Government vows to reduce inflation by end of 2008

Sok Hach, Director of the Economic Institute of Cambodia.
Chun Sophal

The Mekong Times

Soaring inflation is a painful thorn in the side of Cambodia’s burgeoning economy, but government officials are trying to soothe concerns with assurances that inflation wil be under control by the end of 2008.

“We will reduce the inflation rate to single digits starting from the end of 2008 and into next year,” said Hang Chuon Narun, secretary general of the Ministry of Economy and Finance. He cited the government’s recent efforts to encourage agriculture sector investment, subsidize oil prices, and increase banks’ reserve capital as reasons why inflation would decrease.

Sok Hach, director of the Economic Institute of Cambodia, said that Cambodia would be unable to reduce inflation if open competition with products produced by various dominant Okhna groups is not allowed. “The government has to decrease taxes on all goods in general and lift barriers to competition in trade,” he said. “I believe we can help reduce inflation to some extent if we have a competition law and implement it well.”

Cambodia, which currently has an inflation rate of over 10 percent, has yet to introduce a trade competition law even though it is a requirement for the Kingdom’s continued membership of the the World Trade Organization. Economists say that the soaring inflation in Cambodia is partially due to the rising global oil prices, the devaluation of the US dollar and increasing international food prices. Internal factors such as high goods taxes and the lack of open product competition exacerbate the situation. John Nelmes, International Monetary Fund resident representative for Cambodia, said increased cash flow in Cambodia is linked with the country’s inflation rate. “I think that increasing obligatory reserve funds to reduce growth is a positive step,” he said.

Early this year, the government paid out US$300 million in oil subsidies, US$41 million in electricity subsidies and cut taxes on imported agricultural materials in order to curb increasing prices.

Chhit Sam Ath, director of the NGO Forum on Cambodia, said inflation is a major problem severely affecting the nation’s poor. “I believe government subsidies can help people,” he said. “I think the government should try its best to lower and stabilize inflation by dealing with the impact from both internal and international factors.”