With inflation of basic necessities like food and fuel exacerbating global economic pressures, local economists and intellectuals have been putting forth ideas to rein in the soaring cost of living, to provide financial peace of mind to the people.
Solutions offered include spending additional funds from the national budget to help the most vulnerable people – something the government is implementing but to what degree remains a question – and lowering tariffs on goods imported from abroad as well as adopting policies that facilitate domestic production chains and having the central bank raise interest rates.
Inflation, the likes of which had not been seen in decades, became an acute problem in the wake of the Covid-19 pandemic and especially after the Russia-Ukraine war began, as Ukraine’s grain harvest is relied upon for staple foods in the developing world while Russia is a very large oil and gas exporter that is now under heavy sanctions by the US, EU and others for its invasion.
Some economists argue that the root of the inflation problem was the large amount of economic stimulus that governments worldwide engaged in to help their citizens weather the worst effects of the pandemic as the US alone pumped literally trillions of extra dollars into the global economy.
The International Monetary Fund (IMF) issued a global inflation warning in its July 2022 report, lowering its 2023 global growth forecast from 3.6 per cent in April’s report to 2.9 per cent due to the tightening monetary policies that the IMF said was a response to the “uncertainty” caused by the Ukraine conflict.
Ky Sereyvath, an economic researcher at the Royal Academy of Cambodia, said the problem now is a truly global inflation that no country can avoid, including Cambodia, even though it is a small nation, and that is because the inflation is the result of many crises around the world combined.
Meas Ny, a social development researcher, said inflation is not new to Cambodia or the world, and that it is normal for there to be fluctuation in the prices of goods over time though it does require some response by governments, including those of developed countries, in order to find a solution or mitigate its effects as much as possible.
Sereyvath said he believed that the government is already working to address the issue as it is concerned about the stability of the national economy in the face of these global economic crises.
He said the government has been providing cash payments to nearly two million poor people affected by the pandemic and also recently approved subsidies to nearly three million poor and vulnerable people who are most affected by the inflation crisis. The cumulative effects of these policies have been to lift over five million people above the poverty line.
Prime Minister Hun Sen signed the order implementing the cash subsidy for poor people affected by inflation on October 5. At a press conference the next day, he confirmed that the subsidy is aimed at helping more than five million Cambodians and preventing them from falling below the poverty line due to the inflationary pressures caused by the Russia-Ukraine war.
Hun Sen emphasised that the government targeted this aid at people working in the informal economy and would continue to provide assistance to those affected by Covid-19 who have been receiving payments previously for at least another three months and possibly for up to one more year.
The government has already implemented 10 rounds of support for people affected by Covid-19 and has spent about $800 million to support around 700,000 households, totalling nearly three million people.
In late September, the Asian Development Bank (ADB) revised Cambodia’s 2022 inflation forecast up to 5.0 per cent, from 4.7 per cent in April, citing the strong pass-through effects of fuel price rises tied to the Ukraine conflict. However, the lender kept its 2023 estimate at 2.2 per cent.
Ny suggested that in addition to providing cash subsidies to people to help counter the impacts of inflation, the government could reduce the tax rate on goods sold in the market. He said this method has been successfully applied by other countries to alleviate the burdens of its citizens during periods of inflation.
Sereyvath said most countries around the world use their national banks and monetary policy to deal with the inflation crisis by raising interest rates, but he suggested lowering interest rates because it could boost investment incentives, increase domestic production and reduce imports, which would make the goods in the markets cheaper for the average person.
Chan Sophal, an economic researcher and currently director of the Centre for Policy Studies, said that in developed countries the primary tool used in these situations is monetary policy, which can be used to reduce cash flow in the market in order to reduce demand for goods, which should then drop prices as well, or at least that is one solution based in macroeconomic theory.
“I think Cambodia can boost the production of some high-priced goods to increase market availability, especially foods, which are essential for people’s livelihoods and health, and also offering loans to food producers and food-processing business owners and distributors to encourage expansion of their businesses,” he said.
Sophal added that other countries, such as the US, can raise interest rates to reduce market demand for loans, which is the conventional wisdom among economists as being the method best suited to dealing with inflationary pressures.
In Cambodia, he believes that in the inflation phase, they should focus on essentials rather than unnecessary goods, suggesting that people should suspend purchases of unnecessary goods for now.
For policymakers, Sophal said the government should monitor the prices of essential commodities and take measures to curb the rise in prices or encourage more local production if possible in order to increase supply as a means of dropping the prices.
Sereyvath said that for a long-term strategy, he wants to see the government consider boosting domestic production in order to reduce imports and lower production costs through volume and the economy of scale.
“In boosting domestic production, we can push the production chain and the production relationship for both cost and finished products, so that our products are produced at low cost and sold to the people at low prices, as this also contributes to lowering the level of inflation,” he said.
Ny called on the government to consider lowering tariffs on goods for now in addition to releasing additional funds from the state coffers to help vulnerable people, because it was not yet enough to alleviate the burden of all affected vulnerable citizens.
“I will praise the release of the funds to help vulnerable people, which means we are helping the struggling people who are ready to drown if we do not take care of them, but the number of these vulnerable people will only increase now because of inflation, which really affects all of us,” he said.
In May, Cambodia experienced its highest levels of inflation in more than a decade, rising to 7.2 per cent overall, according to National Bank of Cambodia governor Chea Chanto.