 |
 |
 |
 |
||
 |
|
|
|
|
|
||
|
|
|
1. The years 2001 and 2002 represent a period of consolidation in the implementation of Cambodia’s policy reforms and social development agenda. It has been nearly four years since the 2nd Legislature of the Royal Government of Cambodia (RGC) was elected into office in November 1998. Since then Cambodia has made considerable progress. With the dismantling of the political and military organizations of the Khmer Rouge and their integration into the mainstream of the society, the Royal Government has achieved tangible results by implementing the "Triangle Strategy" put forward by Prime Minister Samdech HUN SEN. Cambodia has been working hard to reclaim its destiny and become a genuine partner in the region and global affairs and is now well on its way to becoming a truly free nation. The favorable political environment has also created a "Diamond Opportunity" for development, with great hopes for a bright and prosperous future. The year 2002 is the decisive year for the government’s reform agenda. It has witnessed the consolidation of peace and security in all parts of the country and the deepening and the widening of the reforms in all sectors: fiscal, banking, administrative and military. The management of natural resources has been strengthened with full implementation of land, forestry and fisheries reforms. The RGC has also embarked on legal and judicial reform, aimed at strengthening the rule of law. Therefore, the years 2002-2003 will be crucial for Cambodia’s march towards sustainable development. The achievement of equitable growth and the alleviation of poverty among our population through economic progress and social development is the highest priority of the Royal Government. And much remains to be done to achieve our overarching objectives. But now we can see the light at the end of the tunnel. 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. 2. The first side of the “Triangle Strategy” put forward by the Prime Minister Samdech HUN SEN focuses on building peace, restoring stability and maintaining security for the nation and the people. This has been accomplished through the commitment of the Royal Government, the sustained work and support of our people, and generous assistance from our development partners. For the first time in its recent history, Cambodia stands at the threshold of making a transition to a period of sustainable economic growth that will enable it to achieve durable poverty reduction. 3. Peace, stability and security in the entire country and for all of our people are the most important pre-requisite conditions for sustainable development. The Royal Government is, and will remain, strongly committed to strengthening political stability, security and social order throughout the country, to build a safe and stable environment for our people and to foster business confidence. 4. The integration of Cambodia into the region and normalization of relationships with the international community formed the second side of our strategic triangle. Soon after the formation of the new Government, Cambodia succeeded in regaining its seat at the United Nations and became the 10th member of the Association of South East Asian Nations (ASEAN). We have normalized the relationship with international financial institutions, the donor community and international organizations and our efforts to join the World Trade Organization are well advanced. 5. Promoting economic and social development is the third side of the Government's strategic triangle and our largest challenge. Notwithstanding the important strides that we have made in recent years, much remains to be done. The Government recognizes that achieving sustainable socio-economic development depends not only on the effective implementation of our ambitious reform programs, but also on the pace of their implementation, to move the country to a higher economic growth plateau that will enable us to tackle the causes of poverty. 6. To ensure sustainability of the structural adjustment reforms and Cambodia's economic development, and to share the “win-win” situation in ASEAN, the Royal Government will take all the steps necessary to further accelerate the momentum of the past 3½ years. We have set three conditions to achieve our development goals. First, the whole Kingdom should work hard with discipline and respect for law and order. Second, the whole Kingdom should work assiduously and avoid a “stop-and-go” situation. Third, all Government ministries and agencies should uphold the rule of law and strictly follow the principles of Good Governance. Reforms are a “life-or-death issue” for Cambodia. We are confident that if the above measures are successfully implemented, we will be able to catch up with the pace of development of other countries in the region even though we have lost considerable time. 7. As Prime Minister HUN SEN stated in Tokyo in June 2001, the long-term Vision of the Government 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. Major Achievements Since The Last CG Meeting In June 2001 8. Since the June 2001 Consultative Group Meeting in Tokyo, the Royal Government of Cambodia (RGC) has made significant progress in implementing its political platform and reforms agenda aimed at sustaining economic growth, reducing poverty, accelerating economic reconstruction, maintaining macroeconomic stability, strengthening the banking and financial institutions, implementing additional fiscal reform measures, ensuring a sound management of public property, and increasing public investment in physical and social infrastructure and human resources development. 9. In terms of the progress in implementing the government’s reform agenda, the years 2001-2002 reflected our endeavors to prepare grounds for the following: First, organizing the commune elections, strengthening democracy, promoting the respect of basic rights and dignity of the Cambodians from all walks of life; Second, pursuing the implementation of the reforms, while focusing on the implementation of the Governance Action Plan (GAP); Third, implementing the Interim Poverty Reduction Strategy Paper (IPRSP) and the Financial Sector Development Vision and Plan for 2001-2010. Fourth, commencing implementation of the Second Socio-Economic Development Plan (SEDP II). Thus,
in all its actions and endeavors, the RGC has put forth its best effort to
implement the recommendations made at the last CG meeting. 10. Overall, in terms of political developments, the year 2001 was the year of strengthening security and social safety, enhancing democracy and increased respect for the basic rights and dignity of Cambodians from all walks of life and preparing for the devolution of power to the grassroots level through decentralization and commune elections. 2001 also witnessed the strengthening of institutional capacity at both central and provincial levels and gradual improvement in the living standards of the population by embarking on reforms in all sectors and in particular implementing the government’s poverty reduction strategy. These achievements have been made possible by active participation of the authorities at all levels, Cambodia’s development partners, NGOs and many international organizations, that have displayed their strong commitment to Cambodia. 11.
