2. CAMBODIA’s DEVELOPMENT CHALLENGES AND RECENT DEVELOPMENTS

7.    The Population of the Kingdom of Cambodia was estimated to be around 11.5 million in 1998 that is growing at an average rate of 2.5 percent, second highest growth rate among the ASEAN countries. The total population is projected to increase by 1.7 million over the 2001-2006 period. The current age-sex distribution is skewed: there are more females than males – 93 males per 100 females; and children in the age group 0-14 years constituted 42.8 percent of the total population in 1998. The age-sex imbalances that reflect the exceptionally high mortality and out-migration from the country during the Khmer Rouge period have serious implications for the current and future development efforts of the Royal Government.  

8.    The Royal Government of Cambodia is well aware of the daunting development challenges that it faces today. The man-made and natural disasters over the last three decades have left Cambodia a devastated nation. The decades of conflict and internal strife have not only shattered the physical, social and economic foundations that are necessary for growth and development, but more importantly, they have decimated the human capital base of the nation. The resulting skewed age distribution of the population and the truncated skills profile of the work force pose added challenges to achieving the nation’s development goals. The Royal Government recognizes that while the time frame for rehabilitating, reconstructing, and developing the physical infrastructure can be shortened, if resources become available; rebuilding the skills base that is essential for achieving sustained socio-economic development is somewhat constrained by the pace of time itself. Rebuilding the human capital base, to a level that had existed before the Khmer Rouge regime, will take at least a decade – a simple demographic fact about where Cambodia stands today. At present, in terms of the skills available in Cambodia, less than one percent of the population has had any form of training beyond high school. Another implication of the truncated skills profile of the work force is that the education system continues to suffer from serious internal efficiency problems - only about one-third of students enrolling in grade 1 complete grade 6 – further constraining the future supply of badly needed skills. 

9.    The most critical constraints that continue to affect Cambodia’s socio-economic development include:

Human resource deficiency: This remains the greatest bottleneck in Cambodia’s development efforts. In the short-term the Government is tackling the problem by importing foreign experts on a temporary basis and as a long-term strategy through a concerted national effort aimed at increasing educational and skills development opportunities.

A financial and foreign exchange gap: With a low per capita income and widespread poverty, Cambodia’s ability to mobilize sufficient domestic savings to finance domestic investments is limited.

Inadequate physical infrastructure: The extent and quality of Cambodia’s infrastructure is inadequate to attract private investment.

Institutional capacity constraints: Much remains to be done to improve Cambodia’s administrative, legal, commercial, judiciary and regulatory institutions, to achieve a standard that fosters investor confidence and private sector participation in long term investments. At present, addressing governance issues is a major priority of the Government.  

10.    After 30 years of warfare and civil strife, Cambodian society is faced with the challenges of rebuilding and developing not only its physical and economic infrastructure, but also its human potential. The development of human potential requires the creation of an environment in which all can enjoy long, healthy and creative lives through equal access to, and participation in, the economic, social, and cultural life of the nation.

11.    In the global context, the Kingdom of Cambodia is one of the poorer nations with a per capita income estimated to be around US$ 271 in 2000. It ranked 121st out of 162 countries on the United Nations Development Program’s Human Development Index for 2001. Although the nation has emerged from 30 years of warfare and displacement, much of the population remains vulnerable to poverty and food insecurity. Approximately 36 percent of the population was estimated to be living below the poverty line in 1999. Ninety percent of the poor live in rural areas, and 71 percent are engaged in agricultural activities. In 2000, Cambodia experienced the worst flooding in 70 years that, in spite of the Royal Government’s efforts to mitigate the adverse effects, may have contributed to further worsening the incidence of poverty in rural areas.

12.    The rehabilitation and reconstruction of the education system’s infrastructure that was completely destroyed by the conflicts and civil wars has been a high priority of the Royal Government. Although significant progress has been made, provision of basic education services remains a formidable challenge. Meeting the goals of basic primary education for all will require substantial resources not only to fill the existing gaps and to improve the efficiency of the delivery of education services but also to keep pace with an expanding population. The Royal Government recognizes that rebuilding a human capital base that can supply the skills needed by both the private and public sectors is a pre-requisite for achieving its sustained socio-economic development goals and the successful implementation of the many reforms that it has embarked upon.

13.    Sustained economic growth cannot be achieved without the supply of skilled manpower that is needed by the private sector. Similarly, in spite of the Royal Government’s commitment and substantive efforts, successes in the areas of governance and policy reforms are hampered by a lack of capacity within the public sector to effectively enforce and manage the implementation of the approved laws and regulations. It is important to note, that while Cambodia can benefit from the experiences of its development partners in the formulation of policies and processes, effective enforcement and management of the implementation of the approved policies, laws and regulations is likely to remain constrained, at least in the short- to medium-term, by the existing gaps in Cambodia’s human capital base.

