Donors at the Finance Ministry Monday called on the government to make expenditures more transparent and improve financial accountability, while the Finance Minister said the government was not ready to implement reforms immediately.
“They made many good recommendations, but the problem is that the situation is not ripe,” Minister Keat Chhon told reporters. “So I have to retract from some things.”
A 199-page report released jointly by the World Bank and the Asian Development Bank Monday details problems with the budget process and makes recommendations on how to ensure that money allocated for development gets to the field where it belongs. Among the report’s findings is the need to increase government revenue.
“Despite the need for higher revenues to finance growth and poverty reduction, Cambodia’s fiscal revenue ratios, especially tax revenue, remain among the lowest in the world,” the report stated.
The government is currently running a deficit of $55 million. The government is financing the deficit with $35 million from the National Bank and $8 million through treasury bills, according to economist Sok Hach. That leaves the government short of about $12 million for this year.
“When revenue declines, expenditures decline,” Sok Hach said recently. “If money in priority sectors declines, then people suffer. That shows the importance of macroeconomic stability.”
Provisional budget implementation numbers for the first eight months show that the government received 54 percent of the revenue it budgeted for 2003 during that time. The amount of revenue generated from fisheries, forestry, factory leases and civil aviation has been particularly low.
Also, in the first eight months of this year, the government received just 39 percent of the total revenue it expects from petroleum import taxes for the full 12-month period.
“After the anti-Thai riots and [severe acute respiratory syndrome], the revenue is down,” Keat Chhon said. “Now we are recovering. The key word to increasing revenue is enforcement.”
Though some revenue generated from tourism is “lost forever,” Keat Chhon said the government has had successes fighting smuggling.
On Oct 10, the government charged five Sihanoukville port customs officials with drug trafficking. Two suspects were Sihanoukville Customs Bureau Chief Kin Ly, and his deputy, Pen Sarath—the brother of Pen Siman, director of the Customs Department. Following a directive from Prime Minister Hun Sen, the five were released on bail.
“We are working with the private sector,” Keat Chhon said. “They know who are the smugglers among themselves because they compete unfairly with those who do not pay taxes.”
While the ADB and World Bank report credited the value added tax, implemented in 1999, with increasing revenue and simplifying the tax structure, it also suggested the government establish a “semi-autonomous revenue authority” to rapidly increase revenues.
But once the government has the money, the report found, it often is not used properly. Because all payments are made in cash, it said, some payments are not accounted for.
“Increasingly, budget execution has suffered from delays and an unpredictable release of funds…. The system is plagued by gate-keeping and deficient accounting and reporting systems, thus leading to a weak control environment and increasing opportunities for corruption,” the report said.
Donors called on the government to use a banking system for expenditure operations and intra-governmental transfers.
They also recommended that the government publish audited financial statements and make them accessible to the public.
Keat Chhon said that all ministries need an internal audit to send to the National Audit Authority.
“The National Audit Authority cannot see everything,” he said. “Every ministry needs some kind of auto-discipline. You have to keep your house clean by yourself.”
Some have criticized the authority as being an arm of Hun Sen because he is able to nominate directors of the authority, which then must be approved by the National Assembly.
“That is a valid concern,” Urooj Malik, the ADB country director who worked with the authority, said last week. “Ideally, we’d like to see it happen differently.”
Since the Assembly twice rejected Hun Sen’s nomination for the authority’s director, Malik said, it showed that the democratic process is working here.
On Monday, Keat Chhon suggested that raising salaries and increasing transparency, while both good things, may not necessarily stop corruption.
“The National Audit Authority is like a policeman,” the minister said.
“The anti-corruption law is like a policeman. But the problem [of corruption] lies in the people’s heads.”
