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Session
1: Introduction by Mr. KEAT CHHON, MP Senior
Minister, Minister of Economy and Finance, Vice-Chairman,
Council for the Development of Cambodia Royal Government of Cambodia |
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Your
Excellency, Mr. Chairman; Good
morning to all of you! Today
is it my great pleasure to provide all of you, participating in this
important meeting the overview of current macroeconomic status and fiscal
performance of Cambodia. I am certain that you will appreciate how far and
positive the developments have been, and also how these have contributed
to sustainable, pro-poor growth. The
year 2002 has been decisive in the implementation of the development
agenda of Cambodia. This year is witness to the intensified implementation
of wide-ranging reforms in economic and social governance by the Royal
Government of Cambodia. Peace and security has been further consolidated
and reforms broadened through all key sectors: fiscal management, banking,
public administration and the role of the military. Looking
beyond this year to 2003 and onwards, we should see the further
strengthening of the foundations for Cambodia’s broad-based, sustainable
development. Such is the result of our economic and financial policies
that continue to sustain economic growth, reduce poverty, accelerate
economic reconstruction, maintain macroeconomic stability, undertake
fiscal reforms and strengthen banking and financial institutions. Substantial
progress has been achieved in fiscal reforms since the Consultative
Meeting of June 2001 in Tokyo. The Royal Government of Cambodia has
rigorously applied policy measures that are pro-Democracy, pro-growth,
pro-private sector, pro-poor and pro-environment. Such rigor has been in
full consistency with the Royal Government’s development platform. As
part of the reforms, key fiscal policy measures have been enacted as
follows: (a) revenue enhancement via improved tax and duty collection,
strengthened governance and suppression of smuggling; (b) sound management
of state-owned assets; and (c) increased social and economic spending.
These thrusts have resulted in the maintenance of macro-economic stability
and promoted broad-based, sustainable development and poverty alleviation. Our
policies and strategies for pro-poor macroeconomic management have been
articulated in the following strategic statements: First,
the Interim Poverty Reduction
Strategy Paper (IPRSP); Second,
the Second Five-Year Socio-Economic
Development Plan: 2001-2005 (SEDP II); Third,
the Memorandum of Economic and
Financial Policies (MEFP); and Fourth,
the Financial Sector Blueprint for
2001-2010. Furthermore, the Position Papers prepared by the Royal Government of Cambodia for this CG Meeting is consistent with these key strategic statements; Taken
together, the strategic statements and policy papers set out the Royal
Government’s consolidated strategy for national development covering: (i)
the establishment of the rule of law, (ii) economic stabilization and
structural reforms, (iii) capacity building, (iv) rehabilitation and
construction of physical infrastructure and facilities, (v) rapid rural
development, (vi) sound environmental and natural resources management and
(vii) the integration of the Cambodian economy into the region and the
world. I
urge our partners and friends at this CG meeting to carefully study these
strategic documents and policy papers. Sustaining the Momentum of Economic and
Fiscal Reforms Ladies
and gentlemen, the RGC has rigorously implemented the policy measures
proposed during the June 2001 CG Meeting held in Tokyo. Fiscal reform has been the cornerstone of
our actions in 200 1-2002. As part
of the Technical Cooperation Assistance Project (TCAP), substantial action
has been sustained on improvement of customs and tax administration.