14.    Medical infrastructure and trained health personnel were decimated by the Khmer Rouge – of the one thousand doctors trained before 1975, less than fifty survived the regime. A similar situation exists in the legal profession, that is a major impediment to the implementation of the Government’s legal and judiciary reforms program. At present, some 47 percent of the population does not have adequate access to health care services, with the nearest public health clinic to villages being on average 3 km away. Although significant progress has been made, Cambodia is still ranked lowest in the Western Pacific Region. The leading cause of infant and child mortality and morbidity are HIV/AIDS, diarrhoeal diseases, acute respiratory infection, vaccine preventable diseases, dengue hemorrhagic fever and malaria. Protein-energy malnutrition and micronutrient deficiencies – notably iron, iodine and vitamin A deficiency – are also prevalent. Some 56 percent of children under 5- years of age suffer from chronic malnutrition. Only 63 percent of the one year olds are currently vaccinated against tuberculosis, polio and measles. The growing HIV/AIDS infection rate is a serious threat to achieving sustained economic growth at a rate that will be needed to implement and sustain government’s poverty alleviation initiatives. Women suffer from poor availability of reproductive health services, especially in rural areas where they are most needed. Anemia is a major but preventable cause of maternal mortality and morbidity in Cambodia.  In addition, sexual health services related to the spread of HIV are needed to protect women and children.  

15.    The burden of health and education costs weight heavily on population, especially the poor. The cost of medical care that represents approximately 30 percent of family expenditure has been cited as one of the main causes of indebtedness among the poor and vulnerable. Of the total expenditure on health services, about 12 percent of GDP in 1966-67, out-of-pocket household expenditures accounted for 82 percent of this expenditure, and the official donor assistance and direct funding by NGOs (combined) for 14 percent. Similarly, the cost of education services is disproportionately borne by the poor. The cost of one child in primary school takes up a quarter of all non-food spending per capita in the poorest quintile, while a child in lower secondary take 57 percent of non-food spending.

16.    Food is the most basic human need and rice is the staple food of all Cambodians.  In 1995 Cambodia achieved its first (modest) surplus since the eve of the civil war in the late 1960s, and surpluses have been recorded in every subsequent year. However, there are many Cambodians who lack access to this basic necessity due to insufficient purchasing power (rice being sold in Thailand and Vietnam for higher prices than the very poor can afford) and poor transport and marketing systems. Also, the agricultural production system remains highly vulnerable to natural disasters and pest damage, leading to large fluctuations in yields. Despite the current surplus, nearly half of the 24 provinces are food deficit areas and a significant proportion of the population is unable to meet minimum rice requirements, the critical periods generally being mid-July to mid-October. Groups such as the internally displaced or returnees are particularly vulnerable to food insecurity. In addition to the lack of sufficient rice for many, consumption of rice alone is insufficient to meet dietary needs. For much of the population, rice accounts for over 70 percent of calorie intake and represents about 40 percent of food expenditure.  

17.    The poor are underserved by physical infrastructure, which is inadequately developed and maintained. The secondary road network is so rundown as to virtually isolate many rural areas, while most tertiary roads are impassable during the wet season. Illegal road taxation compounds the problems of the poor because of the resulting high-cost of transportation. According to the 1998 Census, only 24 percent of rural households have access to safe drinking water, compared with 60 percent of urban households. For the poorest 20 percent of the rural population, the percentage with access to safe water falls to 4 percent.  Access to sanitation facilities is similarly low at 8.6 percent in rural areas, compared with 49 percent in urban areas.  Over 94 percent of rural households rely on firewood as the main fuel for cooking, while 86 percent rely on kerosene as a source of light. Less than one percent of rural households have access to publicly provided electric lighting. Access to a telephone service is similarly low in rural areas.  

18.    Significant environmental degradation has occurred during the 1970s, 1980s, and 1990s. This degradation has been caused largely by overexploitation of resources and unsustainable management practices. Forest cover has been reduced from 74 percent of Cambodia’s land area in 1969 to 58 percent in 1997, resulting in reduced biodiversity, increased soil erosion, accelerating river silt, and changes to the shape of the Mekong River, Tonle Sap River and Tonle Sap Great Lake, which has contributed in recent years to extensive flooding.  Untreated wastewater is a significant problem leading to the pollution of rivers. A key issue is how to utilize abundant water resources in a sustainable way particularly for the development of irrigation. Inland fisheries have been depleted and coastal zones degraded. The Government has made significant progress in halting illegal logging since 1999, but improved governance in the forestry sector has to be consolidated and extended to encompass the needs of local communities that rely on forest resources. The removal and reduction of fishing lots, that begun in late 2000, will make available approximately 56 percent of the total lot area for family fishing. This will, however require the formulation and implementation of a legal and regulatory framework for community fisheries management.  

