The economy will likely continue to suffer as foreign donors waiting for the results of the July elections delay approving new aid projects and renewing old ones, according to a new report from an economic research institute.
“The fact that new projects are not currently being approved means that, at best, new projects will not begin for several years because the preparation and approval of assistance projects needs substantial time,” said the report, by the Cambodia Development Resource Institute.
Foreign aid makes up approximately 35 percent of all official government expenditures.
“The real effects of this will be felt in several years time and will result in a significant gap in assistance activities,” the report stated.
The report is entitled “Donors in Disarray: Prospects for External Assistance to Cambodia.”
It said donors are not renewing projects for reasons including political uncertainty and budget cuts in their home countries.
After fighting in Phnom Penh last July, donors like the World Bank, Asian Development Bank and the European Union have said they will not approve any new projects for the near future.
These donors did not stop ongoing or already approved humanitarian aid projects. Cambodia experienced minor reductions in foreign aid as a direct result of the fighting of July 5 and 6, the report stated.
Only five of 29 countries identified by the institute as bilateral donors suspended or canceled aid to Cambodia after the summer’s turmoil. All five—Japan, Germany, Australia, Norway and the US—have continued humanitarian aid projects since July.
However, the report estimates that at least 1,000 people lost their jobs as a result of the cancellation and suspension of projects by EU and USAID since July.
A Finance Ministry official expressed hope that foreign donors will approve aid projects in the upcoming months.
“I am optimistic that foreign government and UN agencies will continue to give aid to Cambodia because we will have a legitimate government that will emerge from the election. So they should continue to help the government,” said Chhay Than, undersecretary of state for the Ministry of Finance.
The report cited concern that many government officials shared Chhay Than’s view: the aid will return if the elections are held in a satisfactory manner.
The International Monetary Fund, however, suspended a balance of payments project in late 1996 because the government was unable to institute needed reforms in tax collection and logging control.
Even if international donors did begin to return immediately, the government will feel the impact of an uncomfortable funding gap because of the many months it takes for planned projects to become active, the report said. (Additional reporting by Lor Chandara)