Beginning in late 2001, attention has also been focused at key
implementation issues, including: (i) review of the contract on the sale
of tickets to the Angkor temple complex; (ii) establishment of a task
force comprising the MEF and line ministries to inventory state assets,
monitor leases of state assets and collection of arrears and payments due
on such leases, and (iii) actions to increase revenues from Posts and
Telecommunications. Moreover,
several structural measures have been implemented to strengthen tax and
customs administration: (i) establishment and meeting of the Steering
Committee for PSI; (ii) transfer of all government bank accounts to the
National Bank of Cambodia; (iii) improved coordination between the Customs
and Tax Departments; (iv) establishment of the Large Taxpayers Unit (LTU);
(v) ensuring the monitoring and collection of tax arrears from the largest
taxpayers; (vi) strengthening the anti-smuggling unit of the Customs
Department and establishing anti-smuggling cooperation arrangements with
the Armed Forces and the Police; (vii) establishing the Cash Management
Committee; (viii) adoption by the Cabinet of the Amended
Law on Investment; (ix) implementation of procurement procedures for
the four key ministries (Health, Education, Agriculture and Rural
Development); and (x) operationalizing the National Audit Authority (NAA). However,
we recognize that additional measures should be taken to improve fiscal
management. Increased expenditures in 2000 and 2001 for flood relief still
has an impact on the cash flow and the commune council election spending
further constrained budget execution. Nevertheless, a positive highlight
of expenditures in early 2002 was the implementation of civil service
restructuring. It is our conviction that increased salaries for civil
servants commensurate with their responsibilities, especially for teachers
and health workers, is indeed “social spending with a human dimension”. This is crucial
for institutional capacity building and ultimately will have positive
impact on economic performance. Robust Macroeconomic and Fiscal Performance As
the result of the implementation of the reform programs mentioned earlier,
Cambodia has achieved remarkable macroeconomic and fiscal performance. As
the Prime Minister has already announced, the National Institute of
Statistics, Ministry of Planning, with technical assistance of the ADB,
has updated the macroeconomic performance figures for Cambodia. We are
proud to report that the Cambodian economy continued its strong growth of
6.9 percent in 1999, 7.7 percent in 2000 and 6.3 percent in 2001. This
remarkable performance has been due to continued robust growth in garments
manufacturing and tourism. Textiles, clothing and footwear manufacturing
posted a 26.8 percent growth in 2001, following the increase of 40.6
percent in 2000. Encouraged
by the gains of recent years and the overall improvements in the world
economy, the Ministry of Economy and Finance has revised its macroeconomic
outlook for 2002 - upwards. The revised macroeconomic framework for 2002
indicates that GDP is expected to grow by 5.5 percent, higher than the 5
percent previously projected. The higher economic growth is anticipated
from the exports of garments and the vibrant tourism sector. Overall,
Cambodia has achieved macroeconomic stability, with annual GDP growth
during 1999-2001 averaging 7 percent, very low inflation and a stable
exchange rate. Such performance is indeed consistent with the target of
6-7 percent annual growth set by the Prime Minister in the Second Social
and Economic Development Plan. The
fiscal performance of the Royal Government in the first quarter of 2002
has been good, revenue mobilization improved and expenditures restrained.
Domestic revenue was 15 percent above the 2001 performance, boosted by
non-tax revenue that increased by 55 percent compared to 2000. Tax
revenues in the first quarter of 2002 were lower by 4 percent than in 2001
due to large recovery on arrears during the first quarter of 2001. Customs
duties also fell by 17 percent following the reduction of tariff rates as
part of our preparation for AFTA and WTO accession. However, excise taxes
increased by 30 percent, following the increase in excise rates to
compensate for tariff restructuring. We
have exercised maximum restraints on expenditures. The 2002 budget has
been implemented with extreme prudence and caution to make room for
priority spending: commune elections, civil service reform and the
overhaul and construction of physical infrastructure. As a result, total
public expenditure in the first quarter 2002 increased only one percent
compared to 2001. As
projected in Cambodia’s 2002
Financial Law, the current budget surplus will be maintained at 1.5%
of GDP, while the overall fiscal deficit (excluding grants) will be
contained at less than 6% of GDP and financed by external, concessional
resources and grants. The external current account deficit is projected to
widen to -11%. The
Government’s prudent monetary policy and fiscal discipline have
successfully maintained low inflation, a stable exchange rate and steady
economic growth. Despite the shrinkage in the number of banks following
the bank-restructuring program, money supply continued to expand at a
reasonable pace. Liquidity of the banking sector recorded a robust growth
of 9.2 percent in the first quarter of 2002 compared to December 2001, as
the public’s preference for monetary assets persisted. The increase was
mainly due to strong growth of foreign currency deposits, the largest
component of broad money, which increased by 8.5 percent. Credit to the
private sector rose by 6.7 percent during the period. Gross official
reserves likewise grew by 7.5 percent, reflecting strong export
performance, sustained tourist arrivals and other capital inflows. In
short, Cambodia has achieved significant progress in maintaining
macroeconomic stability and promoting high performance of economic growth. However,
the much more should be done in order to move Cambodia to a new plateau of
sustainable development. And one of the challenges facing Cambodia is to
share the benefit of growth to alleviate poverty. Sharing the Benefits of Growth The
development of Cambodia must not be limited to the cities. Thus we have
embarked on decentralization and deconcentration to ensure that public
services reach every single Cambodian child, woman and man in all parts of
the country. A new commune budget system has been put into practice where
during the first phase, the commune budget will consist of a block grant
of 20 billion CRs transferred from the central budget. Furthermore,
the “New Social Policy Agenda” of
Cambodia directs the pouring of massive proportions of the budget into the
priority sectors of education, health, agriculture and rural development
— the foundations of future growth, equity and progress. In fact, over
the last five years we have more than tripled the budget disbursed for
health and almost tripled the budget disbursed for education. As part of
our Medium-Term Expenditure Framework (MTEF), we envisage to double the
budget for health and education in the next three years. Vision Beyond 2002 Looking
beyond this year to 2003 and onwards, we should see the further
strengthening of the foundations for Cambodia’s broad-based, sustainable
development. Such is the result of our economic and financial policies
that continue to sustain economic growth, reduce poverty, accelerate
economic reconstruction, maintain macroeconomic stability, undertake
fiscal reforms and strengthen banking and financial institutions. Overall,
the reduction in expenditures and the increase in revenue collection will
improve the current balance and promote saving for investment for our
ultimate objective of sustainable growth. Thus the framework for the 2003
budget is based on the following aggregates: domestic revenue of 131/4
percent of GDP, current expenditure of 11¾ percent of GDP and current
budget surplus of 1.5 percent of GDP. Administrative
spending will amount to 5.2 percent of GDP, social and economic spending
at 3.8 percent of GDP, and military and security spending at 2.5 percent
of GDP. Furthermore, over the next three years we will strive to double
the budget for education and health. The Royal Government recognizes that
any further efforts to increase the salaries of social sector workers
should be consistent with the government policy and achievements in
revenue mobilization. Private Sector Development The
Royal Government of Cambodia is firmly committed to enabling the private
sector to play its rightful role as the primary engine of economic growth.