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 toward improving the living standards of our people, better respect
for human rights and achieving sustainable development. 12.
According to the Constitution of the
Kingdom of Cambodia and the National Assembly Elections Law, the general
elections will be held on Sunday 27 July 2003. 13. The RGC’s focused efforts to strengthen macroeconomic management and a focused implementation of the fiscal reforms have resulted in a robust real GDP growth of 5.3 percent in 2001, in spite of a decline in the fourth quarter of 2001 caused by the deterioration in the world economic environment and the short-term impact of the terrorist attacks of September 11. The rate of inflation has been contained below the last year level. Monetary developments in 2001 have reflected the improved fiscal position. Gross international reserves reached the equivalent of over 3 months of import coverage at the end of 2001. The market exchange rate has been broadly stable against the U.S. dollar and in real effective terms. 14.
For the Royal Government, the war on poverty is not just a
convenient slogan or a mere policy issue but a deep felt passion. Progress
and social justice are the two bedrocks of our government’s policies and
strategies. The Second Socio‑Economic Development Plan (SEDP-II)
2001-2005, which was adopted by the Council of Ministers in December 2001,
reflects this commitment. The Government’s poverty reduction strategy
embodied in SEDP-II has three main components:
15.
The strategic message of the SEDPII is that economic growth is a
prerequisite for poverty reduction and the key to growth is private sector
development, which will be achieved through sustained improvement in the
governance environment. SEDPII also presents quantitative targets and
outlines the processes for monitoring and evaluating the progress and
impact of our policies. SEDPII also presents targets for various social
development indicators for the Plan period, including a target to reduce
the poverty headcount index from 36 to 31 percent in order to reduce
poverty by half in fifteen years. 16.
A Poverty Reduction Strategy Paper (PRSP) is being prepared that
uses the SEDPII as its key building block. Key areas where additional work
is needed to build on SEDPII to develop the PRSP include: (i) improving
monitoring and evaluation mechanisms; (ii) developing more comprehensive
performance indicators and targets; (iii) improving the costing of
priority public policies and programs and their linkage to the budget;
(iv) integrating the macroeconomic framework and the overall poverty
reduction strategy, and (v) developing a trade strategy within the
framework of the poverty reduction strategy. To elaborate on the PRSP
process, the RGC has institutionalized the PRSP framework by establishing
the Council for Social Development (CSD), which is responsible for
monitoring and facilitating the implementation of the government’s
poverty reduction strategies and policies. The CSD is assisted by a
General Secretariat, which is responsible for formulating the PRSP, as
well as for coordinating poverty policy and program formulation,
implementation and monitoring; capacity development in poverty monitoring
and analysis; and facilitating consultation and consensus building
regarding pro-poor policy questions among development partners. In
addition, CSD is assisted by four working groups focusing on general
administration, poverty reduction, sector work, and social aid. The PRSP
process is expected to be completed by the end of 2002. 17.
Fiscal performance in 2001 has broadly been good, with improved
revenue mobilization and expenditure restraint. Concerted efforts have
been made to implement fiscal reform, including improved budgetary
management, broadening the tax base, avoiding ad hoc customs duty
exemptions, and improving customs administration; re-orienting government
spending to priority programs in agriculture, rural development, health
and education; improving administrative procedures to ensure that social
sector spending targets are met; and improving public sector governance,
transparency, accountability and adherence to the rule of law. More
importantly, the RGC has set the target of reconstructing all the existing
paved roads by 2005. 18. The 2001 Budget was implemented cautiously to make room for financing the commune elections and to reach the targeted fiscal balance. The increased spending on flood relief in 2000 and the financing of commune elections have had a major impact on the fiscal position in 2001. Domestic revenues increased 7 percent from 2000 level, reflecting increased collection of non-tax revenues. The total expenditure has been contained below targets, thus minimizing the need for domestic budget financing. In 2001, the overall fiscal deficit (excluding grants) has been contained at 5 percent of GDP, while the current surplus was maintained at 1½ percent of GDP. 19.
