Government Launches Its Ambitious 10-Year Financial Plan

The government distributed a 109-page report on its strategy to develop the country’s financial sector over the next 10 years at an official launch event on Thursday, making ambitious proposals to improve a wide array of sectors across the economy.

The report, “Financial Sector Development Strategy 2016-2025,” is light on details, and notes in its executive summary that it is intended to be “flexible to respond to changing conditions,” making some of its proposals unlikely to be fully realized.

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Khut Phany, 57, closes her money exchange stall in 2014 evening on Street 284. (Siv Channa/The Cambodia Daily)

However, the report serves as a window into the priorities of the National Bank of Cambodia and relevant ministries, and gives a sense of what the groups will work on in the near future. It includes passages on the government’s intention to begin selling government securities, create a social security and pension fund, develop an early-warning system for external market shocks, update and adopt a new national strategy for microfinance institutions (MFIs), and promote financial literacy, among many other issues.

Chea Serey, the central bank’s director general, said the plan was a step toward improving Cambodia’s broader economic outlook.

“We want to see the kind of development in the financial sector that can help develop the physical economy,” Ms. Serey said at the report’s launch. “When the physical economy develops, our people also benefit.”

One of the report’s more ambitious plans is to create a “Social Protection Law” and “Pension Law” to be drafted by 2019 and implemented by 2022. Such laws have the potential to dramatically expand social protections in Cambodia, though such a plan would likely need a clear source of significant funding.

A mandatory pension fund for the “private formal sector” is expected within the next two-and-a-half years, according to the report, opening up the possibility of laws similar to those in Australia that require employers to deduct a percentage of their employees’ salaries and put the money into pension funds, which can be managed by banks and other financial institutions.

Anthony Galliano, CEO of Cambodian Investment Management, said the move was a necessary one for a maturing workforce.

“Cambodia’s expected demographic changes will place a growing fiscal burden on a shrinking workforce to support the elderly, leading to increased taxes and higher levels of debt,” Mr. Galliano said in an email. “Implementing a mandatory pension system will greatly mitigate these risks.”

Another policy of note is the planned development of an “early warning” system to deal with external economic shocks. In the past, Cambodia’s use of the U.S. dollar and its reliance on donor funds softened the impact of global economic crises, but that has been changing as the country becomes more integrated into the global economic marketplace.

“It is very challenging, as most mainstream economics in Cambodia rely on external stakeholders,” said Pakk Yourng, a digital financial services expert for Singapore-based financial services company ADG. “So, for example, if the E.U., U.S., Thailand and Vietnam stop buying products from Cambodia, then we will have a problem.”

The broader effort to promote stability and reduce risks is the right course of action for the central bank, said Miguel Chanco, the lead Asean analyst at the Economist Intelligence Unit.

“Cambodia’s financial sector has progressed well over the past decade, with the National Bank of Cambodia providing a very steady hand (barring, of course, the controversial decision earlier this year to cap the lending rates of MFIs),” Mr. Chanco said, adding that the economy had grown at an impressive rate.

“In my view, the focus going forward should be to consolidate these gains, ensuring better stability over the pursuit of even more rapid growth,” he said.

The MFI sector—which was the target of an interest rate cap imposed by the NBC in March—appears in the report as well, with a new “national microfinance strategy” set to be adopted by 2019.

Other proposals include speeding up the issuing of land titles for security and debt collateral, developing a commodities market, setting up a consumer protection agency and a commercial court chamber, and seeking the listing of financial institutions and small and medium-sized enterprises on the country’s budding stock exchange.

The report also lays out a plan for the Education Ministry to develop and include financial literacy courses in public schools, which could help ease what the report describes as “limited public knowledge” and “misunderstandings” about the MFI sector.

Mr. Galliano agreed, saying that increasing financial literacy in the education system “can only raise awareness of the importance of savings, mitigating risk, and starting and managing businesses, all positives for the economy.”

(Additional reporting by Brendan O’Byrne)

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