Thailand
Cambodia: De-dollarisation is ultimate goal of the Royal Government
Deputy Prime Minister and Minister of Economy and Finance (MEF) Dr Aun Pornmoniroth took part in a question and answer session with Khmer Times in conjunction with the 41st anniversary celebrations of the reintroduction of the riel. Here are his responses on the relationship between the National Bank of Cambodia (NBC) and the MEF.
Despite being two distinct institutions, the Ministry of Economy and Finance (MEF) and the National Bank of Cambodia (NBC) share a common objective of achieving macroeconomic and financial stability, which is important for social and economic development.
More precisely, the MEF functions, as a government body, are to formulate and monitor macroeconomic policies and administer fiscal policy to promote economic growth through collecting revenues, allocating resources and managing sustainable public debt.
Meanwhile, the NBC, a monetary and supervisory authority, is mandated to determine and direct the monetary policy to maintain price stability in order to facilitate economic development.
That was how Deputy Prime Minister and Minister of Economy and Finance Dr Aun Pornmoniroth distinguished the two organisations when discussing the 41st anniversary of the reintroduction of the riel during a question-and-answer session with Khmer Times.
The Ministry of Economy and Finance (MEF) has overall responsibility for developing the government’s fiscal and economic policy framework, collecting and allocating public revenues and playing an important role in the socio-economic development of the country in creating a society in which each citizen has every prospect of a better quality of life. How does this role differ or complement that of the National Bank of Cambodia (NBC)?
Despite being two distinct institutions, the Ministry of Economy and Finance and National Bank of Cambodia share a common objective of achieving macroeconomic and financial stability, which is important for social and economic development. More precisely, the MEF functions as a government body are to formulate and monitor macroeconomic policies and administer fiscal policy to promote economic growth through collecting revenues, allocating resources and managing sustainable public debt. Meanwhile, NBC, a monetary and supervisory authority, is mandated to determine and direct the monetary policy to maintain price stability in order to facilitate economic development.
Overall, the coordination between fiscal and monetary policy is always interact well. This has been witnessed through some existing platforms. The Committee on Economic and Financial Policy (CEFP) also plays a critical role in engaging these two authorities in discussing and formulating policies and measures on economic and financial issues.
For instance, in responding to the COVID-19 pandemic, under the CEFP mechanism, the Royal Government through MEF has introduced seven rounds of fiscal measures, including cash transfers, cash for work, wage subsidies and tax relief programmes to help vulnerable people and limit hits on businesses as well as key financing schemes to help small and medium enterprises (SMEs) to stay afloat and grow), namely through the Agriculture and Rural Development Bank, SME Bank and Credit Guarantee Corporation of Cambodia, while the NBC has laid out intervention measures, including lowering the reserve requirement ratio, increasing liquidity coverage ratio and allowing loan restructuring to stabilise businesses and people’s livelihoods. The joint efforts by the MEF and NBC have been more essential than any other time to ensure economic and social stability, especially to maintain the livelihoods of our people.
What and where does the MEF come in terms of control over the Treasury and ensuring adequate reserves are maintained at all times as with liquidity? Where and how does this overlap with NBC?
The Royal Government of Cambodia (RGC) has been working towards strengthening cash management and ensuring a high level of liquidity at the treasury since the early stages of the Public Financial Management Reform Programme (PFMRP) in 2004. In fact, the MEF, as the public treasurer, has established the Treasury Single Account (TSA) at the NBC. The adoption of the TSA allows the MEF to address the issue of cash flow shortages and low liquidity at the Treasury by reducing and integrating multiple government bank accounts of various line ministries and government agencies. With the TSA, the NBC also can easily facilitate cash flow at both central and provincial levels to support the government’s effort in ensuring better cash management and improving credibility of the public budget. Of course, in terms of the control over the treasury and adequate liquidity, the MEF and the NBC do not have overlapping authority, but a seamless coordination and cooperation in terms of government’s cash and savings management.
Furthermore, Cambodia has built up a substantial amount of government savings as a fiscal buffer to ensure sufficient liquidity of the treasury for government’s operations while allowing the government to conduct fiscal manoeuvres in response to the COVID-19 crisis without undermining medium-term fiscal sustainability as a result of the recent remarkable domestic revenue mobilisation and success of the PFMRP in improving the efficiency and effectiveness of public expenditure. In the near future, the Royal Government may consider issuing government bonds to raise additional funds for development. The NBC as a monetary authority may help facilitate the issuance of the government bonds and buy them as they are traded in the secondary markets.
The MEF has a dominant position vis a vis spending agencies as well as revenue collection through the General Department of Taxation and other agencies. Does the MEF have regular liquidity matters meetings with the NBC on strengthening the local currency, the riel?
The leading platform allowing strong coordination between the MEF and NBC is through the Financial Stability Committee. Under this high-level policy-making body, cooperation has been steadily improved, particularly through meetings, discussions and exchanging views as well as data- and information-sharing. Soon, through this committee mechanism, the technical working groups of the MEF, NBC and Non-Bank Financial Service Authority (NBSFA) on financial stability will be established.
