Background

Cambodia, which is bordered by Thailand, Vietnam and Laos, has a total area 181,035 square kilometers. Its key natural resources are oil and gas, timber, gemstones, iron ore, manganese, phosphates, water for hydropower use, and arable land. Forests cover 56.5% of the country, while 32.1% of land is used for agricultural purposes. The two major environmental concerns in Cambodia are illegal logging, which occurs throughout the country, and strip mining for gems, which occurs primarily in the western region along the border with Thailand. These activities have resulted in habitat loss, declining biodiversity, and soil erosion (CIA, 2015). On average, Cambodia loses 1.34% of its forest area each year, and per capita CO2 emissions is 0.29 metric tons (GGKP, 2014). In addition to rapid deforestation, sedimentation caused by logging and mangrove conversion are degrading coastal, marine and freshwater resources. Fish stocks are also in decline as a result of illegal fishing and overharvesting. Furthermore, economic growth has led to greater population density in urban centers, which has caused increasing levels of untreated sewage, industrial effluent and solid waste. Decreasing surface and poor groundwater quality has become a serious public health risk (World Bank, 2013). Only 36.8% of the population has access to improved sanitation, and 71.3% has access to an improved water source (GGKP, 2014).

Cambodia has a population of 15.1 million, with a per capita GDP of US$1007.60. Its Gini Index is 31.8 (World Bank database, http://data.worldbank.org/indicator/SI.POV.GINI), which made it one of the most unequal countries in South East Asia in the period up to 2008 (UNESCAP, 2011) but it has made great strides in reducing inequality in recent years (OECD, 2013a). Although it is still one of the poorest countries in Asia, Cambodia’s GDP has increased by at least 7% annually since 2011. This growth is attributed primarily to tourism, garments, agriculture, construction, and real estate sectors. In 2005, significant oil deposits were discovered in Cambodia’s territorial waters but have remained unexploited due to an ongoing border dispute with Thailand. Despite recent growth, 2.66 million Cambodians – about 18% of the population – live on less than US$1.20 per day, and 37% of children under the age of 5 are malnourished. Obstacles to long-term development include widespread corruption, limited educational opportunities, high income inequality, and poor job prospects. More than half of the population is less than 25 years old, and one of the country’s major economic obstacles is creating employment opportunities that respond to this demographic imbalance (CIA, 2015). In addition to labor market instability, extreme weather events, rapid credit growth and pressure on deposits threaten the stability of Cambodia’s economy. On the other hand, economic reforms implemented after the 2013 national election have created new momentum for change, and the government has taken steps to mobilize domestic revenue and strengthen monetary policy (IMF, 2014).

Fiscal Profile

Cambodia’s fiscal profile has improved as a result of strong revenue performance, and continued fiscal consolidation is expected to gradually rebuild government deposits. Sustained revenue mobilization, more effective management of contingent liabilities and continued reform of public financial management will contribute to this upward trend. Total revenue for 2014 was 17.4% of GDP, with tax revenue representing the main component at 12.2% of GDP. Despite robust exports and increasing tourism and foreign direct investment, growth had been kept in check by the sluggish global recovery, slowdown during the latest election period, and recent flooding. Although the inflation rate is projected to remain low (3-4%), Cambodia suffers from a number of macro-financial risks. These include rapid credit growth (credit-to-GDP ratio is greater than 40%), increasing bank flows from abroad, and the buoyancy of the construction and real estate sectors. The current account deficit is 8.5% of GDP and is expected to decrease to 5.5% in the medium term due to increasing competitiveness, diversification of exports, and decreasing imports following the completion of large-scale power projects. Cambodia’s external public debt is US$4.5 billion (32% of GDP) and its share of multilateral creditor debt has declined due to recent increases in the disbursement of bilateral debt. On the other hand, it has virtually no domestic public debt, and the government has improved its monitoring of potential contingent liabilities as well strengthened its capacity for debt management (IMF, 2014). The government is working with a number of multilateral development banks and more than 30% of its budget comes from donor assistance. Climate relevant expenditure was estimated at 16.9% of total public expenditure in 2011. This represents a 2% increase from 2009 and can be attributed to growing expenditure on projects with high climate relevance (Overseas Development Institute, et al., 2012).

