Lack of clarity over the economic stimulus plan and flipflop decisions are keeping the people guessing over the actual determination of the government to help Cambodians

Two months after the announcement of Cambodia’s fiscal stimulus plan ranging between $800 million and $2 billion, details have yet to be rolled out.

As ambiguity continues to play over the breakdown of the plan, the government continues to dispense measures from time to time with the recent one being a 25 per cent discount on electricity tariff for five months for four key sectors.

The adhoc measures suggest a lack of coordination on the part of the government such as the directive to foot $40, which is the larger share of suspended workers’ flat $70 monthly wages from the previously agreed sum of $114.

Added to this were decisions to extend small and medium enterprise (SME) loan tenures to seven years, reopen museums, lift the export ban on standard grade white rice as well as the ban on entry for travellers from the US, Iran, Italy, Germany, Spain and France.

No doubt the flipflop declarations indicate efforts to meet the demands of the business community but this raises a conundrum over the stimulus budget as the government seems to be operating based on a whim.

Most of what is known are those published in news reports, and assumptions are made over the sum that has been expended.

For instance, out of 150,000 garment workers who have been suspended, Cambodia Labour Confederation told The Post last week that 15,000 have received $40 beginning in May.

That would mean that $600,000 has been deposited into workers’ accounts by the government.

It also means that this group has received the full $70 salary for the month, based on the confirmation by Garment Manufacturers Association in Cambodia (GMAC) that 180 factories that have suspended operations have settled their monthly dues to the staff. This is conjecture though.

The exact figure can be verified by the Ministry of Labour and Vocational Training but requests made to its spokesman Heng Sour for details were not forthcoming.

Cash outlays?

Last November, the government declared a national budget of around $8.2 billion for 2020, where $4.8 billion was allocated for development expenditure and $3.3 billion for operating expenditure.

Of the total budget, $1.7 billion was to be borrowed from development partners.

However, the Covid-19 outbreak forced a revision to the 2020 budget, causing approved allocations for programmes to be redistributed for the stimulus package to bolster the dire effects on the economy.

The stimulus plan, equivalent to seven per cent of Cambodia’s gross domestic product, is expected to see the economy through six to 12 months.

It is not known if the corrected budget has been passed by the National Assembly.

Reports show that the budget was raised from tax revenue, national budget rationalisation where $471 million was freed up, borrowings from development partners and donations.

But the absence of a stimulus package breakdown makes it difficult to identify real cash outlays, or in other words, “literally putting money into people’s hands”.

When asked for the breakdown, Ministry of Economy and Finance spokesman Meas Sok Sensan said the government is still processing the “fourth intervention” which is part of its measures against Covid-19 and post-crisis.

The actual fiscal expenditure is usually modest compared to a seemingly large budget, which in all intent and purposes is to convince the citizens of the government’s act of helping them.

Analysts say the overall budget takes into account liquidity created by loan moratoriums or forbearance, subsidies and debt restructures.

Further, from an accounting perspective, the source of funds of the budget might effectively be double-counting, particularly that involving loans or grants from development partners.

To date, the government has implemented a series of tax concessions to the garment and hospitality sectors, and expenditure and credit support.

But there have been no reports on the government’s determination of cash outlays for vulnerable groups – formal and informal workers – who have been made redundant, have had their salaries cut or daily income lowered.

Where is the SME fund?

Another anomaly is the provision of $500 million to $600 million in low-interest loans for SMEs.

“Much was published on the government stimulus but concretely, nobody in the private sector has any clue on how the money is being spent or how to access the funds,” said David Van, senior associate of Platform Impact, a public-private partnership firm.

The provision of salaries and subsidies for garment and hotel workers was equally important as ensuring monetary assistance for SMEs to ease cash flow problems.

“Otherwise they would have to shut down permanently resulting in job losses,” Van said.

In response, Sok Sensan maintained that the government has the budget for the SME loans. “All additional procedures and guidelines will be further issued by the SME Bank,” he said.

However, SME Bank spokesman Tong Ngy claimed that he “could not say for sure”.

“[I] just know that, it is work in progress . . . [as for the] fund, am not sure of [the] details. It is subject to the ministry,” he said.

