As the International Monetary Fund decides whether to resume assistance to Cambodia, the Ministry of Finance is proposing several reforms for the next fiscal year, including spending more on health and education and giving budget managers more control over appropriations.
Experts say it’s crucial for Prime Minister Hun Sen’s government to prove that it’s serious about revamping spending and budget policy, because donors are frustrated the government hasn’t followed through on previous promised changes.
The IMF pulled out of Cambodia in 1996 because of the government’s inability to fight illegal logging and generate funds for the national budget. The influential lender had a $120 million loan program here, but canceled its $20 million installment in 1996.
“What [officials] really need to do is get in the good graces of the IMF,” said Joel Charny, deputy program manager for the Cambodia Area Rehabilitation and Regeneration Project. “This is really the last chance. They [donors] have to decide whether it’s really worth investing here.”
According to the Finance Ministry’s Preparation of the Project of Budget 2000 report, the next fiscal year will restructure spending by gradually containing the expenditures for defense and security to reallocate funds to priority sectors, such as the justice, education, health, rural development and social action.
“The historical budget for the year 2000 must be our privileged opportunity to sum up our problems, fine tune our objectives, think over our strategies…and put our country back on the track of progress,” the report said.
Defense and security would make up 3.5 percent of GDP and decreased to 2.5 percent in 2001. GDP is the monetary value of the goods and services bought during a 12-month period.
Pok Than, secretary of state for the Ministry of Education, Youth and Sport, remained skeptical, however, that the government will finally make real improvements, such as spending more on education. “I’ll believe it when I see it,” Pok Than said Thursday.
In past years, the government also proposed increasing funding for education, health and rural development, but the money was never allocated.
Health Minister Dr Hong Sun Huot said he is hopeful that reforms will go through. “The Ministry of Finance recognizes there is a problem,” he said.
The Ministry of Finance proposes giving ministries more budget control and also restructuring responsibility to improve the efficiency of activities.
Starting Jan 1, ministry budget managers’ powers will be extended, “hence they will have their own flexibility to set and modify their allocation.”
For those ministries with clearly defined programs, such as health and education, the Ministry of Finance will facilitate the operation of their programs through the Budget Management Center scheme. The system will make program inputs match their respective outputs.
Michael Curtis, the World Health Organization’s budgetary adviser to the Ministry of Health, said the suggested reforms show the Ministry of Finance knows how to tackle problems.
“I’m just concerned that they [will] take too long,” Curtis said.
The main priorities of the 2000 budget are returning to growth, re-establishing macroeconomic stability, and restructuring budget revenues and expenditures.
The Ministry of Finance wants to raise the level of domestic revenue collected by the government to about 11 percent of GDP, with tax revenue targeted to again make up roughly 8 percent of GDP, while 3 percent is aimed to come from nontaxed revenue.
The ministry also hopes to maintain current expenditures within 10 percent of GDP by keeping government wages at reasonable level.
Kao Kim Hourn, the executive director of the Cambodian Institute for Cooperation and Peace, said the government is on the right track, but it must do more to stimulate investment in the private sector. “That is the missing part,” Kao Kim Hourn said.
One of the goals for the next fiscal year is to continue the economy’s comeback since its downturn in July 1997, when factional fighting broke out and the region’s economy nose dived.
According to the report, the average nominal GDP between 1994 and 1998 was 8.28 trillion riel (roughly $2.2 billion). The Finance Ministry estimates that the nominal GDP for 1999 would be 12.1 trillion riel, and in 2000 it would increase to 13.4 trillion riel.
This year marked the “get back in shape” year with a GDP growth of 4 percent and a stabilized riel-US exchange rate of 3.790 riel to the dollar, the report said. The figures show an improvement from the last two years, when growth dropped to 1 percent in both years and the riel lost 9.2 percent of its value to the dollar at the end of 1997.
For 1999, agricultural production is expected to reach a growth rate of 3.8 percent, while manufacturing is predicted to remain sluggish, growing at a rate of 3.7 percent. Estimated revenues for 1999 are 1.4 trillion riel, with 995 billion riel coming from taxes.
The Value Added Tax, implement this year, helped bring in more money to national coffers. The VAT on imports exceeded expectations, bringing in 33 percent more than planned. Non-taxed revenue has come in well below expectations so far in 1999.
The government had planned to collect $20 million in timber royalties for 1999. But it collected only $1.1 million in logging revenues for the first three months of the year, despite quadrupling the legal cutting rate. In January the government raised the royalty rate from $14 per cubic meter to $54 per cubic meter.
The inflation rate is predicted to remain at 5 percent, a decrease from the 13.3 percent rate in 1998. The US-riel exchange rate is also expected remain stable.
Net exports is expected to increase by 14.8 percent against net imports, growing at 8 percent.
The current deficit of the balance of payments is predicted to be maintained at its 1999 level of minus 12.2 percent of GDP.
The final draft of the 2000 budget is expected to be finished by next month, according to Suor Victor, an undersecretary of state at the Finance Ministry. (Additional reporting by Yuko Maeda)