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Trimmer 2021 budget: Government plans 50% drop in spending

Thong Sotha​​   On June 16, 2020 - 2:36 pm​   In Economics  
Trimmer 2021 budget: Government plans 50% drop in spending Trimmer 2021 budget: Government plans 50% drop in spending

Amid the outbreak of the coronavirus, the government plans to trim the 2021 state budget to around $4 billion, accounting for about a 50 percent drop from this year’s state budget, including an 11.3 percent drop for social affairs and 6.4 percent for general administration.

Last year, the National Assembly approved government plans to spend $8.2 billion in 2020, a 22 percent increase compared with 2019.

According to the government’s national strategic budget plan (2021-2023), a directive signed recently by Prime Minister Hun Sen said Cambodia’s economic growth in 2020 was predicted to be negative 1.9 percent.

“Based on the law on management of state budget 2020, the economic growth is expected to be 6.5 percent, but the last outbreak of COVID-19 has been causing outside demand to drastically decrease.” the directive said.

It noted that Cambodia expects overall economic growth to recover by 3.5 percent in 2021.

The agriculture expected is expected to grow by 1.7 percent, the industrial sector by 4.1%, and the service sector by 3.6 percent.

Additionally, for next year the government’s state expenditure is expected to be only 25.07 percent of the gross domestic product, including 23.99 percent at the national level and 1.95 percent at the sub-national level.

For the national level, the budget for social affairs will drop by 11.3 percent compared with 2020 or 6.14 percent of the GDP; the general administration will get 6.4 percent less or 1.99 percent of the GDP; funds for the economic sector will be reduced by 5.3 percent or 6.42 percent of the GDP, and the budget for the national defense sector will be trimmed by 4.3 percent or 3.89 percent of the GDP.

The directive said local revenue for 2021 is projected to reach 18.17 percent of the GDP, with 18.17 percent from current income and 0.19 percent from capital income.

It noted that to maintain economic stability and promote economic growth, the government needs to “implement specific measures” to increase the effectiveness of the budget for 2021, such as resolving urgent expenditure caused by the “COVID-19 crisis”.

The directive said salaries for civil servants in the Kingdom will remain the same as in 2020, while state institutions can only recruit new staff to replace retiring ones.

“It [the government] needs to restrict on all unnecessary expenditure, and won’t allow any ministry or institution to spend over the allowed state budget,” it said.

When asked if the reduction of state expenditure would impact the effectiveness of ministries or state institutions, Nub Sothun Vichet, a spokesman for the Ministry of Economic and Finance yesterday said the impact is unavoidable.

He refused to comment further and referred questions to another ministry spokesman Eng Touch, who could not be reached for comment yesterday.

The Asian Development Bank has released forecast figures showing Cambodia’s real economic growth will reach 2.3 percent in 2020, while the International Monetary Fund predicts Cambodia’s 2020 gross domestic product will contract by minus 1.7 percent.

Since the outbreak of the virus, The Garment Manufacturers Association in Cambodia has reported hundreds of apparel, footwear, and travel goods factories have had to suspend operations. It said more than 130,000 workers in the sector, most of whom are women, have lost their jobs.

However, Phann Phalla, a ministry secretary of state, said during a press conference yesterday that in response to the COVID-19 outbreak, the government has prepared between $800 million to $2 billion to minimize the impact, including to economic recovery and support for garment workers who suffered from their factory suspensions.

“Currently, we have a plan to spend around $1 billion, such as providing support to workers, and then we will provide funds to poor people,” he said.

San Chey, executive director of the Affiliated Network for Social Accountability, said yesterday that it is reasonable to reduce the state budget as the Kingdom is facing challenges posed by the pandemic.

He called for transparent procurement procedures to ensure that expenditure was for the right places and is effective.

“We need to consider reducing some unnecessary expenditure, such as spending on protocol events,” Mr. Chey said.

However, he said the government should not reduce the sub-national budget which impacts rural development.

“We should keep it [sub-national budget] because the local grassroots are potential growth drivers,” he added.

According to the Law on Management of state budgets, the government will be allocated $4.8 billion for current account expenditure and $3.3 billion for capital expenditure, which includes public investment and debt repayment, while $2.1 billion will be used for paying the salaries of government officials.

The economic sector will receive $1.8 billion, the social sector $1.9 billion, and national defense $1.18 billion. About $620 million will go to the general administration.

To afford that level of expenditure, the government aims to collect $6.5 billion in revenue, a 24 percent hike compared with last year. The remaining money will be borrowed from development partners. Khmer Times