Hun Sen Outlines Plans to Shore Up Economy Amid Virus, EBA Risks

6 min read
Prime Minister Hun Sen speaks at the Peace Palace in Phnom Penh on February 24, 2020, in this photograph posted to his Facebook page.
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Amid economic risks from the global coronavirus outbreak and the E.U.’s partial suspension of duty-free trade benefits, Prime Minister Hun Sen on Monday laid out measures aimed at shoring up the nation’s key tourism and garment sectors.

In a speech at the Peace Palace in Phnom Penh, Hun Sen said the Covid-19 viral outbreak was an economic challenge, while he downplayed the possible impacts of the E.U.’s withdrawal of Cambodia’s duty-free access to the European market for select products over human rights violations. 

The premier said the economic effects of the viral epidemic — which has resulted in more than 79,000 infections and some 2,600 deaths worldwide, mostly in China — would be fast, and he couldn’t predict how large, but said it was causing concerns among investors, employers and the public.

The tourism and garment sectors in Cambodia would be the first to face setbacks, but the government had a number of measures planned to shore up these industries, Hun Sen said.

The prime minister contended that only a few garment factories are considering suspending production as a result of supply shortages caused by Covid-19, and to a lesser extent due to the partial repeal of the “Everything But Arms” (EBA) trade scheme.

To sustain businesses as they adjust to economic shortfalls, the government would give severely impacted garment and footwear factories a tax holiday for six months to a year, he said. If they suspended operations, factories would only have to pay 40 percent of workers’ minimum wages and would not need to pay into the National Social Security Fund. 

Hun Sen ordered the Labor Ministry to prepare programs to train out-of-work garment-sector employees to work in new industries, as well as a fund to support select workers for up to six months while they train and search for new jobs. 

In an effort to support Siem Reap’s tourism market, the government would exempt all monthly taxes on hotels and guesthouses in the province that are registered with the tax department, from February to May, he said.

The government would attract foreign tourists to Siem Reap by providing reduced rates to the Angkor Archeological Park, including offering two-day passes for the price of a one-day pass, five-day passes for the price of three days, and 10 days for the price of seven, Hun Sen said. 

The Tourism Ministry also planned to hold special events, including the annual Angkor Sangkran over Khmer New Year, religious ceremonies, sporting events, concerts, film screenings and fashion shows in Siem Reap, he added.

Angkor Archaeological Park ticket sales dropped to about 222,000 tickets in January, down nearly 18 percent compared to the same month last year, according to Angkor Enterprise figures. As of Monday, the park has sold just about 100,000 tickets this month.

The prime minister also said the government would provide jobs-skills training to unemployed tourism sector workers, and he encouraged vacationing Cambodians to spend their holidays inside the country to contribute to local tourism.

Chhay Sivlin, president of the Cambodia Association of Travel Agents (CATA), said she welcomed the measures from Hun Sen, but also suggested that the government extend tax exemptions to other tourism businesses, beyond hotels and guesthouses. 

Sivlin said the tourism sector would be feeling impacts for more than four months, claiming that some of CATA’s members have complained about losing 50 to 90 percent of their clients this month. 

While the partial EBA suspension is set to go into effect in mid-August, and could be halted if E.U. lawmakers or states object, Hun Sen said Cambodia would not ask the E.U. to restore Cambodia’s duty-free and quota-free benefits, once again repeating that the nation would not trade its sovereignty for foreign aid or trade perks.

“To the politicians in Cambodia, don’t hope that the ghost that already died will be revived,” he said, referring to the lost benefits on some exported goods. “Please don’t wait for it.” 

The European Commission announced this month that it would suspend Cambodia’s duty-free trade preferences on sugar cane, travel goods and specific garment and footwear products. The partial suspension of Cambodia’s EBA benefits amounts to about one-fifth or $1.09 billion of the nation’s exports to the E.U. in 2018, the Commission said.

Cambodia was not barred from exporting designated products to the E.U., but Hun Sen noted that exporters would have to pay duties, and claimed that the national economy could withstand the additional fees. Sugar cane will be taxed about $5 per 100 kilos, while certain travel bags face a tariff of nearly 10 percent, according to E.U. import duties figures. 

Hun Sen said he had asked China to support Cambodia as it gets closer to the withdrawal date, requesting its top foreign investor to make more investments and open its domestic market to more Cambodian goods.

Alongside the support to the garment and tourism industries, Hun Sen introduced measures aimed at pushing the economy to produce local products, rather than importing. He urged the Finance Ministry to launch a small-and-medium-enterprise bank, as well as offer low-interest loans to agro-industrial companies.

The premier ordered the ministry to suspend the 4 percent registration tax on all houses sold for less than $70,000 between now and January 2021. The government would also cut costs by reducing expenses on overseas meetings attended by officials, he said.

According to a World Bank report from November, the government is expected to introduce a “relatively large fiscal stimulus” from government savings this year to offset possible negative impacts of EBA withdrawal. The prime minister said last October that the government has $15 billion in foreign reserves and another $4 billion cash in hand. 

During his speech, Hun Sen also issued a warning to prominent analyst Meas Nee over recent comments to the media concerning EBA withdrawal, accusing Nee of being a puppet of foreign governments. 

In response to Hun Sen’s self-described “humanitarian” decision to let the Westerdam cruise ship dock in Preah Sihanouk province, after several nations had turned it away over coronavirus fears, Nee told VOD earlier this month that Hun Sen extended kindness to neighbors, like the international community, but “in our own house, we treat our own children badly and silence them.”

“I want to remind Meas Nee, you shouldn’t go too far [with your comments],” Hun Sen said on Monday. “Your analysis is not that of a Cambodian. [You] should be a foreigner; it is more accurate. I dare to say that you are a real foreign puppet, not a Cambodian.”

After hearing the premier’s criticism, Nee told VOD that he would have to be receiving benefits from foreign governments to be their puppet, which he was not. 

“I am just an analyst and I have no influence,” he said. “I am also not an employee of the European Union.”

(Translated and edited from the original article on VOD Khmer)

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