Considerable
progress has been made in restructuring the banking sector by
reducing the number and improving the quality of commercial banks in an
effort to instill public confidence. Recapitalization, strengthened
banking supervision, and improved management of the Foreign Trade Bank of
Cambodia are designed to protect depositors. Moreover, these reforms are
aimed at promoting a strong and well-functioning financial sector that can
overcome the problem of self-financing and to mobilize idle financial
resources for productive investment. To this end, the Royal Government
adopted the "Vision and Financial Sector Development Plan for
2001-2010", which outlines a long-term vision and a strategy for
sequencing policy reforms to develop the financial system over the next
ten years. We hope that by rigorously implementing this strategy over the
next 10 years, Cambodia will be able to establish a vibrant, efficient and
modern financial sector based on international standards. 20. The RGC has made serious efforts and achieved significant successes in implementing the Governance Action Plan (GAP). Most of the year one initiatives under GAP have been completed. Based on our experiences with the implementation of GAP and the progress we have been able to achieve, the Royal Government has undertaken to update the GAP to introduce new initiatives and priorities. The new priority initiatives evolve around needs and issues in the areas of social development, investment and commerce, demobilization, administrative reforms and anti-corruption. The details on the updated GAP are being provided in separate discussion papers. 21. To highlight some of the major achievements, in the area of public administration reform, the RGC has successfully completed the civil service census, issued ID cards to government officials, established a computerized payroll, put in place a classification system for civil servants and introduced a human resources management information system (HRMIS). In this context, in October 2001, the Cabinet approved the strategy for the rationalization of civil service. At the same time, within the framework of the 2002 budget, the RGC has introduced a new remuneration and classification system more conducive to career professionals. The establishment of the priority mission groups by using the government's budgetary resources is a project to increase labor productivity and provide incentives to those involved in priority missions. In the area of administrative reforms, which are key to improving public services delivery, the Government has taken big steps forward to create momentum to support reforms in all areas. These efforts will accelerate economic growth and promote poverty reduction. 22.
An important part of the program for state reform is the
introduction of decentralization at commune level and the
associated deconcentration of management functions to the
provincial level in order to ensure improvement in governance at the
grassroots level. The devolution of power that is being carried out
through decentralization and deconcentration will shift the focus of
development closer to the people in all our endeavors including the
implementation of structural adjustment, strengthening democratic local
governance, enhancing the efficiency and impact of public services
delivery and the alleviation of poverty. Based on our experiences over the
last five years with piloting decentralization under the Royal
Government's Seila Program, we have concrete evidence that this process
enhances the participation of the people, increases local ownership and
strengthens the bonds between the State and civil society. Under the
National Committee for Support to Commune Councils (NCSC), these
experiences are now being institutionalized and transformed into a
decentralized regulatory framework at a rapid pace. Regulations on powers
and functions of the Commune/Sangkat Councils (C/S Councils), delegation
of authority to the provincial governors for supporting the Councils and
the role of the Commune Clerks have been formulated and approved. The
Commune/Sangkat Fund has been established and regulations on the systems
for fiscal transfers and financial management have been designed and
approved. Also, regulations on the Commune Planning and Budgeting System,
with a high degree of public participation and accountability have been
designed and approved. 23. The Royal Government is well aware that the adoption of regulations must quickly be followed by training and capacity building of the C/S Councils on their duties as well as the systems that will enable them to function, so that the critical process of “learning by doing” can commence. In this regard, three cycles of training have been designed and budgeted focusing on General Orientation, the Financial Management System and the Planning and Budgeting System. The Orientation Training for all 1,621 commune/sangkats has been successfully completed, training on the Financial Management System is underway and will be completed in July and the training on Planning and Budgeting will be carried out from July to September of this year. The strong commitment of the Royal Government's commitment to this important reform process is reflected in the first transfer of 12.5 billion Riels ($ 3.2 million equivalent) in May to the commune/sangkat accounts that included 10 billion Riels from the national budget and 2.5 billion Riels from UNDP support to Seila financed by Sweden and the United Kingdom. In over one third of the rural communes, bidding and contracting of private sector entities has been completed by the C/S Councils and implementation of first-year investment priorities is underway. While the Royal Government is fully aware that local democratic governance and the decentralization process is a long road, we are confident that our critical initial steps are meeting the challenge. 24.
The legal reforms are on track, and the RGC has been
successful in enacting many of the needed laws and regulations. Legal
reforms are necessary to support the evolutionary process of social and
economic change, and the legal system must be adjusted to support the new
economic strategy. Hence, our efforts are being focused on putting
in place basic elements of the legal framework to underpin the development
of a vibrant market economy and the promotion of trade and investment by
developing the legal framework on property rights, the creation and
winding-up of business entities, contract and a fair marketplace, banking,
tax and accounting. Moreover, in the next few years attention will be
given to the development of laws pertaining to accounting, insurance,
secured transactions, commercial enterprises, bankruptcy, contracts and
commercial credit, and law on negotiable instruments and payment
transactions in order to ensure the effective functioning of the financial
sector. Other efforts concentrate on streamlining the process of
formulation of the laws and regulations and their wide dissemination. 25.