19.    Although significant progress has been made to create an enabling environment for private sector development many challenges remain to develop the physical, legal, and financial infrastructure necessary to support a vigorous private sector. So far, the proportion of the labor force employed in the formal sector (wage employment) remains low. In 1999, only 15 percent of the labor force was employed in the formal sector, though the share is as high as 53 percent in Phnom Penh and as low as 11 percent in rural areas. There is significant unemployment and underemployment, and a problem of low income for the employed. For wage earners, average monthly salary was US $ 43. A large proportion of the labor force - about 46 percent of the active labor force - consider themselves to be unpaid family workers. In rural areas, more than two-thirds of women describe themselves as unpaid family workers, while in Phnom Penh only around one-fifth of women workers describe themselves as such. Because of the high population growth rate, the size of the labor force, estimated to be 5.1 million in 1998, is expected to increase by around 228,000 new entrants to the labor market annually, most of whom will have a low skills level. Providing productive employment for these new entrants, for demobilized soldiers and retrenched civil servants, and the unemployed and the underemployed, will be difficult, and will require a rapid expansion in labor demand from the private sector (both formal and informal). The Government’s efforts to facilitate private sector-led development and to develop human resources are therefore of crucial importance.

20.    Cambodia is one of most heavily land mined and UXO (unexploded ordnance) affected countries in the world. Around 45 percent of the 11,102 populated villages recently surveyed are currently contaminated by land mines and/or UXO’s. While the combined efforts of the Government and donors have resulted in reducing the number of casualties by around 37 percent over the last three years (1999-2001), the number of casualties related to UXO’s has increased due to the resettlement of refugees and IDPs in UXO affected areas. Given that nearly 85 percent of Cambodia’s population lives in rural areas, land mines and UXO’s constitute a significant impediment to the development of Cambodia.

21.    Gender equality is integral to the development process and cannot be separated from other population issues. The key issue is how to improve gender equity across a range of sectors in order to give women the skills and status needed to participate in contemporary society on an equal footing with men. In the education sector, ensuring that girls are enrolled in school and stay enrolled is imperative. In the health sector, encouraging better birth spacing and providing more accessible reproductive health services to the current generation of women will produce better maternal and child health and help reduce the current high rates of maternal and child mortality.

22.    The Royal Government of Cambodia (RGC) is conscious that poverty reduction will remain only a political slogan if due attention is not paid to the enhancement and promotion of the status of women. To this end, the RGC has put in place a special program to implement a five-year strategic plan, Neary Rattanak (Women are precious gems), which focuses on capacity building for women, changing attitudes and behaviors in the society that discriminate against women. The ultimate objectives are to provide women with the opportunities to participate on an equal footing in the process of national development.

23.    Ten years after the signing by Cambodia's four factions of the 1991 Paris Peace Accord, Cambodians from all walks of life are now firmly committed to democratic principles, tolerance and political differences. As Prime Minister HUN SEN stated at the last Consultative Group Meeting in Tokyo, "the most important development in Cambodia is the change in attitudes, virtues and values, democratic values above all else. Democracy can take a firm root in Cambodia, due to the commitment made by all players in the society: Government, political parties, civil society and the population at large”.

24.    The achievement of equitable growth and the alleviation of poverty through economic progress and social development is the highest priority of the Royal Government. And much remains to be done to achieve this overarching objective. The Interim Poverty Reduction Strategy Paper (IPRSP), the Governance Action Plan (GAP), the Financial Sector Development Vision and Plan for 2001-2010, and the 2nd Socio-Economic Development Plan (2001-2005) outline the strategies and policies for achieving Prime Minister HUN SEN’s goal of uplifting Cambodia to reclaim its position of a once strong and proud nation.

25.    The year 2002 marks a new beginning for the democratic processes in Cambodia. The commune elections held in February 2002 are an important step forward for democracy and represent a fundamental expression of deepened reform process in all sectors in Cambodia. The newly established commune councils represent a delegation of power to local communities who will become integral elements of local governance. The devolution of power and the transfer of resources to the grassroots communities will lead the process of change that has now become essential for the Cambodian people. This change process will not only unleash the powerful force of financial devolution and engender a far-reaching stimulus for strengthening grassroots democracy, but will also significantly restructure the social capital of local communities. It will also promote further political stability and security in the country, which is vital for the country's march towards improving the living standard of the people, better respect for human rights and achieving sustainable development. As stated by the Prime Minister Samdech HUN SEN, the commune elections "… will strengthen democracy at the grassroots level, improve the efficiency of the public services to those in need and reduce poverty. It will engender the devolution of power and responsibilities from the central government to the people. This form of empowerment of the local people will have a far-reaching effect in the years to come."

