Reforms aimed at increasing tax revenue and domestic savings will play an essential role in Cambodia’s economic development over the long term, Prime Minister Hun Sen said Thursday.
Speaking at a forum sponsored by the Cambodian Institute for Cooperation and Peace on Cambodia in the new millennium, Hun Sen outlined his vision for development and poverty alleviation in years to come, pointing to countries such as Singapore, Malaysia and Thailand as examples of what Cambodia can achieve now that it has peace.
“In 20 to 30 years, I want to see Cambodia developed to the level of neighboring advanced economies in the region and the Cambodian people attaining a proper and decent living standard and enjoying progress, prosperity and happiness,” he said. “Poverty alleviation cannot be achieved over a period of one to two years.”
Many challenges lie ahead. In order to achieve the goal of development. Cambodia’s economy must grow between 5 and 7 percent a year—as have other Asean countries, Hun Sen said. Growth dropped to 1 percent after the factional fighting in 1997, rebounded to 4 percent last year and is expected to reach 5 percent this year.
For now, Cambodia will remain dependent on outside aid and investment to grow.
Low tax revenue has limited the government‘s capacity to increase public investment, he said. “Faced with this reality, Cambodia’s short- and medium-term economic growth is dependent on foreign aid and [investment from the outside].”
In order to match the growth rate of neighboring countries, Cambodia must attract public and private investment equivalent to 30 percent of the gross domestic product each year. Right now investment has inched up to 20 percent of GDP, or about $600 million a year, he said.
In other Asean countries, domestic savings has financed much of the investment, creating the resources for the loans used to start businesses, and for the government to fund infrastructure projects. Currently, however, Cambodia’s domestic savings is paltry.
“The development and strengthening of the financial industry and institutions, financial markets and the banking system are key to encouraging private savings,” he said, noting that the government is working to strengthen the regulatory and supervisory capacity of the National Bank of Cambodia over other banks.
The government hopes to more than double tax revenue as a percent of the economy in the next 10-15 years, from 9 percent of the GDP to between 20-25 percent, he said.
“In terms of long-term strategy, Cambodia cannot forever rely on foreign capital,” Hun Sen said, adding later “If we look at the current situation very carefully, we can be confident that Cambodia has the ability and opportunity to achieve these ambitious goals.”