An annual report published by the Heritage Fund and The Wall Street Journal and The Heritage Foundation, covering 179 countries and regions around the world. The 2022 Index of Economic Freedom shows Cambodia’s score has declined for five consecutive years.
With a score of 57.1 for economic freedom, Cambodia ranks 106th in the 2022 Economic Freedom Index. Cambodia ranks 21st out of 39 countries in the Asia-Pacific region, with an overall score lower than the regional and world averages. The report pointed out that although Cambodia’s economy has shrunk (-3.5%) due to the new crown pneumonia epidemic in 2020, Cambodia’s average annual economic growth rate over the past five years has reached 5%.
It stated that Cambodia’s economic freedom has been on a downward trend for five consecutive years, mainly due to the decline in labor freedom and trade freedom scores. “Since 2017, Cambodia’s economic freedom has declined by 2.4% as a whole and is in a ‘comparative repression’” ( 50 to 59.9 points) status. The finances are in good shape, but the rule of law score is well below average. The Heritage Foundation is a conservative think tank. The creators of the Index of Economic Freedom adopted a standard similar to Adam Smith’s “The Wealth of Nations”, that is, “the basic institution that protects individual liberty, pursues its own economic interests, and makes greater society is more prosperous.”
The Economic Freedom Index evaluates the scores of various countries and regions based on 50 indicators of economic freedom. The highest score for each indicator is 100 points and the lowest score is 1 point. The lower the score on one indicator, the higher the level of government interference in the economy, and therefore the lower the degree of economic freedom. The cumulative average of each index can be used to calculate the overall coefficient. The Heritage Foundation’s view is that countries and regions with more degrees of economic freedom have higher long-term economic growth rates and are more prosperous than those with less.
Among the indicators on the rule of law, Cambodia scored low in the indicators of government integrity and judicial efficiency, with only 12.3 and 20.9 points respectively; while the property rights indicators scored 41.2 points. Cambodia still faces frequent misuse of land and property rights, the report said. “Overall, weak property rights protection reflects the ongoing negative effects of the Khmer Rouge era in the 1970s. Most property holders have no legal title.”
It noted that the judiciary is understaffed, undertrained, corrupt, and lacks independence; corruption is rampant in government agencies, especially in public procurement and tax administration. In terms of government size indicators, Cambodia scored 88.7, 81.5, and 98 in taxation, government spending, and fiscal health, respectively.
According to the analysis of the report, Cambodia’s tax burden is equivalent to 18.2% of its total domestic income. Over the past three years, government spending has accounted for 24.8 percent of gross domestic product (GDP), and budget surpluses have averaged 0.7 percent of GDP. Public debt is equivalent to 31.6% of GDP.
In terms of regulatory efficiency, the report criticized the Cambodian government for not consulting the private sector when it formulated new regulations and economic policies. It also said the Khmer Rouge genocide from 1975 to 1979 left most Cambodians lacking higher education or professional skills. Government subsidies for public-private partnerships and state-owned enterprises continue to increase, and the government provides wage subsidies to temporarily unemployed garment workers in 2021. The three main index scores for Cambodia’s regulatory efficiency are business freedom (55.2 points), labor freedom (47.8 points), and monetary freedom (74.7 points).
In terms of opening up the market, the report said that Cambodia has a total of seven preferential trade agreements in force, with a trade-weighted average tariff rate of 10.1%. “Credit is generally allocated on market conditions, but credit for entrepreneurial activity is limited by the lack of comprehensive financing instruments.” The three main indices of open markets scored: freedom of trade (64.8 points), freedom of investment (50.0 points), and financial freedom (50.0 points).
Reference: The 2022 Index of Economic Freedom
