Lack of Transparency Hinders Budget Progress

Cambodia Daily Weekend | 26 March 2016

On Monday, Prime Minister Hun Sen announced a new phase of the Public Financial Management Reform Program, a donor-assisted initiative established in 2004 to bolster the country’s ability to soundly manage its budget. In a speech at the launch event, he touted the government’s progress in making the budget-drafting process more accountable to the public.

But even as the government pushes ahead with new reforms, its donors are warning that a continued lack of budget transparency continues to undermine the overall effectiveness of the country’s financial performance.

George Edgar, E.U. ambassador to Cambodia, said during Monday’s event that donors were “concerned at the slippage in performance in some areas, including the strategic allocation of resources, procurement and transparency.”

“Budget transparency is critical for building citizens’ understanding of expenditure,” he said. “It is particularly important as a growing number of Cambodians provide revenue for the budget through their labor—and also for strengthening government accountability.”

Cambodia still ranks poorly on global measures of budget transparency. The International Budget Partnership’s 2015 Open Budget Survey, conducted every two to three years, ranks Cambodia 95 out of 102 countries for general budget transparency.

Cambodia scored 8 out of a possible 100 points for the quantity, level of detail and timeliness of budget information provided to the public, putting the country on par with Iraq and Burma.

The survey also found the Cambodian government was “weak” in providing opportunities for the public to engage with or hear about the budget process.

Preap Kol, executive director of Transparency International Cambodia, said it is important to publicize information about how revenues from Cambodia’s private sector and civil society are being used.

“A lot of information about the national budget is not published. People need to know how money is spent, what sources funds come from, and whether it is audited,” Mr. Kol said.

“People need to be consulted in the budget process. Engagement helps to reduce corruption and lets the government know what people demand,” he added. “This is critical to the effectiveness and efficiency of the country’s overall financial performance.”

While progress on budget transparency has been slow, Ros Phearun, a spokesman for the Ministry of Economy and Finance, said the government had prioritized bringing in revenue by boosting its collection of taxes and non-tax fees last year.

“Our collection strategy has included stricter tax enforcement and monitoring, and expanding the tax and non-tax base revenue base.”

In January, the ministry announced the government had collected $1.3 billion in tax revenue in 2015—a 22 percent increase over 2014. It attributed the increase to a new policy of targeting petty taxpayers, including household-based businesses, which had previously avoided charges. It also reported a 33 percent increase, to $34.7 million, in taxes collected from non-gaming activities in casinos that previously went untaxed.

The next stage of the Public Financial Management Reform Program will be implemented over four years and aims to decentralize budgetary spending, delegating it to provincial governments in an effort to make spending more responsive to local needs.

Son Chhay, a senior opposition lawmaker, said that despite some progress in revenue collection, the government needed to continue weaning the country off international aid.

“Tightening up revenue collection will mean we wouldn’t need to borrow so much,” Mr. Chhay said. “But despite progress, I think there is still plenty of revenues we are not collecting, including from powerful people. So our expenditure is not reaching potential.”

Government expenditure currently stands at about 5 percent of gross domestic product, compared to around 15 percent in neighboring Thailand and Laos, according to World Bank data.

Mr. Chhay said that, above all, any new initiatives to increase revenues and boost spending efficiency would be limited in their impact unless steps were taken to eliminate the culture of secrecy surrounding how revenues are collected and spent.

“Sometimes costs are exaggerated on things the government purchases,” Mr. Chhay said. “And revenue collection is not always done in accordance with the law.”

“For all these large construction and infrastructure projects, we need information. Otherwise, there are no checks and balances on the government’s spending,” he added.