The government recognizes that the capabilities of the state agencies and
offices should be directed toward creating the environment of policies and
public goods that will release and encourage the rapid growth of private
employment and enterprise. The
Government’s thrust in private sector development is embodied in the new
Socio-Economic Development Plan
2001-2005, particularly in terms of the focus on: (i) building up of
physical infrastructure, (ii) promotion of good governance especially the
control of corruption and (iii) enactment of enterprise-friendly laws and
investment regulations. Finally, priority is also focused on the
enhancement of corporate governance through the strict enforcement of the
Law on Corporate Accounting and Auditing. Pro-Poor Macroeconomic Policies The
Royal Government of Cambodia realizes that its development policies and
initiatives should be linked and coordinated within a comprehensive work
plan so that these are effective for sustainable development. Thus we
consider the Poverty Reduction
Strategy Paper (PRSP) as a useful mechanism to set out our development
vision and translate policies and strategies into budget requirements. To
this end, it is important to have short- and long-term indicators and
targets for monitoring the effectiveness and outcomes of public policies.
The Fiscal Reform Working Group and the Social Sector Working Group have
worked out indicators and benchmarks to this effect. The Government has
also entered into partnership with the Asian Development Bank in the
context of the Poverty Reduction Partnership Agreement (PRPA), as a
complementary mechanism for the assessment of progress in development
efforts. The indicators employed in these exercises will be incorporated
in the proposed Medium-Term Expenditure Framework (MTEF). Corollary
to effective monitoring and assessment, it is important to coordinate data
collection efforts and promote policy research. The Ministry of Economy
and Finance intends to establish a resource center to collect all studies,
working papers, surveys and data that will help enable the government to
make informed policy decisions, and help build the government’s capacity
and technical expertise in order to achieve reforms. We therefore ask the
donors and the international community to assist in this effort by
providing research materials, access to research and analysis and
providing direct technical support. In particular, we urge the donor
community to shift away from traditional technical assistance towards
support directed at strengthening the government’s internal capacity
building efforts. As part of the PRSP exercise, the MEF will conduct the following studies: |
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In
the context of the PRSP, the Millennium
Development Goals should be translated into budgetary requirements,
the work to be done and investments required. Included in such programming
are the interventions that determine child and maternal health, and the
status of nutrition and school enrollment. Indeed, it is important to have
a permanent mechanism for monitoring the outcomes. Indeed,
much more remains to be done to develop a good PRSP. We also need to
formulate an industrialization strategy that goes beyond the garments
industry, such as the development of agro-industry, commerce and tourism.
We should also consider the various forms and options for social safety
nets that are appropriate for Cambodia to help the vulnerable groups to
weather external and domestic shocks. We should strive to ensure that
economic integration and trade liberalization work for everyone. Finally,
it is important to translate policies and strategies into implementation.
Therefore the Ministries shall include in their sectoral strategies,
concrete, phased and time-bound action plans and projects so that the
poverty reduction strategies do not remain only on paper. Conclusion Your Excellencies, Ladies and Gentlemen, I
expect that our discussions during this CG meeting will not only be
informative but intensive as well. We welcome all viewpoints and
suggestions on how we can meet the challenges that lie in the path of
Cambodia in implementing a pro-poor, sustainable development strategy and
policy. The Royal Government welcomes concrete and pro-active proposals
from all quarters to help improve the efficiency of our strategies. All
together we can make constructive contributions to the shaping of a better
future for Cambodia and its people. Thank you for your kind attention! |
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