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Cablegate: Cambodia's 2009 National Budget Grows Nearly 30

VZCZCXRO4429
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #1023 3590933
ZNR UUUUU ZZH
P 240933Z DEC 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 0237
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS PHNOM PENH 001023

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/MLS

E.O. 12958: N/A
TAGS: PGOV ECON CB
SUBJECT: CAMBODIA'S 2009 NATIONAL BUDGET GROWS NEARLY 30
PERCENT

REF: PHNOM PENH 934

SENSITIVE BUT UNCLASSIFIED

1. (SBU) Summary: The national budget for 2009 grew 29.6%
over 2008, with large increases in military and security
spending, as well as current and capital expenditures.
However, to meet the challenges posed by slowing economic
growth predicted for 2009, donors note the government needs
to ensure that hard-won revenue administration gains are
entrenched and further strengthened, and that the increased
government spending is directed towards growth-generating
infrastructure improvements and poverty-reducing programs.
End Summary.

2. (U) The Senate recently approved a 2009 budget of USD 1.88
million, an increase of 29.6 percent over the previous year.
The budget is now with the King for promulgation, which is
expected later this week. Strong economic performance and
improvements in tax administration (tax collection has grown
40 percent over the past three years) have resulted in an
increase in government revenues, which are projected to rise
to 12.5 percent of estimated GDP in 2008. The budget deficit
for 2008 is expected to decline to an estimated 1.75 percent,
due to expenditures having been maintained within budget
targets.

3. (U) Military and security spending accounted for 11.8
percent of the total budget for 2009, or 1.85 percent of
estimated GDP for 2009, with military spending enjoying the
greatest increase, up 68.8 percent. Security spending grew
by 56.8 percent. A portion amounting to 21.2 percent of the
2009 budget is allocated to social affairs, a 22.5 percent
increase over 2008. Economic spending also grew by 21.2
percent from 2008, equal to 4.7 percent of the 2009 budget.
Priority areas benefiting from increases are listed below:

Percentage Increase
Ministry (year on year)
-------- -------------------
Information 51.6 percent
Council of Ministers 47.4 percent
Labor and Vocational Training 43.4 percent
Rural Development 32.9 percent
Transport and Public Works 25.6 percent
Health 24.5 percent
Education 19.4 percent
Agriculture 16.2 percent

The budget allocation for capital expenditure amounts to 39.8
percent of the total budget for 2009, an increase of 33.4
percent over 2008. Capital expenditures financed by the state
budget increased 48.8 percent.

4. (U) Earlier this month, international development partners
pledged USD 951 million in assistance for 2009, up from USD
690 million in 2008. (Note: The total amount of assistance
is expected to top one billion when the U.S. contribution of
approximately USD 50 million is confirmed. End Note.) China
pledged the most with USD 256 million in assistance and
loans, followed by pledges by the EU and European countries
which totaled USD 213 million. Japanese assistance amounted
to USD 112 million and International Financial Institutions
pledged USD 200 million. Assistance from eleven UN agencies,
funds, and programs amounted to 81 million. Of the USD 951
million pledged in aid, an estimated USD 300 million (in
loans) will be used to directly finance the government
budget, primarily for infrastructure improvements.

5. (SBU) Government revenue, measured as a share of GDP, is
expected to decline slightly from 2008 levels due to slower
economic growth anticipated for 2009 (reftel). The increased
government spending in 2009 should help to mitigate the
slowing growth, but the decline underscores the need for
continued improvements in revenue administration.
Additionally, donors expressed concern during the December
Cambodia Development and Cooperation Forum (CDCF) about the
need for the government to prioritize and focus spending on
productive areas, such as infrastructure improvements and
poverty-reducing social expenditures, such as irrigation
projects and social safety nets to protect the most
vulnerable.
RODLEY

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