Finance Minister: Cambodia Not Ready for Transparency

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.”


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