To speed up the judicial reforms, the Council of Ministers
drafted a Master Plan for Legal and Judicial Reforms. Given the importance
and the sensitivity of the legal and judicial reforms, in-depth
discussions and extensive consultations will be held on developing a
Master Plan in order to identify effective and efficient measures and
improve the quality of this important document for submission to the
Council of Ministers as soon as possible. The Council for Legal and
Judicial Reform will also carry out a comprehensive assessment study to
identify the specific needs for human, financial and material resources to
accelerate the reforms process. Cambodia's development partners, including
relevant local and international organizations should consider providing
technical and financial assistance, if we really want to see tangible
progress in implementing legal and judicial reforms. Indeed, a lot remains
to be done and it requires close cooperation between the RGC, the
Parliament, the courts and all our external partners, who want to see
Cambodia’s judicial system to be independent, impartial and
professional. Efforts are already underway to build the capacity of the
judiciary system. For example, the Royal School for the Magistracy is
being established and training of trainers is being provided. 26. Significant progress has been made to implement reform and restructuring of the Royal Cambodian Armed Forces (RCAF). Building on the experiences and lessons learnt from the Pilot demobilization program and the strong moral, material and financial support from the donor community, the Council for the Demobilization of Armed Forces has successfully completed by late last year the discharge of the first batch of 15,000 military personnel plus their family members. The process of this first full-scale reduction-in-force was carried out in an orderly, manageable, efficient, smooth, transparent, accountable and timely manner, as planned, without any problems or incidents. This year the CDAF will continue to closely cooperate with the Donor Working Group on Demobilization to procure and deliver the four options of reintegration assistance packages as well as other assistance planned in the demobilization program to the 15,000 veterans who had been discharged last year. The CDAF will also begin to lay the foundation for the second full-scale demobilization of another 15,000 soldiers to achieve RGC’s target of reducing the armed forces by a total of 55,000 soldiers over a period of five years (1998-2003). Prompt implementation of the full military demobilization program is crucial for budget savings and redirecting resources to the priority sectors: physical infrastructure, social and economic sectors, especially education, health, agriculture and rural development. This demobilization program when fully implemented would result in savings of up to 2 to 5 billion CRs. 27.
Rigorous implementation of the forest management policies is
the top priority of the RGC and it remains vigilant in this area. Since
the fifth CG meeting, several decisions and actions have been implemented
by the RGC to create conditions conducive to the sustainable management of
forest resources. The RGC is committed to strengthen the Forest
Crime Monitoring Unit (FCMU) by providing it with additional financial
support. The FCMU has assisted the RGC in monitoring illegal logging in
order to effectively stamp out corruption from this sector. The
legislative and policy framework that is indispensable for achieving
sustainable resources management has been strengthened considerably with
the passage of the long-awaited new forestry law. The Law concerning the
protected areas is under preparation to provide the framework for the
sustainable management of the bio-diversity and natural resources
contained in the 23 protected areas. A sub-decree on community forestry
has been developed through a nationwide participatory multi-stakeholder
process to enhance local community participation in forest management
decision-making processes. The initial steps on the development of a
forest policy statement and a restructuring of the forest administration
have been taken by DFW/MAFF. The RGC is firmly committed to complete the
reform process in the forestry sector to eliminate illegal logging, to
enhance capacity building for DFW's staff and public awareness, strengthen
forest rehabilitation and reforestation activities, and to enlarge natural
forest conservation for eco-tourism with the assistance of our development
partners. 28.
A comprehensive reform
of the traditional fishing lot system
has been completed. The RGC has cancelled or reduced the size of official
fishing lots by a total of 536,302 ha, accounting for some 56 percent of
the total fishing lots to allow the poor free access to fishing and to
earn a living in 12 provinces. The MAFF has drafted a new Fisheries Law,
prepared a Fisheries Master Plan, and a sub-decree on Community Fisheries
and Fishing Lot Auctions has been issued after extensive consultations
with all stakeholders. Fisheries reforms have improved access to fisheries
resources by poor farmers and fishermen, thus contributing to the
implementation of the government’s poverty reduction policy. 29.
The RGC has accorded priority to the preparation and implementation
of land policy, which focuses on land distribution, land management
and land administration. To ensure efficient enforcement of the Land Law,
nine governmental sub-decrees have been drafted. The RGC is preparing a
framework for land policy. The core elements of the RGC land policy will
support systematic land registration, tax reforms, the establishment of a
legal framework to enforce property rights, the establishment of
provincial, municipal and national master plans and zoning, and the
development of housing policy. A
systematic land registration pilot project is being implemented using
state-of-the-art technology. It has delivered land title certificates for
the first time to the inhabitants of Samrong District, Takeo Province.
Overall, 15 percent of land in the Kingdom of Cambodia has been
registered. A request for the establishment of a master plan for
Sihanoukville has been made and a land use plan along National Route 4 is
being prepared. Also, a Land Management and Administration Project to
complete the registration of land throughout the country and to strengthen
the political, legal, institutional and technical aspects of land
management has started in May 2002. It will cover 10 provinces and one
municipality. 30. The RGC considers the private sector, both domestic and foreign, as the engine of growth. A vibrant private sector requires that crucial elements of structural policy be in place. The RGC has doubled its efforts to create a climate that fosters investor confidence through improved dissemination of information to investors about the “rules of the game”, with regards to taxation, regulations and the protection of property rights. The RGC has completed the review of the Law on Investment and the draft Law is awaiting approval of the legislature. This Law will ensure the maintenance of balance between the need for increased revenues and Cambodia’s competitiveness with countries in the region. Thus, the draft amendment to the Law on Investment while rationalizing the investment incentives, provides a simplified and transparent mechanism to automatically qualify investment projects for incentives. 31.
