Cambodia Investment Review

IBC-Private Sector Working Group Engages Cambodian Government to Address Urgent Key Economic Challenges

IBC-Private Sector Working Group Engages Cambodian Government to Address Urgent Key Economic Challenges

Cambodia Investment Review

The International Business Chamber’s Government-Private Sector Forum’s Working Group on Law, Tax, and Governance (WG-D) convened at the Ministry of Economy and Finance (MEF) to address key economic challenges impacting Cambodia. Presided over by H.E. Dr. Aun Pornmoniroth, Deputy Prime Minister and Minister of Economy and Finance, the meeting brought together both government officials and private sector representatives to discuss critical economic issues facing the country.

Read More: IMF Warns of Rising Risks to Cambodia’s Economy in 2024 Due to Private Debt and Sectoral Slowdown

Urgent Need for Economic Intervention

One of the central themes of the meeting was the urgent appeal for government intervention to help mitigate the current economic slowdown. Cambodia has been grappling with reduced domestic demand, compounded by increasing costs for resources and escalating debt levels relative to the country’s GDP. The private sector, represented by key industry players, expressed concerns over severe cash flow issues that are hampering business operations and reducing consumer spending. This situation, they argued, has been worsened by the tightening of credit availability, despite Cambodian banks offering historically low-interest rates.

Mr. Arnaud Darc in representing private sector concerns addressed to H.E Dr. Aun Pornmoniroth.

Stakeholders highlighted the need for targeted governmental measures to support sectors that have been hardest hit by these financial constraints. As private sector borrowing continues to decline, it was suggested that government-led initiatives could stimulate investment, restore business confidence, and revitalize consumer spending.

Export Tax on Copper Under Scrutiny

Another major issue discussed during the session was the 25% export tax on copper concentrate, which includes the selling price plus transport costs. Industry leaders emphasized that this tax has rendered copper mining operations unprofitable, severely undermining the sector’s competitiveness. The private sector urged the government to reevaluate this tax structure, stressing the importance of maintaining profitability in Cambodia’s mining industry to ensure its sustainability.

The debate over the copper export tax reflects broader concerns within the private sector about the country’s overall tax regime. Representatives noted that while taxation is essential for public revenue, excessive taxation could stifle industries and lead to decreased foreign investment, a critical driver of economic growth.

Concerns Over Excessive Interest Rates on Overdue Payments

The third key topic of discussion revolved around the interest rates levied on overdue tax reassessments. Private sector participants argued that the current rates are excessive and have become a significant financial burden, particularly for small and medium-sized enterprises (SMEs). According to stakeholders, these high interest rates exacerbate existing cash flow challenges, further straining business operations.

Stephen Higgins provided an economic overview during the meeting.

There was consensus among attendees that a more balanced approach is needed to maintain manageable interest rates that would not destabilize businesses. Stakeholders also emphasized that resolving these issues would contribute to long-term microeconomic stability by easing financial pressures on private companies.

Read More: EuroCham and AmCham Collaborate with GDT to Discuss Tax Reforms and Highlight Several Initiatives to Improve Cambodia’s Tax Environment

Private Sector Recommendations

In addition to addressing immediate concerns, the private sector put forward several recommendations for longer-term economic development. A document seen by Cambodia Investment Review outlined that while Cambodia’s public finances are among the strongest in the region, the country is still facing significant economic headwinds. Cambodia’s public debt level, at 19% of GDP on a present value basis, remains one of the lowest globally, positioning the country favorably for future borrowing if necessary.

The private sector stressed that Cambodia’s prudent fiscal management has created ample room for borrowing, which could be used to support critical investments in infrastructure, education, and healthcare. Investments in these areas, they argued, would create jobs, boost domestic demand, and lay the foundation for sustained economic growth.

Cambodia Chamber of Commerce (CCC) provided their meeting room to facilitate the PSWGD meeting.

Specifically, the recommendations called for increased government involvement in infrastructure projects, including the development of a wholesale market in Phnom Penh and the construction of an international convention center. Both projects were identified as crucial for boosting local agriculture, improving the distribution of goods, and promoting Cambodia’s tourism sector. While private sector initiatives in these areas have fallen short, the involvement of the government was seen as essential to unlocking their full potential.

Investment in Human Capital

Another significant recommendation was to focus on human capital development through improved education and skills training. The private sector underscored that investments in human capital would not only enhance labor productivity but also attract higher-quality foreign investments. Moreover, these investments would help address Cambodia’s demographic challenge, with 300,000 young people entering the workforce each year and only around 100,000 retiring.

In light of these challenges, the private sector argued that increased borrowing to invest in human capital would yield long-term economic dividends, improving income levels, reducing inequality, and maintaining Cambodia’s competitiveness in global markets.

The working group concluded that the current economic situation requires decisive action and collaboration between the government and the private sector. By addressing key challenges such as the copper export tax, excessive interest rates, and the need for strategic investments, Cambodia can strengthen its economic foundation and ensure long-term growth and stability. The recommendations put forward during the meeting, if implemented, could provide much-needed relief to the private sector while fostering a more conducive environment for future investment and development.

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