26.    The RGC has proposed a “New Social Policy Agenda” for Cambodia, which envisions creation of a socially connected, educationally advanced, and culturally vibrant society in Cambodia. The “New Social Policy Agenda” will focus on fostering economic growth that follows a pro-poor path. Growth and equity must come hand in hand. By promoting the new social agenda, the RGC also recognizes that there are close relationships among human, physical, sectoral, and structural aspects of development.

27.    To implement this “New Social Policy Agenda” for Cambodia, the 2002 budget gives priority to expenditures on education, health, agriculture and rural development to lay the foundation for achieving equitable growth and sustained development. As part of this policy, the RGC is implementing reforms in the educational system and promoting other avenues of human capital formation to make Cambodians more productive and competitive in the global economy. Budget increases are being provided to allow for the restructuring of the health programs to provide preferential attention, through the ADD and the PAP programs, to improved disbursements to referral hospitals and health centers at the district level. The spending priority in the health sector includes the fight against HIV/AIDS, tuberculosis and malaria.

28.    To finance the new social policy agenda, the 2002 budget expenditure policy aims to reduce Defense-Security spending from 3.03 percent of GDP in 2001 to 2.90 percent of GDP in 2002. Social spending is planned to increase dramatically. The lion share of this increase will be used to boost the PAP budget of the priority ministries. New spending will be introduced for the Ministry of Culture to create a Fund for the Protection of Cultural Heritage and for the Ministry of Women Affairs to finance training programs for women. To support the social policies, the 2002 budget provides for an increase in:

  
  • Education budget by 15.4 percent;
  • Health budget by 18.3 percent;
  • Social Affairs' budget by 16.4 percent;
  • Rural Development budget by 42 percent;
  • Agriculture budget by 18.6 percent;
  • Water Resources' budget by 11.5 percent;
  • Women Affairs' budget by 13.5 percent;
  • Public Works' budget by 12.8 percent;

29.    The Royal Government recognizes that implementing pro-poor policies will require careful structuring and planning of line ministries' finance. The RGC views the budgeting process as an instrument of policy implementation rather than being just a tool for systems maintenance. With an increased budget, the PAP for education has focused on quality improvement, alongside new scholarship schemes for children from poorer families. The overall PAP policy and education strategy directions over the next five years will be aimed at putting in place a pro-poor education financing strategy that will focus on offsetting costs to parents in the poor and vulnerable segments of the society, along with measures to improve both efficiency and quality of the education services delivered. So far, the results of the PAP implementation in the education sector have been encouraging. In provinces where PAP have been implemented the repetition and drop out rates, especially for girls, are much lower than in provinces without a PAP program.

30.    The Royal Government is conscious that development must address human needs directly. The Royal Government has launched as part of the 2002 budget, in addition to the PAP, a Poverty Targeted Program (PTP) to address the needs of poor population directly. The Poverty Targeted Program will use the same financial procedures applied to the PAP by providing block grants to Cambodia's poorest provinces, such as Preah Vihear, Odor Meanchey, Rattanakiri and Mondulkiri, to address the problem of micro-nutrient malnutrition among the population and to improve education services delivery in these provinces. Apart from providing scholarship schemes for children from poor families, the PTP will focus on providing remote allowances to school teacher to serve as incentives to attract them to remote locations as well as increased budget allocations for the development of school facilities and to support the running costs for schools in remote areas. The PTP will increase access of the poor, especially girls and ethnic minorities, wishing to go to school.

31.    The RGC acknowledges that good governance is an essential pre-requisite for achieving sustainable socio-economic development and social justice, and that Cambodia is at the beginning of a long-term process of improving all four elements of the governance – accountability, transparency, predictability, and participation. Good governance is at the core of the government's reform programs. The RGC adopted in March 2001 the Governance Action Plan (GAP) in order to bring governance-related initiatives under a common umbrella framework to ensure smooth and coherent implementation. The RGC remains committed to implementing its reforms agenda. Reforms are a “life-or-death issue” for Cambodia. The Government recognizes that achieving sustainable socio-economic development depends not only on the effective implementation of its ambitious reform programs, but also on the pace of their implementation, to move the country to a higher economic growth plateau that will enable it to tackle the causes of poverty.

32.    As Prime Minister HUN SEN stated at the last CG meeting in Tokyo in June 2001, the long-term Vision of the Royal Government of Cambodia is to have a socially cohesive, educationally advanced, and culturally vibrant Cambodia without poverty, illiteracy, and disease, which will allow each person to be the best that it is in them to be. Realizing the Vision will require continued adherence to the principles of the market economy, the values of democracy and social justice, human rights and welfare, and the formulation and implementation of policies to reduce poverty by promoting sustainable economic growth and social development.

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