Notwithstanding
tremendous difficulties and impediments, the RGC has made significant
progress in combating corruption. The GAP itself is a compendium of
measures that in one way or another combat corruption by addressing its
root causes. Cracking down on illegal logging, measures to increase tax
revenues, the removal of ghost workers from the public sector and the army
payrolls and the confiscation of land, which had been sold off or held
illegally, were among the measures aimed at tackling corruption. The RGC
has made considerable efforts to establish and operationalize the National
Audit Authority. RGC believes that streamlining bureaucratic procedures,
simplifying and modernizing the tax system, eliminating excessive
regulations, and motivating public servants by giving them a decent level
of salaries can help reduce the opportunities for corruption. Enacting
anti-corruption law and regulations is just one part of the equation.
Rigorous implementation of those laws and regulations is another part. 32.
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
administrative and governance 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 regulation is likely to remain constrained, at least in
the short- to medium-term, by the existing gaps in Cambodia’s human
capital base. 33.
Procurement
constitutes an integral part of budget execution. A major proportion of
public expenditure at every level of government is incurred through the
procurement of goods and services and construction activity.
The performance criteria for evaluating procurement activities is
economy, i.e. acquisition at the lowest price without sacrificing quality
and timely delivery. To this end, the government adopted in 1995 a decree
(No 60) on Public Procurement, based on international standards and best
practices. However, since 1997, because of domestic political turmoil and
regional financial cataclysm, some of the important provisions of this
decree have not been fully implemented. To remedy these shortcomings, the
government adopted a decision in December 2001 requiring full
implementation of public procurement procedures for four priority
ministries (Education, Health, Agriculture and Rural Development) in the
acquisition of goods, services and construction activities, except for
heavy capital investment in road, bridge and sewerage construction. 34. The Royal Government would like to reassure its
development partners that it has been firmly resolved to fulfilling its
commitments made in Tokyo in June 2001. It has scrupulously supported the
implementation of all the ten recommendations made during the Tokyo 2001
CG meeting. It is true that for different reasons we have moved faster in
some areas than others, at the same time, RGC has remained committed to
make use of every opportunity to improve and accelerate these complex
reforms in all areas. In the final analysis, our development partners with
a comprehension of the constraints we face can judge what we have
achieved. From RGC’s perspective we can honestly state that we have come
a long way from where we were not too long ago. The Royal Government
remains committed to implementing policies and programs that will lift
Cambodia to a higher destiny, to a new plateau of sustainable development.
Development
Priorities 35. The development vision of the Royal Government of Cambodia is to have a socially cohesive, educationally advanced and culturally vibrant Cambodia without poverty, illiteracy and disease. Realizing the vision will require continued adherence to the values of social justice, human welfare and empowerment of the people and the formulation and implementation of policies to reduce poverty by promoting sustainable economic growth and better governance. 36. The “Triangle Strategy” of the Government, which was adopted after the July 1998 election, is designed to achieve this Vision. Restoring peace and stability, and maintaining security for the nation and people, which formed the first side of the “Triangle”, is critical for creating favorable conditions for Cambodia’s march towards progress and prosperity. Cambodia has been integrating into the region and has normalized its relationships with the international community. After regaining its seat at the United Nations, Cambodia became the 10th member of the Association of South East Asian Nations (ASEAN) and the process of joining the World Trade Organization (WTO) is well advanced. This is the second side of the triangle strategy. 37. The third side of the Government's strategic triangle is to promote economic and social development through the implementation of an extensive reform program. Significant progress has been made in the implementation of these reforms, and economic growth has been strong in the last two years despite the impact of the 2000 floods and the global slowdown in the last quarter of 2001 following the September 11 terrorist attacks in the United States. However, much remains to be done. 38.
In the context of the “Triangle Strategy”, and building on the
“Interim Poverty Reduction Strategy”, the RGC’s development
strategies are: (i) to foster broad-based sustainable economic growth with
equity, with the private sector playing the leading role; (ii) to promote
social and cultural development by improving the access of the poor to
education, health, water and sanitation, power, credit, markets,
information and appropriate technology; (iii) to promote sustainable
management and use of natural resources and the environment; and (iv) to
improve the governance environment through effective implementation of the
Governance Action Plan (GAP). 39.
