Statement by the IMF Staff Representative

Performance under the first year of Cambodia’s Poverty Reduction Growth Facility (PRGF)-supported program was strong, with a resumption of growth, low inflation, and significant progress in major areas of structural reform. External developments have reflected increased garment exports and tourism earnings, sharply higher oil imports, and higher capital inflows. The IMF staff urges the authorities to make effective use of planned technical assistance under the Technical Cooperation Action Plan. Structural reforms for 2001 will focus on those areas critical for achieving the macroeconomic objectives.

Abstract

Performance under the first year of Cambodia’s Poverty Reduction Growth Facility (PRGF)-supported program was strong, with a resumption of growth, low inflation, and significant progress in major areas of structural reform. External developments have reflected increased garment exports and tourism earnings, sharply higher oil imports, and higher capital inflows. The IMF staff urges the authorities to make effective use of planned technical assistance under the Technical Cooperation Action Plan. Structural reforms for 2001 will focus on those areas critical for achieving the macroeconomic objectives.

1. The following information has become available since the issuance of the staff report for Cambodia (EBS/01/2, 1/4/01). The information does not change the thrust of the staff appraisal.

2. Donor aid, and existing rice stocks, have so far prevented the expected increase in food prices following the severe flooding in the second half of 2000. As a result, the 12-month change in the CPI has stayed well below the program target of 5 percent; at end-December 2000 it was minus 0.8 percent. However, food prices are still expected to rise, and inflation is anticipated to increase in the near term before declining later in 2001, as envisaged in the staff report.

3. Information provided by the authorities indicates that the quantitative benchmarks for end-December 2000 for net domestic assets of the central bank and net official international reserves were observed. Preliminary data also indicate that the quantitative benchmark for net credit to the government from the banking system is also likely to have been observed by a comfortable margin.

4. The National Bank of Cambodia established on January 2, 2001 a dollar clearing and settlement system (which is a structural benchmark under the 2001 program). The formation of a working committee to prepare a recapitalization bond for the Foreign Trade Bank is expected to be completed by end-January 2001, instead of by end-December 2000 as noted in Box 5 of the staff report.

Cambodia: Second Review Under the Poverty Reduction and Growth Facility
Author: International Monetary Fund