Cambodia Public Expenditure Management 2015

At the heart of economists is predominant on how to use the resources. When it comes to public resources, management of these resources is the concern of ministries of finance or economy, central banks, and the other international governmental organisations like the World Bank, Asian Development Bank, International Monetary Fund, and so on (Mundial, 1998). Thereby, an approach like public expenditure management is pioneered for “public sector budgeting that is oriented toward achieving socially desired outcomes” (ADB, 2001, p.1). Those desired outcomes are aggregate fiscal discipline, allocative efficiency, and operational efficiency (ADB, 2001).

In the case of Cambodia public financial system, Royal Government of Cambodia (RGC) started a public financial management reform agenda in 2004 to build on budget credibility, financial accountability, linkage of budget to policy, and accountability for results, respectively. However, it leaves to a question on its quality of public expenditure management.

Therefore, this paper will first assess the 2015 Cambodia’s public expenditure management system and further discuss on what ways the system should be reformed. The analysis of the proceeding arguments is using a 2015 report of the evaluation on the public financial management system of Cambodia by General Secretariat of Steering Committee of the Public Financial Management Reform to gauge with Schick’s three elements of public expenditure managements namely aggregate fiscal discipline, allocative efficiency, and operational efficiency in order to assess the quality of existing system followed by suggestions for the reforms.

Aggregate Fiscal Discipline

Aggregate fiscal discipline is simply understood as the idea of “keeping government spending within sustainable limits” (ADB, 2001, p.1). Schick (1998) explains it requires the total spending and other budgets to be independent and enforced by the government throughout the year. It shall be disciplined rather than accommodating the raising demand from each spending agency.

Looking at Cambodia case, it has been found that the aggregate fiscal discipline is deemed a good performer. It demonstrates an A rating on aggregate expenditure out-turn against the original approved budget scoresheet which signifies a less significant variation between approved budget and actual spending. “The deviations in absolute terms were 2.4%, 3.1% and 6.1% in 2011, 2012 and 2013 respectively i.e. below 5% in two of the three years”, cited from the PEFA (2016).

However, this has been criticised by Allen (2009) over the budget credibility proclaimed by the Royal Government of Cambodia during its stage 1 reform. He believes budget credibility does not apply in such the context. This is caused by the exceeded percentage of actual spending budget to planned budget based on the statistical term. Nonetheless, albeit it exceeds the budget plan, it is at acceptable rate. Schick (1998) also discusses about the soft aggregate targets or flexible targets when government is required to respond to adapt to changes in economic conditions. European Monetary Union and American Gramm-Rudman-Hollings law in 1985 are in the practice of a flexible approach which budget limit is decided each year but it is open to “agreed constraints” (p.54). Thereby, we can say Cambodia is meet to the Schick’s core idea on aggregate fiscal discipline that spending shall stick to the plan within an acceptable variation.