The number of Cambodians experiencing poverty this year could nearly double to 17.6 percent of the population — sending some 1.3 million people back into poverty — with the unemployment rate increasing almost seven-fold, a new U.N. report says.
While the government has already allocated hundreds of millions of dollars to stimulate the economy, the U.N. Development Program (UNDP) said in its policy briefing released on Thursday that a U.N.-proposed stimulus plan — which focuses on social protections and adds an additional 3.5 percent of GDP in funding on top of the estimated government intervention — would better alleviate poverty, reduce unemployment and improve growth amid the pandemic-induced economic downturn.
The estimated government stimulus is expected to spend the equivalent of 1.9 percent of GDP on social protections and offers tax relief amounting to 0.7 percent of GDP. But it cuts capital schemes to pay for it, by about 3.5 percent of GDP.
By withdrawing resources overall, the UNDP estimates the plan would slightly raise unemployment compared to doing nothing, from 4.8 percent to 5 percent. The government plan would nevertheless reduce poverty from 17.6 percent in the baseline case to 16.6 percent, it says.
But UNDP said the U.N.’s proposed stimulus plan would reduce poverty further down to 14.2 percent and unemployment to 4.4 percent. More than half a million people would “avoid sliding back into poverty,” according to the U.N. agency.
As the economy continues to reel amid the global coronavirus pandemic, Cambodia’s GDP is set to contract by 4.1 to 4.6 percent compared to last year, UNDP said, a negative forecast similar to estimates released earlier this year by the World Bank and Asian Development Bank.
Government stimulus measures would see GDP growth rates of -4.4 percent or -2.5 percent, according to two forecast models, while the UNDP-recommended stimulus would see a smaller contraction of -3.3 percent, or positive growth of 1.9 percent.
“Due to improvements in GDP under the social protection stimulus, the employment effects were better than under the estimated stimulus of the Government or the demand shock scenarios,” the briefing states.
The projections for poverty rates “clearly indicates the superiority of the social protection stimulus compared to the demand shock and estimated government stimulus scenarios,” it adds.
Still, the currently “weak” social protections in the country could leave people vulnerable to the effects of the pandemic-induced crisis.
“Likely consequences include more people clustering around the poverty line and potentially large increases in the poverty headcount, and high levels of household indebtedness, particularly given weak channels of social protection,” the briefing says.
Payments through IDPoor, the nation’s social welfare system, are reaching more than 600,000 families, or around 2.6 million people — a sixth of the country’s population, Planning Ministry data shows.
The government has set aside $125 million for these payments, which costs between $25 to $28 million a month, and has vowed to continue cash transfers to the end of the year.
“In general, we block out more than $100 million … and we also have another more than $100 million [allocated for] cash-for-work [programs],” Meas Soksensan, spokesperson for the Finance Ministry, said on Thursday.
He said he could not estimate how much the government planned to spend in the future to reduce poverty, but said it would keep spending.
“We will continue to spend in order to make our economy grow, and actually the main goal is to make the factories, enterprises and the businessmen not have big issues, so they can continue to make businesses and they can keep jobs for employees and people,” Soksensan said.
Relative to Cambodia’s nominal GDP of $27.6 billion, the U.N.’s stimulus proposal calls for an additional $966 million in interventions.
In September, the World Bank called the government’s economic response to the Covid-19 pandemic “unprecedented, amounting up to 5 percent of GDP.”
It said the state’s broad stimulus package included health-related spending and income assistance, equity injections and guarantees on loans, and development spending and tax relief, noting that the large fiscal supports were “expected to turn the budget from a surplus into a deficit.”
But in May, the World Bank noted that the government’s total budget for the year was reduced, “an austerity budget” containing $918 million in spending cuts to finance some of the social interventions.
But the government’s fiscal deficit was still set to reach its highest level in two decades, with public debt expected to rise to 35 percent of GDP by 2022, it added.
Additional reporting by Nat Sopheap