Cambodia Investment Review

Despite Strong GDP Forecasts Ministry of Economy and Finance Implements Urgent Budget Cuts Due To ‘Reduced Revenue From Key Sectors” in 2023/4

Despite Strong GDP Forecasts Ministry of Economy and Finance Implements Urgent Budget Cuts Due To ‘Reduced Revenue From Key Sectors” in 2023/4

Cambodia Investment Review

In response to a significant drop in tax and customs revenue and slower economic growth, the Cambodian government has announced substantial budget cuts aimed primarily at non-personnel expenditures. These measures are part of a broader effort to manage fiscal constraints while maintaining essential public services, as detailed in a recent circular from the Ministry of Economy and Finance.

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The Ministry of Economy and Finance Circular No. 004, issued in May 2024, outlines significant reductions across various expenditure categories. The government will reduce spending on the purchase of goods and services by 25% and cut budgets for meetings and per diem by 15%. These measures are an immediate response to declining fiscal inflows that have put pressure on the national budget.

Government Has Implemented A Freeze On Specific Budgeted Expenditures

In addition to these cuts, the government has implemented a freeze on specific budgeted expenditures, projected to save a considerable amount of public funds. This freeze includes $239 million USD from capital expenditures, $49 million USD from the Ministry of Health Reserve, and $37 million USD from general reserves, totaling $325 million USD in savings.

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Finance Minister Aun Pornmoniroth highlighted the direct impact of reduced revenue from key sectors on the national budget. “The contraction in tax and customs revenue, exacerbated by slower economic activity, has necessitated these austere measures. Our priority is to stabilize the fiscal situation while ensuring that essential services and critical infrastructure projects remain minimally impacted,” the minister stated.

Finance Minister H.E. Aun Pornmoniroth

This move comes despite strong economic forecasts from development banks such as the Asian Development Bank (ADB) and the World Bank. A new update to the ADB’s flagship economic report, the Asian Development Outlook (ADO) September 2023, revised Cambodia’s economic growth forecast for 2023 downward to 5.3% from an earlier 5.5%. This revision was mainly due to slower-than-anticipated growth in the industrial sector during the first half of the year. However, the bank maintained its growth forecast for 2024 at 6.0%.

The Cambodian economy has encountered several challenges recently, including external trade pressures, fluctuating global market conditions, and domestic issues that have slowed down economic growth. These factors have collectively led to reduced tax collections and customs duties, which are pivotal revenue streams for the government.

Temporary & Part Of A Broader Strategy To Realign Expenditures With Revenues

Despite the current fiscal tightening, the government is committed to safeguarding social spending and vital healthcare services. The Ministry of Health will continue to receive necessary funding to combat public health crises and support ongoing health programs, albeit with adjusted reserves. Minister Aun Pornmoniroth assured the public that these budget adjustments are temporary and part of a broader strategy to realign expenditures with revenues. The government is also exploring alternative revenue sources and efficiency measures to bridge the budgetary gap without compromising essential services.

The administration’s efforts to manage fiscal constraints while maintaining essential public services demonstrate a balanced approach to addressing the current economic downturn. However, the success of these measures will depend on the government’s ability to stimulate economic growth and increase revenue streams in the coming months.

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