Response to COVID-19: Cambodia’s economic policy and administration

The emergence and spread of COVID-19 have brought significant economic pressure on nations around the globe. The pressures on Cambodia are evident in multiple aspects of the country’s economy. The country’s administration has halted certain operations within its economy since confirming its first case in late January 2020.1 The Government temporarily closed learning institutions, casinos and entertainment venues in order to curb the spread of COVID-19. Enforcement of the social distance rules led to the imposition of travel restrictions and changes in movement and work schedules across the country. There is no doubt that the virus has disrupted most sectors, although the tourism and airline industries are the most affected due to limitations on local and especially international travel. Government interventions have been necessary to mitigate the negative effects of the pandemic on the country’s economy. This article discusses economic and administration policy in Cambodia in response to the pandemic.

A combination of economic and administration policies is playing a key role in mitigating the negative impacts of the coronavirus that are currently threatening economic sustainability in Cambodia. The government is implementing different policy interventions targeting critical aspects of the economy. Firstly, the authorities, through appropriate policy interventions are working to provide urgent relief to victims of the pandemic. This is critical given the high number of job losses and collapsed businesses as a result of the virus.2 Secondly, after multiple sectors reported severe challenges and a drop of income due to the halt or slowdown of their economic activity, the authorities have been keen to implement short term interventions such as the issuance of stimulus packages to cushion the economy. These policy options will also enhance economic sustainability by fostering macro-fiscal and social resilience in the medium term.

Tax concessions are a major economic policy established by the Government to help reduce the tax burden on the population.3 The pandemic, coupled with the measures imposed to curb its spread, impeded some of the most crucial economic activities for the country. Various businesses and workers have been forced to contend with dwindling earnings to meet their expenses. The shrinking sources of tax revenue for the Government are threatening to reduce real growth of Cambodia, which had been on an upward trajectory until early 2020.

Between 2010 and 2019, Cambodia experienced a stable rise in its GDP due to the limited interruptions in local and international economic operations. However, disruptions in tourism, trade, employment, consumption and investments following the COVID-19 outbreak, have severely impacted current estimations on the country’s real economic growth for the upcoming years.

In order to cushion its citizens, the Government implemented tax relief to ease financial pressure on taxpayers. Reduced income levels have affected consumption patterns following reduced demand for various products and services within the economy.4 This can have adverse effects on economic sustainability in Cambodia, mainly due to low domestic demand. In response, the authorities have eased taxation to sustain purchasing power within the economy and strengthen domestic demand and production in order to spur economic activity.

The Cambodian Government is also providing income assistance to vulnerable segments of its population, especially workers who lost their sources of livelihood.5 The Government is giving unemployment benefits of $40 per month to workers who lost their jobs as a result of the pandemic, which is particularly needed in the worst-hit sectors, such as tourism and airlines. In 2018, tourism contributed to approximately 33% of Cambodia’s GDP.6 However, since the outbreak, the number of tourists has declined by 80%, thus severely affecting employees and companies in the tourism sector.

Job losses are widespread in many other sectors too, including the exporting sector. Reduced demand for Cambodian exports from major international markets like the European Union and the United States following the COVID-19 outbreak has contributed to the loss of jobs. In particular, partial and full suspensions in production has left approximately 100,000 employees in the garment and footwear sectors without jobs since mid-April 2020. 7

The factory in Sangkat Chaom Chao. Photo by UN Women Cambodia, taken on 06 September 2016. License under CC BY-NC-ND 2.0.

The authorities have also applied monetary policy interventions to support low-interest loans for individuals and businesses in order to generate employment. The government is facilitating access to credit for businesses in urgent need of liquidity.8 For instance, low-interest loans are being provided through specialized small and medium enterprises (SMEs) and agricultural banks to cushion small businesses and increase opportunities for new ventures within the economy. The government also provided $50 million to support existing and emerging agribusiness firms.9 Improved access to low-interest loans seeks to enhance investments, improve the economic situation of companies and facilitate economic recovery.

The government has made a 40% reduction in registration costs for online businesses to reinforce the upward trend in e-commerce that the country has been experiencing over the past few years. This is particularly important in this period to ensure the effectiveness of social distance measures and movement restrictions. As internet connectivity improves throughout the country, online shopping enables customers to make purchases and payments online and get their goods delivered at home.

In March, the Government announced a nationwide school closure. This affected millions of students in the country as many had limited ability to keep learning from home due to a lack of internet connection and equipment combined with limited technical skills and access to ICT tools. The Government, in partnership with UNESCO, is working to strengthen digital and distance learning to mitigate the negative consequences of suspended education activities.10 Cambodia is investing in long-distance learning technological tools to limit disruptions caused by school closures and create a better and innovative education system for the future. By September 2020, schools were re-opening.

In summary, the Government of Cambodia has been implementing various economic policies and administrative measures to mitigate the negative effects of coronavirus on its economy. One such policy intervention is the provision of tax relief to reduce the financial burden and maintain the purchasing power of residents. The Government is also providing financial assistance to workers who have lost their sources of income so as to ease the effects of COVID-19 in the labour market. Low-interest loans offered by the government are also benefiting small and medium businesses, hence creating opportunities for economic recovery. Lastly, digitization of the business and education sectors seeks to minimize the negative effects that result from a social distance and movement restriction measures.

Blog written by: Ms. Angela Maria Maalouf, ODC Research Intern. Reviewed and translated by ODC Economy Researcher-Editor.