the EU, valued at $4.3 billion last year, or 20 per cent of GDP. Of this, around 90 per cent are sold through the EBA initiative.
Any negative effect on garment employment and wages would weigh on domestic demand, which has supported overall growth in Cambodia, it said.
However, the rating agency said the withdrawal of the EBA could accelerate the country’s efforts to diversify into other manufacturing industries. (DS)
