Just follow the money: radical shifts in development financeMay 22, 2017
There is good reason to be optimistic for Cambodia’s future. Robust growth has resulted in rapidly increasing well-being for many, as Cambodia trades with the world and welcomes millions of tourists each year. And recently the country successfully hosted the World Economic Forum on ASEAN, demonstrating that it is well on its way to being an important regional player.
Yet, moving Cambodia’s own development agenda forward, as well as translating Cambodia’s strong commitment to the Sustainable Development Goals (SDGs) into actions, will require determined leadership and concerted effort over the next decades. Perhaps the greatest concerns for policy-makers relate to competitiveness and inequality, as these are both underlying factors affecting the government’s ability to deliver sustainable growth, improved economic opportunities, and higher-paying jobs for all Cambodians.
Increasing the resources available for development is central to improving citizens’ welfare, strengthening public services, and boosting economic competitiveness. The rallying call of the international community has been for “trillions, not billions” to be directed towards efforts to promote sustainable and inclusive development. For this reason, the UN’s SDGs campaign has been complemented by a Financing for Development initiative. A meeting on this initiative is being held in New York on 22-25 May. It will provide a forum for governments, international agencies, civil society, and the private sector to come together to build partnerships and momentum for achieving shared goals.
Cambodia, will require formidable resources to transform the economy, modernize agriculture, to realise an increased role for industry and services that bring better jobs, and to improve public services for all Cambodians.
Mobilising these resources will not be easy. Therefore, over the last year, UNDP has collaborated with the government to review its revenue streams, as well as to consider prospects for other forms of funding, to make a greater contribution to national development.
The analysis shows that there is great potential for Government to lead the way in financing national development. As a result of the impressive progress made in reforming revenue management and tax administration, Cambodia’s revenue has increased markedly in the decade to 2016, rising from little more than 10% of GDP to around 18% last year.
Increased collections of revenues will allow government to directly finance vital investments in public infrastructure, as well as to continue strengthening public services and social protection.
And that implies a radical change in the role of development partners. For example, in many of the middle income Asian countries – think India, Malaysia, Philippines – UNDP provides development services directly to those Governments, funded from domestic resources. There is no outside donor. It leaves the Government free to set exactly the policy and programme priorities it wants and then where appropriate, can buy in expert services to ensure the best possible results.
Government’s own funds now outstrip those provided annually by the international development community, which appear to have peaked in 2012, at around USD 1.5 billion. However, Cambodia’s development partners will continue to play an important role, complementing the government’s own public infrastructure investments, providing support to public policy development, and technical support to the strengthening of institutions.
Government’s role in guiding and managing these development cooperation contributions is now more important than ever, not least because an increasing share is provided in the form of soft loans rather than grants.
The increasing size of the public purse also provides government with the means and capacity to establish and lead partnerships, with wider public and private sectors. Foreign Direct Investments, for example, have increased rapidly, totaling over USD 2 billion in 2016. These funds can make a valuable contribution to Cambodia’s development by building the country’s industrial base, shifting production towards higher-value goods and creating the demand for skilled workers. Another important source of development finance is remittances, which now exceed USD 1 billion annually. While these are private flows, they arguably make the most positive impact on people’s welfare as individuals and their families can use the funds in whatever way they feel most benefits them – ranging from providing support to elderly relatives, funding the education of siblings, and investing in property and productive assets.
The role for the government, working with its development partners as required, is to strengthen the legal framework for migrant workers, ensuring that safeguards are provided and their wages can be sent home securely.
In addressing these financing challenges, the recent analysis shows that government has made substantial progress in strengthening its own revenue base, as well as coordinating development cooperation.
These strong institutions can be used to formulate policies and leverage partnerships with other development actors from the private sector. Cambodia is well positioned to identify challenges and formulate policy solutions. For instance, promoting competitiveness and ensuring that all of its partners are making a positive contribution to national development.
There is good reason to be confident that the government can mobilise the required funds to finance the next stage of the country’s development. By working closely with partners, polices and institutions can be strengthened to ensure that all sources of finance contribute to maintaining Cambodia’s high level of growth and increased well-being.
By Nick Beresford is the Country Director of and Philip Courtnadge is an Advisor for the United Nations Development Programme in Cambodia.