Besides, we also have a technical working group between the MEF and NBC to promote the riel, although the work has been somehow hampered because of the COVID-19 pandemic. Plus, at a higher level, the issues of liquidity or financial issues in general have been brought for discussion in the Committee on Economic and Financial Policy. As a result, most of the financial-related issues have been addressed and cooperation between the two authorities have been improved.
The NBC has initiated the move to remove from circulation the $1 and $5 bills from circulation. Has this affected the monetary policy of the MEF in any way and would the MEF support any move to withdraw more denominations out of circulation such as the $10 bill to promote the use of the riel and, indirectly, contributing to the de-dollarising of the economy?
It is noted that the monetary policy is under the mandates of the NBC. The MEF plays a complementary role through its fiscal policy to support the NBC towards de-dollarisation. We strongly support the NBC’s recently introduced measures to promote the use of riels. On the revenue front, tax and non-tax revenue collection such as public service fees, utility, rent fees, and fees of the state-owned enterprises are required to be paid in riels. In terms of expenditure, the riel is used in the payrolls of government officials, some infrastructure projects, domestic public procurements and subsidies… etc. Additionally, the government’s TSA at the NBC is in riels. Besides, the government is promoting the issuance of corporate bonds in riels. These are some of the examples of MEF’s policies to support the NBC in promoting riels and contributing to gradual de-dollarisation in Cambodia.
The MEF does not see any problem with regards to the removal of circulated small-note dollars on the operation of the government and we also support NBC in the gradual move towards de-dollarisation in Cambodia. However, we would urge the NBC to have a thorough study/survey on the impact of the removal of those notes on macroeconomic stability, price stability and business confidence before it should be put into practice. In this regard, the NBC could be better informed about the capacity to absorb those notes in and supply out the bigger notes to the market without ultimately affecting the dollar supply in the market and price stability. Similarly, regarding the extra removal of banknote circulation, for example, the $10 bill, should be cautiously dealt with to balance the costs and the benefits. Also, the removal should be communicated well with all relevant institutions and the public to avoid confusion and for the sake of transparency and accountability.
Deputy Prime Minister and Minister of Economy and Finance Dr Aun Pornmoniroth.
KT/Pann Rachana
May we kindly inquire about the Committee on Economic and Financial Policy headed by Your Excellency and what its achievements are and have they the set milestones in policy discussion on financial and economic issues to ensure consistent policy formulation and coordinated policy action?
The roles and responsibilities the Committee on Economic and Financial Policy (CEFP) are to lead, facilitate and monitor the implementation of the government’s policies and strategies related to the economic and financial sector, including public financial reforms, financial sector development and private sector development, while its members are the key public institutions including the MEF, the NBC and many other ministries-institutions.
The CEFP’s role in leading and formulating government reforms has seen remarkable progresses. The CEFP has become an important platform for formulating deep and targeted reforms – and the recent highlights would be the reform packages rolled out in the 18th Public-Private Sector Forum held in April 2019, where the government adopted a sharp and concrete reform measure package to improve Cambodia’s competitiveness, investment climate and ease of doing business as well as to incentivise and foster the development of private sectors, especially the SMEs. These reform measures have since then been implemented, under regular monitoring from the CEFP, to ensure their effectiveness and timeliness.
The CEFP plays a key role in reviewing major policies and strategies of line ministries before submitting to the Council of Ministers for approval and adoption. The CEFP has contributed to the formulation and implementation of strategies and policies related to economic sectors ranging from development of tourism, agriculture etc to promoting the investment and business environment. Moreover, under the CEFP, the SME Policy Action Committee has recently been created to enhance institutional, policy, and implementation coordination to help promote SMEs’ development. It is important to note that under its mandate, from policy formulation to implementation, we have seen major improvement, both consistency and comprehensiveness, while coordination challenges among various relevant stakeholders have, to a large degree, been addressed.
Last but not the least, this committee has been serving the Royal Government as a platform to coordinate policy responses including health, social and economic interventions and is working on a recovery plan in our fight against the COVID-19 crisis.
The MEF has increasingly played a role as regulator and operator in the non-banking sector amid the continued expansion of the insurance industry, real estate and other financial institutions and financial products. Does this in any way overlap with the responsibilities of the NBC? Is there collaboration/cooperation in any way in these respects?
With our mandates, both the MEF and NBC have crucial roles in the development of the financial sector. While NBC is the regulator and supervisor of the banking financial sector, the MEF has played an important role as a regulator, supervisor and operator in the non-bank financial sector amid the continued expansion of the insurance industry, real estate and other non-bank financial products. This practice exists in many countries in the region and globally. In this regard, there are no overlapping roles and responsibilities between the two authorities.
Again, Cambodia’s National Committee on Financial Stability and Committee on Economic and Financial Policy are the existing platforms of coordination and cooperation between the MEF and NBC to address financial sector-related issues.
Who manages fiscal deficit? The MEF or the NBC?
Fiscal deficit is planned in the annual budget law based on the economic outlook and fiscal plan by the government after consultation with relevant stakeholders. The plan is proposed to the government by the MEF and approved by the National Assembly and Senate. After implementation, the actual fiscal deficit is also managed by the MEF. The deficit could be addressed by the fiscal buffer, foreign financing and PPP mechanism.
Source: https://www.khmertimeskh.com/50830306/de-dollarisation-is-ultimate-goal-of-the-royal-government-2/