Cambodia needs to support its own development and can expect a cutback in grants, soft loans and highly favourable trade privileges as it graduates from a low-income country to lower-middle income nation, according to Commerce Minister Pan Sorasak yesterday.
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“We will have issues when the country moves up the income ladder and because of that we need to properly plan our graduation to a lower-middle income nation in three years’ time,” said Mr Sorasak.
“If we’re not ready for the cutback in grants from our development partners and the scaling back of preferential tax treatment from the US and EU, we will ask for a grace period,” he added.
Mr Sorasak, however, said Cambodia must be prepared in due time to fund its own development through trade and investment.
In 2014, Cambodia’s gross national income (GNI) per capita reached $1,020 and it was projected that the kingdom in 2015 would exceed the World Bank’s threshold of $1,025 GNI per capita for a low-income country, to graduate as a lower-middle income nation.
The World Bank classifies lower middle-income economies as those with a GNI per capita between $1,026 and $4,035. When Cambodia becomes a lower-middle income country it will join the ranks of India, Vietnam and the Philippines in the Asia-Pacific.
Mey Kalyan, senior adviser to the Supreme National Economic Council, told Khmer Times that it was time for Cambodia to survive by itself as it becomes a lower-middle income nation.
“We should improve our tax collection system and attract more foreign direct investment in manufacturing high-end value-added products,” said Mr Kalyan.
He said foreign direct investments would still flow into Cambodia when the country graduates to a lower-middle income nation.
“We can instill investor confidence when we assure foreign businesses that we have proper laws to protect their investments.”
Soeng Sophary, spokesperson for the Commerce Ministry, said while Cambodia’s change in its GNI per capita status could present problems, there was a grace period before it lost preferential tax benefits from its development partners.
“We have a grace period of at least 3 years to negotiate the change in status. It does not mean all countries will cut our duty free status immediately,” she said.
But time could be running out for Cambodia.
Last July, the EU advised Cambodia’s rice industry to seek other markets and not just concentrate its exports to Europe, as it moves from a low-income country in its least developed country (LDC) status to a lower-middle income nation, amid calls to cut its EU tariff-free export quotas.
The US government, in July 2016, granted duty-free benefits for Cambodia for the export of travel goods such as luggage, backpacks, handbags and wallets under the generalised system of preferences (GSP). Presently, the US is carrying out a review of GSP tariffs for all LDCs.
Ms Sophary said Cambodia would still negotiate bilaterally with individual countries for preferential tax benefits.
“On a country-to-country level that is still possible,” she said.