Five years after Aun Pornmoniroth became Cambodia’s finance minister, he shares his vision for the Kingdom’s economy with Southeast Asia Globe
What have been Cambodia’s greatest economic strides since you became finance minister five years ago?
During the last five years, the Royal Government of Cambodia has made impressive achievements, stemming from prudent macroeconomic management, pro-growth economic policies and comprehensive reforms. Cambodia was named Asia’s new tiger economy and attained lower-middle-income status in 2016 due to strong economic growth. The country has sustained a high economic growth rate and GDP per capita jumped from $1,044 to $1,427 [during my term], reflecting a better living standard. Cambodia’s growth has also moved in an inclusive pathway, which has led to a rapidly growing middle class that represents an attractive market for trade and investment – something which is crucial to safeguarding and reinforcing the growth.
Our revenue collection has also remarkably increased in the past five years to be on par with regional peers, while the government has increased spending on infrastructure, education, skilled labour, health and agriculture with the aim of enhancing public service delivery and economic productivity. We’ve seen rapid economic expansion within a stable macroeconomic environment. Inflation has been contained at around 3%; the exchange rate has been stable; and government’s debt level remains low at around 30.1% of GDP last year, for example.
Prominent reforms, namely the Public Administrative Reform and a sequential Public Financial Management Reform Programme, have been promising. The tax system has been streamlined and modernized, taking advantage of the latest innovations in ICT and making tax paying services relatively more convenient and less time consuming – thus encouraging tax compliance.
Financial inclusion in Cambodia has grown significantly in recent years, with the National Bank of Cambodia estimating in 2016 that 71% of the country’s population had access to financial services while 59% use formal banking services
What have been the greatest challenges you’ve faced during your term?
Despite these achievements, the government has been well aware that several challenges still remain, such as slow speed of economic diversification, raising wages, high logistics costs, higher electricity costs compared to neighbouring countries and a shortage of skilled labour. In this sense, the government has been proactive to address these challenges.
To diversify our economy, the government has revised the Law on Investment and Incentive Schemes to attract capital-intensive industries and to promote the expansion of existing investment. We have also decided to reduce the electricity tariff gradually from 2019 for industrial and commercial users with the aim of reaching a level comparable to neighbouring countries.
To bring the cost of doing business down, the government has invested heavily in main infrastructure such as building a new expressway, expanding [Preah Sihanouk] seaport and enlarging all national roads connected to main economic hubs and neighbouring countries. At the same time, the government has been promoting trade facilitation by implementing the National Single Window [customs portal], simplifying and automatising customs procedures both on valuation and clearance, and revising agencies’ stationing at international border checkpoints and ports.
We have also been active in promoting small and medium enterprises [SMEs] by setting up SME banks and introducing incentive schemes for SMEs. To address the shortage of skilled labour, the government has increased the budget for education and vocational training by more than threefold.
Where do you see the most promising opportunities for financial growth in the country?
There continues to be strong public confidence in the banking sector, as reflected by healthy increases in credit as well as deposit activities and its substantial attraction of foreign direct investment inflows – particularly in microfinance institutions [MFI]. Remarkable financial deepening together with rapid adoption of new technologies – notably in payments systems – have supported improved financial inclusion. While MFIs’ increasing presence and significance has greatly contributed to improving access to credit, the innovations in fintech have also opened up new possibilities in the provision of financial services, including low-cost access to credit and savings vehicles and trade facilitation.
Financial inclusion in Cambodia has grown significantly in recent years, with the National Bank of Cambodia estimating in 2016 that 71% of the country’s population had access to financial services while 59% use formal banking services. How can the country continue to propel financial inclusion and ensure that citizens are getting the most out of financial access?
Fintech may play a critical role in supporting financial inclusion through the development of the country’s financial infrastructure. These innovations have provided access to a wide variety of financial information, helped in the integration of financial and credit markets within the country and reduced financial transaction costs. But enhancing financial literacy needs to be expanded further, especially in rural areas where financial literacy is low – not only to increase financial inclusion, but also to improve overall allocation efficiency. In the non-bank sector, the country can work on developing well-functioning insurance markets and broader capital markets to expand the range of financial services as well as to harness domestic resources for investment.
Cambodia’s competitive edge comes from a combination of factors… [such as] relatively competitive labour costs, favourable demographic factors, with around 60% of the population under 30 years and a rapidly growing middle class, and its strategic location at the centre of Asean
What should the government do to better incorporate banking into daily life in Cambodia?
To better incorporate banking and modern financial services into Cambodian daily life, the government has sought to encourage citizens to use banking services through creating e-government payment systems where tax, non-tax and other public fees can be paid via online platform. Government-supported payment platforms will not only better incorporate banking and financial services into Cambodians’ daily lives, but they will also increase transparency in all government financial transactions. Encouraging private investment in e-payment systems is another initiative of ours. The government will develop a strategy [for the] digital economy to provide the private sector a reliable platform, and may provide tax incentives to e-payment businesses to promote investment and growth of this sector.
Where does Cambodia have a competitive edge against its Asean neighbours economically, and what should be done to fully take advantage of this?
Overall, Cambodia’s competitive edge comes from a combination of factors: political and macroeconomic stability, the openness of the economy, robust and sustained economic growth, relatively competitive labour costs, favourable demographic factors, with around 60% of the population under 30 years and a rapidly growing middle
class, and its strategic location at the centre of Asean. To fully take advantage of these strengths, the government needs to accelerate institutional structural reforms and set out further policy measures to create an enabling business environment, improve trade facilitation, reduce electricity price and logistics costs, boost productivity, and further support SMEs and startups.
As Cambodia’s middle class continues to grow, what should be done to boost incomes countrywide and how do you see this impacting the country’s future?
Besides ensuring sustainable high economic growth, the government is implementing a number of fiscal and social protection policies to increase income countrywide. We are designing an equitable tax policy by ensuring that the tax burden on the poor is not raised, ensuring the tax system is not biased and strengthening efforts across agencies to combat tax avoidance and tax evasion. We’re also promoting financial inclusion by reducing financial transaction costs through financial literacy and regulation and promoting the use of digital payments by SMEs. Productivity in the agriculture sector is also being improved through irrigation systems, promoting safe fertiliser usage, providing access to high-yielding varieties of crops and supporting agro-processing industries.
This article was published in Southeast Asia Globe’s Banking Special 2018. For full access, click here.