The timely implementation of the GAP, and its specific strategies
for civil service reform, decentralization, military demobilization, legal
and judiciary reform, gender equity, public financial management,
anti-corruption and natural resource management, is therefore a key
priority for the Government. 40. The RGC’s strategic message is that economic growth is a prerequisite for poverty reduction and that the key to economic growth is private sector development. At the same time, it recognizes that the pace at which private sector can develop depends largely on sustained improvements in the governance environment. 41. The Government is committed to maintaining a stable macroeconomic environment, as sustained economic growth with poverty reduction cannot be achieved in an environment of macroeconomic instability or of serious fiscal and external accounts imbalances. The targets of the RGC’s medium term macroeconomic framework include: achieving an average annual economic growth rate of 6-7 percent, keeping inflation below 4 percent, containing the external account deficit to a level consistent with concessional financing and foreign direct investment flows and increasing gross official reserves to about 3.5 months of import coverage. 42. Faster growth is essential in order to improve social indicators and to provide the tax base needed to finance higher levels of public expenditure on social sectors. Adherence to the on-going reform program is crucial for achieving higher economic growth, diversification from garments to other types of basic manufacturing, and development of Cambodia’s tourism potential. The development of the tourism sector is important because of its significant multiplier effects on other sectors of the economy. 43. The RGC’s strategic focus is on implementing those measures that have the dual benefits of both promoting growth and reducing poverty. This will include initiatives to enhance state effectiveness, develop physical infrastructure particularly in underserved rural areas, increase investment in human resources particularly women and children, and to combat epidemic diseases especially HIV/AIDS. Success in promoting growth and reducing poverty will require close cooperation within and outside the Government, so that timely actions at the macroeconomic level and across and within sectors are implemented in the way intended. 44. Continuing fiscal reform is critical in order to build on recent increases in revenue capacity and to accelerate the shift from defense and security expenditures to the socials sectors. The implementation of the military demobilization program is a key element of the reform program, as savings from downsizing the army are essential for redirecting spending to the social sectors. Public administration reform is also an important component of the fiscal strategy and its civil service reform component is vital to achieving planned sector wide reforms in health and education. Key priorities for the Government include promoting financial transparency and addressing corruption issues particularly in health and education disbursements. 45. Decentralization offers a range of possibilities including the opportunity for broader political debate about development strategies and new ways of holding government accountable to its actions. The extent to which the development potential of decentralization will be realized depends crucially on success in dealing with other related governance issues concerning the health, education, and transportation sectors as well as gender issues. 46. Accelerating growth in the rural economy would result in the largest reduction in poverty because its incidence is highest there and inequalities are lowest, an important consideration given that economic growth will benefit some more than others. Agricultural and irrigation improvements are key to broad based economic growth and poverty reduction and there is little doubt that there is much potential for improvement. 47. In addition, the development process must deal with the unexpected, in particular the harm done to the fragile welfare of the poor and the health of the economy as a result of natural disasters. Strengthening national disasters preparedness, relief, mitigation and rehabilitation of flood control systems are important poverty reduction priorities of the Government. As is providing targeted special programs for those who are unable to effectively participate in the growth process as well as enhancing ongoing preventative measures to combat malaria, tuberculosis, and in particular the HIV/AIDS epidemic. Establishing Cambodia as a popular ecological and cultural tourism destination will also provide an additional boost to economic growth. 48. Further development of rural infrastructure will help rural and remote communities, which include the poor and the poorest, facilitate market access for those without it and put essential services within reach of the most needy. Improving the access of the poor to education and health services, making better use of human capabilities, improving the income earning potential of the poor, widening their range of choice, improving the quality of their lives and reducing their social exclusion are crucial priorities of the Government. 49. 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. Women’s education is a crucial determinant in birth spacing and reproductive health and in determining the educational level and employment of their daughters. In the health sector, 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. 50. In short, macroeconomic stability, implementation of the GAP, continuing trade liberalization and expansion of economic and social infrastructure will facilitate private sector expansion and thereby fuel higher economic growth, raise incomes and create jobs that will pave the way for durable poverty reduction. For those unable to benefit from direct participation in the economic growth process special support programs will be implemented. 51. The macroeconomic outlook for 2002 might be affected by the deterioration in the world economic environment that began in mid 2001 and is just beginning to recover. As a result of the recent upturn in the global environment, the Ministry of Economy and Finance has revised its projections for 2002 upwards. GDP growth is now projected to increase by 5-5 ½ as compared to the previous projection of 4 ½ -5 percent. The anticipated higher economic growth is attributable to the dynamism of garment exports and the vibrant tourism sector. Agriculture is expected to rebound after recent devastating floods and drought. Inflation, however, is expected to remain low and the exchange rate stable. More employment will be created in the services sector. The current budget surplus will be maintained at about 1½ percent of GDP, while the overall fiscal deficit (excluding grants) will be contained at less than 6 percent of GDP and financed by external concessional resources and grants. The external current account deficit is projected to widen to 11 percent of GDP. Also taking into account the positive international environment, the increase in gross international reserves in 2002 is targeted to grow further to cover about 3 months of imports. 