‘Crushing debt and poverty’

For now, what is certain is the availability of $150 million in low-interest loans, comprising $50 million in government grants and $97.5 million raised by 33 participating financial institutions (PFIs), as part of an SME co-financing scheme to assist businesses via the newly-set up state-owned SME Bank.

There is also a further $50 million credit for farming sector SMEs to access through the Agriculture and Rural Development Bank.

Together, that is a hefty safety net for the segment, often described as the backbone of the economy.

In 2018, SMEs contributed 32 per cent to the gross domestic product (GDP). Out of 510,000 companies in Cambodia, 90 per cent are SMEs which employ more than 1.2 million people.

Of the total number of SMEs, only five per cent are registered, which means the tax break implemented by the government to ease the financial burden of businesses in the current economic climate is probably not going to do anything for them.

What can help them instead is a quick financing arrangement that could deliver them from the clutches of alleged losses and soaring operational costs.

But complaints by the business community on the strict application criteria including the need for collaterals have been piling on.

Sok Sensan said discussions with PFIs are ongoing to ease the conditions. “But we have to consider how we will define the risk-sharing as around 30 private banks are part of the scheme and must be part of how we resolve the risks once the strict conditions are removed,” he said.

An appeal made by 26 business associations from various sectors including garment, hospitality, and rice sectors as well as the international business chambers to the government via the Cambodia Chamber of Commerce sought funding and guaranteed preferential loans to offset risks.

The letter dated April 24 claimed that the negative shock of business closures would push many into crushing debt and poverty.

“The cash flow crisis is already having serious consequences as businesses are forced to stop paying suppliers or cancel other contractual obligations.

“[This] would have a huge knock-on effect throughout supply chains and the wider economy as it deepens across more sectors,” the group said.

They suggested a preferential, collateral-free, working capital loan scheme regardless of size, following a speedy, simplified due diligence process.

“Loans could amount up to three months of the company’s revenue or up to two years of a company’s salary expenses. Beneficiary companies only must commit to maintaining at least 50 per cent of their staff on the payroll,” it said.

The associations also asked that fiscal exemption such as the National Social Security Fund (NSSF) and the seniority payment be expanded to all sectors.

In any case, the ministry said there will be some clarity on the credit support for SMEs soon following a revision on the criteria.

Post-Covid-19 measures

Compared to neighbouring countries like Thailand ($82.5 billion) and Vietnam ($26.2 billion), Cambodia’s stimulus budget is understandably small.

Based on Asian Development Bank’s Covid-19 policy database, some $143.9 million has been identified as fiscal policy and sources of funds from ADB, World Bank, and other international loans or grants.

Some $70 million of that involves additional resources to the health sector but it is not clear if this is separate from the $30 million allocation for the purchase of medical equipment announced in March.

In a May 14 update, the International Monetary Fund showed that social assistance in Cambodia is being strengthened, including grants to households, and subsidies for wages and health and employment insurance.

In the meantime, the National Bank of Cambodia (NBC) outlined monetary measures to raise liquidity in the banking system.

Banks were allowed to defer meeting the 50 per cent in capital conservation buffer, hive interest rates on the liquidity-providing collateralised operations and negotiable certificates of deposit, and lower liquidity coverage ratio.

The NBC’s directive to financial institutions including microfinance institutions (MFIs) required them to assist both fiscally-affected employers and employees in the tourism, garment, construction, transportation, and logistics sectors to restructure loans.

Banks have been asked to reduce fees and cancel fines till the end of 2020, to ease borrowers’ burden. The same has been instructed by Prime Minister Hun Sen for laid-off garment workers.

This is crucial as some 2.4 million Cambodians owe some $8 billion to banks, particularly MFIs with up to 18 per cent in interest rates.

However, there is no telling whether the measures in place now will lift Cambodians from their current doldrum or bury them deeper in debts.

Perhaps, here is where the post-Covid-19 aid of $7.5 million by the US could help ease the situation in a small way with vocational training for workers, seeing that Cambodia is likely to face difficulty moving forward with the garment sector hit by an impending partial withdrawal of the Everything but Arms scheme this August.

The grant brings the total Covid-19 aid by the US for the Kingdom to $11 million. Of the amount, $5 million would be allocated for economic recovery and medical needs.

In a brief statement, the ministry said the grant will improve the lives of people “most affected by the pandemic”.

Will this be a reality? Only time will tell.