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UNDP urges diversion of sovereign debt to help the poor

Harrison White / Khmer Times Share:
An impoverished Cambodian with an ID Poor card. UNDP Cambodia has recommended the local government borrow more sovereign debt to temporarily fund more basic income schemes such as the ID Poor initiative. KT/Tep Sony

The UN Development Programme has recommended that Cambodia – along with 131 other developing nations – temporarily divert its sovereign debt towards basic income schemes during the COVID-19 pandemic.

The policy suggestion comes after an international report said such a scheme would allow developing nations to better assist their most vulnerable people while continuing to inject cash into struggling economies.

UNDP Cambodia’s Resident Representative Nick Beresford said the primary function of sovereign debt is to fund capital investment and long-term development. However, during a crisis such as COVID-19, human capital also needs to be at the forefront of long term investment.

“All governments borrow to manage short-run variations in aggregate demand and, in a severe crisis such as the global COVID-19 pandemic, increased but prudent levels of borrowing to project people and human capital are merited,” he said.

The international policy report suggested the temporary basic income should be at a minimum rate guaranteed above the poverty line ($1.90 a day).

“What we are suggesting is a temporary basic income, not a universal basic income approach. Ensuring support is made available to those who need it the most, while also protecting the fiscal position during the COVID-19 pandemic,” he added.

Using this pricing guide the international report said total payments would amount to between 0.27 and 0.63 percent of combined national annual gross domestic product (GDP).

The development agency said it endorsed the current ID Poor scheme but suggested increasing the expansion of the current cash transfers to include all qualifying (ID Poor 1 and 2) households.

The policy suggestions come a week after the Ministry of Economy and the Asian Development Bank (ADB) announced a $250 million concessional loan.

While the bank has not earmarked the amount of funds for any specific purpose, a committee has been established to ensure the funds are directed into three key areas of pre-determined assistance.

First is the country’s immediate health response, second social assistance through the expanded ID Poor programme and third financial assistance for struggling micro, small and medium enterprises (MSMEs) through access loans with lower interest rates and easier approval processes for a loan.

ADB Country Director Sunniya Durrani-Jamal said, “The ADB understands that Cambodia operates in a regional environment and hence the loan is part of a much greater $20 billion expanded assistance package for other developing members in the region.”

In addition to hard cash funding, Durrani-Jamal also said the ADB ties technical expertise to the assistance it provides as well as appropriate monitoring and consultations with the private sector and civil society organisations.

 

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