Economists say the lessons of the recent economic crisis should encourage policymakers to revise some of their macroeconomic principles and make immediate improvements in fiscal management, infrastructure and other areas to make the country more competitive in the global recovery.
National and international experts met last week for a high-level workshop to find ways Cambodia might maintain economic growth in the face of the new economic realities brought about by the financial crisis.
The crisis should signal a time for improvements in fiscal policy, economic diversification, investment climate and social protection, among others, experts said.
Better fiscal management can increase revenue, while improved infrastructure, including in rural areas, can bring more investment, said Qimao Fan, the World Bank’s Cambodia country manager.
“And the other area is to manage natural resources more transparently, which not only provides additional sources of growth, but also additional revenue for the budget,” he said.
A low-income country like Cambodia depends much on external markets for growth, which also makes it vulnerable to external shocks like the 2008 crisis. The crisis caused garment orders to plummet, hitting the garment industry hard, for example.
Do Hong Hanh, Vietnam’s country representative for the Asia Competitive Institution, said Vietnam limits exports to 20 percent to any one nation to limit risk. By contrast, Cambodia depends on the US market for 40 percent of all its total exports.
Meanwhile, Vasana Mututnanont, executive director of international affairs division of Thailand’s board of investment, said a crisis was actually a good time to attract investors.
“When Thailand was hit by the financial crisis, we had to create a new incentive in order to make it more attractive,” she said. “We had to maintain and make a good connection with companies that were already in Thailand because they can be good speakers for the country, if they are happy.”
“For newcomers, when you know who to attract, you have to make appointments with them instead of waiting for them to come,” she added. “So for Cambodia, it will be better if you will do the same things.”
Improved tax collection was at the top of the agenda. Cambodia’s total tax revenue for 2009 was $1 billion, a low figure compared to other countries. As a result, Cambodia needs an additional $1 billion in assistance from international donors.
Vann Puthipol, director of department of large taxpayers at the general department of taxation for Cambodia’s Ministry of Finance, said he is working on improving collection.
“First, we have to educate taxpayers,” he said. “Second, we strengthen the tax payment service. Third, we strengthen the auditing system to find out who is avoiding paying tax, and we will punish them.”
Cambodia will also benefit from the implementation of property and petroleum taxes, he said.
An increase in the tax rate could also help, said Pisit Puapan, director of economic analysis for Thailand’s Ministry of Finance.
Still more improvement can come by diversifying the agricultural products sold by Cambodia, said Nagesh Kumar, director of macroeconomic policy at the UN Economic and Social Commission for Asia and the Pacific.
But in order to do that, Cambodia must attract more investment, increase its productivity and extend its export market.
Experts also urged Cambodia to increase economic stability by improving the banking system and taking measures to de-dollarize.
A draft of the strategies is expected this week through UNESCAP, with a more detailed report to be released later this year.