Rising budget is within Cambodia's means

via CAAI

Monday, 18 October 2010 15:01 Steve Finch

ALTHOUGH the finer details of the proposed 2011 budget remain unclear, the government’s planned 18 percent increase in spending for next year represents good news for the economy in an age of global fiscal austerity.

Should the National Assembly approve the proposal – it seems unlikely it will change significantly given how the CPP rammed through the budget last year despite strong opposition – the government would spend around US$430 million more in 2011. That’s a much larger increase than the additional $163 million attributed to the budget in 2010, when military spending climbed a huge 24 percent – an economically unjustifiable policy given the stress caused by the global crisis.

The government has confirmed that defence spending is forecast to rise by $22 million next year, and Finance Minister Keat Chhon has said a large chunk of the extra spending would go to health, education and infrastructure.

This is reassuring, despite the fact that the private sector has been asked to pick up some of the military’s tab in the form of the bizarre partnerships imposed on a number of companies this year.

The budget outline suggests the government plans to invest in the long-term needs of the economy, a recommendation that the International Monetary Fund and the Asian Development Bank have been making since the onset of the economic crisis. Education and infrastructure have remained under-funded for some time. Further spending in these areas – albeit at levels that pale in comparison to many other countries – should be considered a priority.

Cambodia’s double-digit percent increase in spending represents something of a luxury that few other governments can justify but remains within the country’s means. Portugal, for example, forecast a tiny 0.2 percent rise in spending on Saturday, due to a budgetary headache mirrored across Europe. It is saddled with a budget deficit equal to 9.3 percent of GDP, while Cambodia’s deficit is more than 5 percent.

Most economists consider this acceptable in the short-term, given the need for stimulus measures. Even in the context of developing Asia, Cambodia’s state spending is relatively small.

The proposed 2011 budget represents a better proposition for the economy – and the country – than the 2010 plan.