Cambodia Examines Short and Long Term Economic Challenges and Solutions

Officials from the Cambodian government embraced the opportunity to learn first hand from the economic policy experiences and reform plans of other countries in the region during a three day United Nations workshop designed to help establish a long term development path.

The high-level workshop - “Strengthening the response to the global financial crisis in Asia-Pacific: the role of macroeconomic policies” – which was organized by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in partnership with the Ministry of Economy and Finance of Cambodia concluded today in Phnom Penh.

During three days of deliberations, experts and high-level officials from Cambodia, India, Republic of Korea, Thailand and Viet Nam, as well as representatives from Asia Development Bank, The World Bank and the International Monetary Fund, examined key challenges facing Cambodia and other countries in the region as they recover from the global financial crisis.

Despite the robust performance of the region this year, Nagesh Kumar, Chief Economist of ESCAP, observed that “the policy environment is becoming increasingly challenging in both the short and the medium-to long-term.”

In the short-term, the main challenge is when to exit from expansionary in order to avoid disrupting the recovery while fighting inflationary pressures, appreciating currencies and incipient asset bubbles.

In the medium-term the challenge is to adjust the global macroeconomic imbalances, which will require countries in the region to create and rely more on domestic sources of aggregate demand as well as on enhancing trade with other countries within the region.

According to the Cambodian Deputy Prime Minister and Minister of Economy and Finance Keat Chhon, Cambodia is also experiencing short and long-term policy challenges. A major short-term challenge is given by Cambodia’s high degree of dollarization. “With more than 90% or the banking transactions conducted in dollars, we cannot use interest rate policy to influence the economy” said Mr. Chhon.

Deputy Governor of the National Bank of Cambodia Neav Chanthana concurred with Mr. Chhon and said that the Bank has the objective of increasing the use of the riel over the medium- to long-term.

Cambodia’s low level of tax - estimated at around 11 per cent of GDP compared to average of 20 per cent in developing countries – was also an area of concern.

“To increase tax collection is important both for the mobilizing of resources for physical and social investment and for enhancing the country’s fiscal space, allowing the country to respond more effectively to economic crises,” said Mr. Kumar of ESCAP.

In order to increase tax collection in future, Vann Puthipol, Director of the General Department of Taxation, highlighted the importance of increasing the tax base and improving tax administration.

But the greatest challenge of the country in the medium-to long-term, according to Mr. Chhon, is to enhance the diversification and improve the competitiveness of the economy. “Diversifying the economy and strengthening its competitiveness will be crucial for Cambodia’s future economic developments”, he said.

According to UN Resident Coordinator Douglas Broderick, improving education and building nationally integrated social protection systems are two additional key medium- to long-term challenges for Cambodia.