Coronavirus News Asia

Pandemic math not adding up in Cambodia

While governments worldwide spend extravagantly to buffer their economies from the Covid-19 pandemic’s ill-impacts, Cambodia is instead tightening its belt.

Last week, Phnom Penh surprised observers by announcing it would slash next year’s state budget by around 50%, notably at a time regional neighbors like Thailand and Singapore are rolling out richly-financed rescue programs. 

Specifics of the austerity cuts are still being devised, but it appears provisionally that officials will bring expenditures down to around US$4 billion in 2021, a massive reduction from the $8.2 billion earmarked for 2020.

Under current plans, social affairs programs will decline by 11.3% next year. By comparison, there will only be a 4.3% cut for defense, one of the lowest reductions across the board, according to media reports. 

A wage freeze will be placed on civil servants and other public-sector workers, while there will also be no new civil service hiring apart from replacing those who retire.

There will also be cuts in discretionary spending, such as the twice-annual $12.50 bonus for each civil servant for the Khmer New Year and Pchum Ben Festival holidays.    

The budget cuts come against the backdrop of an expected economic collapse. Last week the government predicted a 1.9% economic contraction this year and a V-shaped rebound of 3.5% in 2021.

The 1.9% contraction projection – potentially the lowest growth level since peace returned to the country in the early 1990s – is likely an honest assessment. 

People buy fruit at an early morning produce market in Phnom Penh on June 12, 2020. (Photo by TANG CHHIN Sothy / AFP)

The latest World Bank estimates suggest Cambodia’s economy will shrink by between 1%-2.9% in 2020, although the worst-case percentage worsens every time the Bank issues a new forecast.

The World Bank’s Cambodia in the Time of Covid-19 report, released last month, stated in a press release that the pandemic “Poses Greatest Threat to Cambodia’s Development in 30 Years.”

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