52. The spending priorities for the 2002 budget are: (i) holding the commune elections and the operationalization of the Commune-Sangkak Councils; (ii) implementing the full demobilization program; (iii) a speedy implementation of the Governance Action Plan (GAP); and (iv) executing the Interim Poverty Reduction Strategy Paper (IPRSP) by shifting further spending priorities from defense to social and economic sectors. The budget strategy will be geared towards further enhancing the mobilization of tax and non-tax revenues to meet the target of 13 percent of GDP through rigorous implementation of existing fiscal measures and the introduction of new tax policies, as well as continued efforts to collect tax arrears from the largest taxpayers, re-negotiation of contracts for the Angkor Wat temple complex and the telecommunications contract for the second international gateway. The fiscal reforms undertaken under the Strengthening Economic and Fiscal Management (TCAP) Project, which focuses on improvement in public expenditure management, tax, customs and treasury reforms, will be crucial for the revenue mobilization efforts and improvement in fiscal governance. 53. The 2002 National Budget can be succinctly described as an instrument that will promote democracy, reduce poverty, strengthen good governance and empower women. The spending priorities for the 2002 budget are targeted towards meeting these goals. Strengthening good governance will be the hallmark of the 2002 budget execution. The 2002 budget will also significantly empower local communities through the financial devolution to the local levels that will strengthen democracy at the grassroots level. To operationalize the Commune Councils the Government has earmarked 20 billion CRs in the 2002 Budget, of which the first transfer of 10 billion CRs was made in May as block grants to the Commune Fund, which was established to facilitate fiscal decentralization. Development
Management 54. Effective development management requires not only providing leadership in the processes of development planning, programming, and the implementation of development programs but also the ability to lead agencies and to facilitate the processes to arrive at a consensus on the most effective use of available resources for development. It entails building partnerships among the various national participants – the government entities at various jurisdictional levels, NGOs, the civil society, and the private sector; as well as building effective partnerships with our external development partners. 55.
The RGC’s overall objective of
building development cooperation partnerships is to facilitate
Cambodia’s continuing transition to a growth-oriented market economy
with equity by effectively promoting and supporting the emerging
partnership model of development cooperation, based on Cambodian
leadership, ownership, and accountability, thus contributing to increased
effectiveness of development resources, to increased resource
mobilization, and to a sharper focus of development cooperation on human
development, poverty reduction, and participatory development. 56.
At the fourth and fifth CG meetings, the RGC shared with its
development partners its vision of the principles for building these
development cooperation partnerships as well as the strategic
implementation considerations for effective cooperation partnerships.
Significant progress has been made since the May 2000 Informal Working
Session on Partnerships at the fourth CG Meeting. The CDC/CRDB has been
appointed as the RGC’s Partnership Focal Point. As the Partnerships Focal Point, CDC/CRDB's main role is to provide
technical support to ministries/agencies in effectively managing the
process of establishing partnership arrangements and coordination of
resource mobilization activities. It is also responsible for expanding the
development management information networks within Government, and for
coordinating technical issues with sectoral ministries related to resource
mobilization. However, the Lead
Responsibility for sectoral partnerships will remain firmly in the
hands of each sectoral ministry/agency. 57.
An Inter-Ministerial Steering Committee to Strengthen Development
Cooperation Partnerships was formally established in 2001. Key
central agencies and those sectoral ministries that were at an
advanced stage of discussions on sectoral development partnerships (such
as Health, Education, Rural Development, Agriculture, Women’s Affairs,
and others) are represented on the Steering Committee. The membership of
the Inter-Ministerial Steering Committee, chaired by the 1st
Vice-chairman of CDC, consists of key officials in-charge of Partnership
arrangements (either Minister or Secretary/Under-Secretary of State). The
objective is to ensure that key officials are seriously involved in policy
decisions and operational actions for capacity development,
integration/enhancement of information and monitoring systems, and for
assessing progress and identifying issues during the transition to fully
functioning development partnerships, covering dimensions such as
procedural harmonization, ownership, and capacity indicators. 58.
The Inter-Ministerial Steering Committee to Strengthen Development
Partnerships is supported by a Secretariat, located in CDC/CRDB. In
addition, Partnership Working Groups in four ministries, Health,
education, Agriculture, and Women and Veteran Affairs have been
established. The process of building national partnerships has begun and
RGC is determined to move ahead in forging relationships with all of its
national development partners. 59.
Forging effective partnerships with our external development
partners is the other challenge that the RGC would now like to seriously
embark upon and we would need the support of all our external partners to
face this challenge. For the RGC, the starting point for building these
mutually beneficial partnerships are the
OECD/DAC guidelines and criteria for
building partnerships and capacity development activities that were
agreed to by all donor agencies and countries at the OECD/DAC Conference
in 1999. A systematic implementation of these guidelines and criteria,
with established benchmarks, will help the Government not only in
effectively managing its development programs but also taking ownership of
its development process. The Government and our external development
partners need to develop mechanisms that provide for a systematic
assessment of the capabilities of the lead agencies, facilitators and
proponents as well as for checks and balances between donors who
participate in Partnership arrangements under the SWAP and those who
intend to continue on with the traditional project-based assistance. The
Government would also welcome progress by our external development
partners in simplifying and harmonizing their internal rules and
procedures to minimize the extra-ordinary burden on the limited capacities
within our implementing agencies, and equally importantly, the
harmonization of the varied capacity building practices of our external
partners. The
RGC would like to propose that a donor Working Group, under the CG
mechanism, be established as soon as possible to lead the implementation
of this very important task. Such a group should function along the line
of other donor working groups dealing with the reform issues. 60.