Policy and Legal Framework for Green Economy

The Ministry of Environment (MoE) is the agency in charge of natural resource conservation and environmental protection in Cambodia, while the Ministry of Agriculture, Forestry and Fisheries (MAFF) is responsible specifically for forest management. One of the key issues in environmental policy in Cambodia is the tendency for overlapping roles and responsibilities among various agencies and actors. This inefficiency undermines the effectiveness of conservation efforts and is exacerbated by budgetary restrictions and a lack of skilled government officials (World Bank, 2013). In response to the loss of 2.5 million hectares of forests between 1990 and 2005, the government introduced the Old Policy New Action initiative, whereby farmers were granted individual land titles with an obligation to invest in their ability to sustain current and future livelihoods. To address the increasing amount of overfishing, the government has removed all private fishing rights and restructured all existing fisheries as fishing conservation areas and public fishing areas. The National Council on Green Growth (NCGG) was also established as a platform to foster coordination between private and public stakeholders and led to the design of a National Green Growth Master Plan (2013-2020). The NCGG aims to fulfill the goals of the National Green Growth Roadmap (NGGR), which seeks to “foster sustainability of economic growth by enhancing sustainable consumption and production, greening markets and businesses, by creating a favorable investment climate for the establishment of sustainable infrastructure that in turn can enable the population to enjoy increased access to crucial goods and services, and ensuring equal access to resources to men and women.” Unlike conceptions of green growth in other countries, the NGGR showcases elements of inclusivity and cultural values. For example, it incorporates traditional practices that preserve natural capital and create sustainable livelihoods.

Fiscal Measures for a Green Economy

Cambodia has implemented a number of fiscal measures as part of its transition to a green economy. Due to the high cost of electricity (US$0.18/KWh) and increasing demand due to population growth and economic development, the RGC has sought to capitalize on its considerable capacity for renewable energy production by incentivizing private sector investment in this sector. A lack of consistent incentive schemes has thus far been the main obstacle to renewable energy expansion in Cambodia. Also, to promote energy efficiency and conservation, the government has implemented differentiated energy tariffs. A consistent tariff is applied up to 50 KWh/month, then each additional unit is subject to a higher rate. To encourage environmentally and socially responsible investment, the RGC offers tax exemptions for investments that have zero negative environmental or social impacts. Each investor is responsible for conducting an impact assessment, but a lack of capacity limits the government’s ability to evaluate these assessments and monitor actual impacts (OECD, 2013b).

Fossil Fuel Subsidy Reform

Cambodia’s energy portfolio is highly renewable due to the recent growth of hydroelectric projects along the Mekong River.  Hydroelectric power accounts for 57.4% of installed generation capacity, and another 10% comes from other renewable sources. Electricity generation from fossil fuels composes 32.7% of installed capacity (CIA, 2015). Despite the prevalence of fossil fuel subsidies in Southeast Asia and Cambodia’s low income per capita, it does not directly subsidize fossil fuels (IISD, 2012). However, as stipulated in the Law on Electricity, the Ministry of Industry, Mines and Energy does subsidize electricity for certain classes of consumers. (Poch & Tuy, 2012)

Works Cited

CIA. (2015). The World Factbook. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/cb.html

Green Growth Knowledge Platform. (2014). Cambodia. Retrieved from: http://www.greengrowthknowledge.org/country/cambodia

IISD. (2012). A Forum for South East Asian Policy-makers – Fossil-Fuel Subsidy Reform: Challenges and Opportunities. Global Subsidies Initiative.  Retrieved from: https://www.iisd.org/gsi/sites/default/files/ffs_gsibali_meetingreport.pdf

IMF. (2014). Cambodia: 2013 Article IV Consultation. Retrieved from: http://www.imf.org/external/pubs/ft/scr/2014/cr1433.pdf

OECD. (2013a). Southeast Asian Economic Outlook 2013 with Perspectives on China and India: Narrowing Development Gaps. Retrieved from: http://www.oecd.org/dev/asia-pacific/Pocket%20Edition%20SAEO2013.pdf

OECD. (2013b). Making Growth Green and Inclusive: The Case of Cambodia. Retrieved from: http://www.oecd-ilibrary.org/docserver/download/5k420651szzr.pdf?expires=1434985936&id=id&accname=guest&checksum=D628F2C1E60915CC88D919D434F1F49A

Overseas Development Institute, et al. (2012). Cambodia: Climate Public Expenditure and Institutional Review. Retrieved from: http://www.climatefinance-developmenteffectiveness.org/archive/images/pdf/Cambodia%20CPEIR%20_web.pdf

Poch, K. & Tuy, S. (2012). Cambodia’s Electricity Sector in the Context of Regional Electricity Market Integration. ERIA Research Project Report. Retrieved from: http://www.eria.org/Chapter%207-Cambodia’s%20Electricity%20Sector%20in%20the%20Context%20of%20Regional%20Electricity%20Market%20Integration.pdf

UNESCAP. (2011). Statistical Yearbook for Asia and the Pacific,. Retrieved from:http://www.unescap.org/stat/data/syb2011/I-People/Income-poverty-and-inequality.asp

World Bank. (2013). Cambodia Environment. Retrieved from: http://go.worldbank.org/SKWNGBM3A0