Finance Minister Keat Chhon has predicted strong economic growth for Cambodia in 2005 and reported increased tax revenue collection in the first half of 2005 compared to the same period for 2004, according to a letter obtained Tuesday. One local economist, however, questioned the finance minister’s optimistic outlook.
In the letter dated July 22 and addressed to National Assembly President Norodom Ranariddh, Keat Chhon, predicted 6.3 percent GDP growth for 2005.
Following a 13-percent drop in agricultural production in 2004, Keat Chhon predicted agricultural production would this year grow by 2.4 percent compared to last year. This was due to a 3.3-percent increase in overall paddy production in 2005.
Continuing with the upbeat outlook, Keat Chhon also predicted 10.7 percent industrial growth. This was attributed to a predicted 13-percent increase in garment exports, 30-to- 35 percent increases in tourist arrival and a 13 percent increase in the construction industry.
The report forecasts annual inflation of 3 to 4 percent this year and further predicts 6 percent GDP growth through 2008.
In June, the International Monetary Fund revised its projection for GDP growth to 6 percent, up from an earlier prediction of 2.3 percent largely based on the predicted negative impact of the end of the Multi-Fiber Agreement. The IMF based its more positive assessment on developments in the international garment trade, such as the re-imposition of quotas on industry leader China by the US.
“The realization of 6.3-percent economic growth for 2005 against an initial projection of 2-to-4 percent growth could be considered a success of the Royal Government in managing the economy,” the letter states.
Economist Kang Chandararot said that based on his research, the first 6 months of 2005 have not been as strong as previous months. He also predicted 2- to 3-percent GDP growth for 2006 to 2008, citing the possible effects of political instability surrounding the coming three years of elections.
An unfavorable business climate is also causing producers to switch to importing foreign goods, he said.
Through June, the tax and customs departments collected approximately $251 million in tax revenue—28 percent more than collected in the first half of 2004. However, revenue collection in Cambodia stands at just 11.3 percent of GDP, far lower than the average 30 percent found in developed countries.
“The level of tax compliance has increased due to active supports by the Royal Government including strengthening the quality of services for taxpayers, enhancing the quality of tax audits and tax arrears recovery measures as well as strict tax collection from public procurement,” the letter states.
Kang Chandararot said that with a $202-million gap last year between tax revenue and $734 million in budgetary expenditures, the treasury is poor.
“Our economy is donor funded,” he said.
On the expenditure side, 32 percent of the budget was spent as of June 30. The Royal Palace spent 65 percent of its budget, the National Assembly 55 percent, the Interior Ministry 29 percent and the Defense Ministry 35 percent, according to Keat Chhon.
“However, the four priority ministries still performed at a low level,” the letter notes. The Education Ministry had spent just 23 percent of its budget, the Health Ministry 25 percent, the Agriculture Ministry 29 percent and the Rural Development Ministry 18 percent.