To conclude, the RGC would like to note that although
much progress has been made in building partnerships for development since
1997, and we have a few examples of successes, a situation remains in
which a significant proportion of ODA
still bypasses the national budgeting process because of direct funding by
donor agencies to project implementers. This situation has resulted in
inadequate Government ownership of many development projects, in
insufficient coordination by donor agencies regarding sectoral issues and
capacity building; and in a proliferation of different procurement,
disbursement, auditing, and progress monitoring procedures among agencies.
It has also resulted in capacity depletion and has adversely affected
Government’s institution building efforts. The
RGC intends to show its political will to assume ownership of its
development agenda and provide leadership of the process to achieve this
goal. The Government and the external partners need to engage in an open
consultation process to agree on a “national development agenda for
their support”, particularly, in the area of poverty reduction. Once
common objectives have been established, donors will need to adjust their
own strategies and activities to the Royal Government’s priorities.
Capacity building must be dealt with through an integrated approach that
also involves civil society and the private sector. This is an area where
true partnerships could lead to major efficiency gains. Financial
Requirements and ODA Resource Mobilization Targets 61.
The alleviation of poverty among Cambodia’s population through
economic progress and social development is the highest priority of the
Royal Government. The 2nd Socio-Economic Development Plan
(2001-2005) and the Poverty Reduction Strategy (PRS) outline the
strategies and policies for achieving this goal. The implementation of these
strategies and policies will be achieved through a focused and prioritized
Public Investment Program (PIP). The PIP is designed within the framework
of a three‑year rolling plan to capture priority proposals and needs
on an on-going basis. The programs and projects that constitute our public
investment program will be financed both from the National Budget and with
the assistance of our external development partners. The PIP is comprised
of the Government’s priority programs that are being implemented and/or
are planned to be implemented in various sectors and constitute the basic
information for the allocation of national budget resources as well as for
the mobilization of assistance from our external development partners. 62.
Over the years, our external development partners have been
generous in providing support to Cambodia’s public investment program.
At the five CG Meetings for Cambodia held
so far, we have worked hard to keep our resource mobilization targets for
external assistance at around US$500 million per annum to cover on-going
and new projects, including budgetary/balance of payments support. At the 1996 CG meeting, pledges of US$501 million for the
year 1996 were made by our major partners, plus US$18 million by NGOs. At
the 1997, 1999, and 2000 CG meetings, our major development partners had
pledged US $ 450 million, 471 million, and 548 million respectively. At
the last CG meeting in 2001, the pledges amounted to US$ 556 million. In
addition, the NGOs have increased their assistance considerably from a
pledge of US$ 18 million for 1996 to US$ 55 million for1999, 2000 and
2001. 63.
The Royal Government is pleased to report that over the last three
year, 1999-2001, disbursements have steadily increased from just under US$
400 million in 1999 to nearly US$ 472 million last year (2001). At the
same time, the amounts pledged by donors have also increased significantly
– from US$ 526 million in 1999 to over US$ 610 million in 2001.
Excluding the year 1998, when no CG meeting was held and consequently no
formal pledges were recorded, disbursements over the 1992-97 and 1999-2001
have totaled nearly 3.7 billion dollars – constituting 73.3 percent of
the pledges made by donors during these two periods. In more recent years,
the ratio of disbursements to pledges has been higher – representing a
greater absorptive capacity within the Government. Disbursements have
increased from 76 percent of the donor pledges in 1999, to 77.3 percent in
the years 2000 and 2001. The RGC is gratified by the support of its
external development partners and hopes that they will continue to provide
their support to enable Cambodia to achieve its goal of reducing poverty
among its people. 64.
The
total costs of the Government’s planned development programs, both
on-going and new programs, over the next three years (2002-2004) is
estimated to be around US $ 1,388.4 million. The Government of Cambodia
has committed from its own resources US $ 148.2 million for these
development programs. After adjustments for estimated available Government
counter part funds (US$ 148.2 million), and taking into consideration the
requirements for budget support (US$ 150 million), and balance of payments
support/stand-by-facility from IMF (US$ 67 million); the total
requirements for external assistance over the next three years amount to
US$ 1,457.2 million that averages to US$ 485.7 million per annum, and
includes US$ 15 million for the general elections in 2003. Some of our
external development partners have already committed to provide just under
US$ 612.8 million. Thus a gap of US $ 844.4 million in the financing of
these development programs remains at the present time for which the RGC
is seeking additional support from its external development partners. |
|
|
|
Home | 6th CG Meeting| Agenda | Contents| List of Participants | Position Paper | DCR | Partnership | Government | Donors | Download | Map | Photo |