In Cambodia, agile policymaking drives budget reform

By Nurfilzah Rohaidi

Interview with Chea Kok Hong, Director of Macroeconomic and Fiscal Policy at the Ministry of Economy and Finance.

Cambodia is in a state of flux. From textiles to tourism, the economy is growing fast. There is an emerging middle class and a burgeoning startup scene. The government is making progress in financial inclusion for rural unbanked.

But while the country possesses an ample supply of labour, the fact remains that the workforce is lacking in education and skills, according to a 2018 report by the Asian Development Bank.

Cambodia is at a “critical juncture” as it moves from an agricultural-based to industrial-based economy, says Chea Kok Hong, Director of Macroeconomic and Fiscal Policy at the Ministry of Economy and Finance. But “certain types of skills are mismatched with the market”, he tells GovInsider.

He shares how skills development is a priority for his ministry, how he intends to boost economic growth with agile policymaking, and what is in the works to support local businesses.

Sustainable growth and decent jobs

Chea wants to improve on fiscal policy design to help grow the economy and create jobs. For this to happen, the conditions need to be right.

For instance, the government needs to be more agile, Chea believes. He is focusing on “building up an agile mechanism that allows testing and learning from the policy impact, in order to build a basis for policy innovation”.

Programmes only get budget support when they produce results, Chea says. “Fiscal policy implementation is very important. How do we organise teams to follow up on outcomes and improve over time? It has to be linked from policy to budget, from budget to performance outcome,” he stresses.

This way, programmes and proposals will be more demand-driven, with the needs of the private sector and socio-economic factors in mind. “Only when programme managers reprogramme, reorganise, change the way they do things, then they can get the funding,” he explains.

Focus on developing skills

On a national level, the country’s education system “has yet to reach a point where the supply of education can meet the market demand”. “The flow of capital and FDI is growing too fast that we cannot supply the skills,” he says.

Education has not been funded adequately in the past, when budgets have been tight. But in the last five years, the budget for education has increased “more than threefold”. The draft budget for 2019 sees $915 million set aside for education, an increase on last year’s $848 million if approved by parliament, the Phnom Penh Post reports.

The government has also set up a skills development fund to build up technical and vocational education and training. With this fund, the private sector will play a greater role in skills development, where they receive incentives to train their own workforces.

In the short term, the government should make it a priority to “encourage and increase industrial skill trainings to help facilitate our workforce in a better grade of employment”, Chea continues, which will also help to attract foreign investment. In the long-term, he hopes to see education reform so that young people can adapt to technological advancements and keep up with the pace of change.

Helping startups

Besides skills and policy design, the business environment needs to be conducive to innovation. “Where industry is concerned, we need a supply chain to help support that. Cambodia at the moment needs to do more,” Chea notes.

The ministry has tax incentives to help SMEs and startups flourish, and has set up a US$5 million entrepreneurship development fund. “The fund will be drawn from the budget to support local SMEs and support startups that solve industry challenges,” says Chea.

Later this year, the government will launch the SME Bank with a budget of US$100 million. This new bank will prioritise agro-businesses and SMEs that are linked to foreign direct investments, the tourism sector and tech start-ups, the Phnom Penh Post reports.

And to build deeper relationships with SMEs, the ministry will work on bridging communication gaps, demonstrating government visions and carrying out effective consultation and engagements, Chea adds.

A new generation of economists

Chea is keen to train young economists to develop innovative economic policies. “In the past, we did not have enough human resources,” he points out, adding that he was in the first batch of economists recruited by the government in 2011.

These future economists undergo on-the-job training at the ministry and overseas. They are coached in effective communication skills; multi-dimensional thinking processes; understanding the interests of multiple stakeholders; practicing active listening; and proactively responding to change, Chea shares. “I hope to see my junior economists are well trained and more capable to produce and communicate policy effectively.”

He hopes that this next generation of economists will be equipped with the right skills to provide policy direction for effective budget formulation. “Given rapid changing dynamics of Cambodia’s social economic structures, moving from a low- to middle-income country, formulating growth policy requires a lot of changes in the approach of government officials’ thinking and in the approach of understanding the private sector thinking,” says Chea.

What lies ahead

Cambodia’s demographic is young, with half of the population under the age of 25, and mobile penetration is high. Given these factors, Chea believes that the opportunities of the digital economy could “allow Cambodia to leapfrog the conventional challenges that middle income faces in the past”.

The country has set a target to create a development policy for the digital economy by 2023, with a keen focus on growing the pool of skilled ICT workers. “We have seen a massive increase in FDI from China, and we have a lot of policies being designed to support this. But how can we drive execution to take advantage of this opportunity?” Chea remarks.

For Cambodia, the last few decades have been marked with violence and suppression. Now, sanctions from the EU - Cambodia’s largest trading partner - threaten the economy. The sanctions will be a blow to the country’s garment industry, which is one of its biggest exports to Europe and employs over 700,000 people.

Nevertheless, looking ahead, as the country transforms policymaking, builds a digital economy and invests in skills, there are reasons to be optimistic.