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Logo of Phnom Penh Post newspaper Phnom Penh Post - Debt burden clouds the silver lining

Debt burden clouds the silver lining

C ambodia's debts - to lenders such as the Asian Development Bank (ADB) and the World Bank (WB), to countries like Russia and the United States, and to private companies affected by past unrest - cast a long shadow over the national budget for 2006.

Presenting the Law on Financial Management 2006 - the Budget - to the National Assembly on December 23, Keat Chhon, Minister of Economy and Finance, told parliamentarians that although the International Monetary Fund had granted Cambodia 100 percent debt relief, the country still faced difficulty in repaying debts to the ADB and WB that it had accumulated since 1992.

The government also had to make debt repayments to private companies affected by the factional fighting between the Cambodian People's Party (CPP) and Funcinpec in July 1997 and the anti-Thai riots on January 29, 2003.

Chhon said the government is negotiating with Russia and United States over old debts to those countries.

"When the debt negotiations end, the requirement of expenditure on foreign debt will also increase," Chhon said in his speech.

Cambodia owes the ADB $500 million, Hang Chuon Naron, director general of the Ministry of Economy and Finance, told the Post on December 27.

And the country owes the WB about $570 million, according to the Bank.

"Now the government is faced with the problem of public financial management, especially as Cambodia's ability to increase revenue to meet the high requirement for expenditure is still limited," Chhon said.

He told the members of the National Assembly that the International Monetary Fund (IMF) had granted Cambodia 100 percent debt relief from January 2006 on all debt incurred by Cambodia to the IMF before January 1, 2005 - about US$82 million.

"We are really proud of the decision made by the IMF, but we should not forget we must be making an effort to reform and commit to strong development following the rectangular strategy," Chhon said.

(The rectangular strategy aims at good governance leading to enhancement of the agricultural sector, rehabilitation and constructon of physical infrastructure, private sector development and employment generation, and capacity building and human resource development.)

John Nelmes, Resident Representative of the IMF in Cambodia, said in a press release on December 22: "Cambodia has qualified for IMF debt relief because of its overall satisfactory recent macroeconomic performance, progress in poverty reduction, and improvement in public expenditure management."

The National Assembly on December 23 approved 3,814.12 billion riel ($926.65 million) for the government's expenditure in 2006, from last year's 3,168.60 billion riel ($772.82 million).

The biggest portion of the 2006 budget goes to the Ministry of Defence, with 311.36 billion riel ($75.64 million), followed by the Ministry of Interior with 196.37 billion riel ($47.70 million), the Ministry of Education, Youth and Sport 442 billion riel ($107.38 million), the Ministry of Health 260.97 billion riel ($63.40 million), and the Ministry of Social Affairs, Veterans and Youth Rehabilitation 110.84 billion riel ($26.93 million). The Ministry of Rural Development receives 33.20 billion riel ($8.06 million) and the Ministry of Agriculture, Forestry and Fisheries 56.81 billion riel ($13.80 million.).

Chhon said the economy is forecast to grow by an average of 6 percent a year between 2005 and 2008, meeting the target of the government's rectangular strategy.

His report said it was hoped the 6.1 percent target for 2006 would see garment exports increase 10 percent, tourism 35 percent, and agricultural output 3.6 percent, including a 4 percent increase in rice production.

It is hoped that industry will increase 9.1 percent, which would include an 11 percent increase in construction, and the service industry 6 percent. Exports are expected to increase 9.1 percent, and imports 10.2 percent.

"To maintain stability of growth in the economy the government has encouraged diversification by continued efforts to develop and modernize field agriculture, and agricultural industry," said Chhon.

He said, however, that even though Cambodia has achieved high economic growth the rate of poverty has remained high because growth is very narrow, based especially on garment exports and tourism.

Chhon said the government will continue to strengthen good governance, especially pursuing the fight against corruption.

But Chhon criticized some government ministries that he said were collecting enough revenue but not sending it to the national treasury.

Keo Remy, opposition parliamentarian, said he was not happy with the budget: it still gave low priority to ministries such as Agriculture and Rural Development.

He said the government remained unable to collect revenue from the powerful, such as tax on the buying and selling of land, and on building construction. Illicit businesses such as smuggling continued to limit the government tax base.

Remy said Cambodia's growth was because of the garment, tourist and construction industries and service was still expensive.

He said 85 percent of Cambodia's population work in the agricultural field, yet growth in agriculture remained slow and the budget allocation for it was too small.

He said Vietnam is scheduled to join the WTO in 2006. If Cambodia has no real commitment to fight corruption and bureaucracy its services will remain expensive and it will not be able to compete.

"We are concerned that the garment industry will not be able to compete with Vietnam when it joins the WTO in 2006," Remy said.

"Also, the high price of gasoline will affect many industries, including agriculture."

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