This paper assesses Cambodia’s 2001 Article IV Consultation and Fourth Review Under the Poverty Reduction Growth Facility (PRGF). The PRGF-supported program approved in October 1999 aims at sustaining economic growth, reducing poverty, and accelerating economic reconstruction. In the first two years of the program, significant progress has been made. Priority structural policies for the third year of the PRGF arrangement focus on improving tax and customs administration, enhancing expenditure management, and continuing the bank restructuring program—including reform of the publicly owned Foreign Trade Bank.
The Executive Board of the International Monetary Fund (IMF) yesterday completed the fourth review of Cambodia’s performance under a three-year Poverty Reduction and Growth Facility (PRGF)1 (see Press Release No. 99/51). This enables the immediate release of a further SDR 8.357 million (about US$10.4 million) from the arrangement, which would bring total disbursements under the IMF-supported program to SDR 41.79 million (about US$52.0 million). The Board also approved Cambodia’s request for extension of the period of the current arrangement by about four months to February 28, 2003.
After the IMF Executive Board’s discussion on Cambodia, Eduardo Aninat, Deputy Managing Director and Acting Chairman, made the following statement:
“The Cambodian authorities have continued to make good progress in implementing their economic reform program. Inflation has remained low and economic growth has been sustained despite a weakening in the external environment. Progress has also been made in key areas of structural reform, including bank restructuring, customs and tax administration, expenditure management, and military demobilization. However, to sustain high economic growth and reduce poverty, reform efforts need to be strengthened. To minimize the risks to program implementation stemming from weak capacity, close monitoring will be required as well as continued technical assistance to improve local capacity in bank supervision, tax and customs administration, and budget execution.
“Fiscal policy will continue to be the focus of the PRGF-supported program. Improvements in revenue mobilization will require continued progress in tax and customs administration and implementation of agreed tax measures. Improvement in cash management and overall budget execution will also be required, and by continuing to avoid domestic financing of the budget, private sector credit can be increased while maintaining overall financial stability.
“Sustaining the positive record of economic performance will require further progress in several areas of structural reform. Bank restructuring should be completed and work to reform the Foreign Trade Bank needs to be accelerated. The military demobilization program should also be completed by end-2002. Moreover, moving ahead with administrative reform is critical to improving the efficiency of public service delivery. Trade reform and improving trade facilitation will enhance growth prospects, and these reforms need to be integrated with the national poverty reduction strategy. Efforts need to be accelerated to complete the authorities’ full PRSP, and fully costing priority reforms will be an important input to that effort. Continued progress in overall governance will also be needed to improve the environment for private sector investment, including improvements in the legal framework and consistent application of the law.
“The program’s success will continue to depend on donor support and debt relief. In this regard, it is important for the authorities to avoid non-concessional borrowing, and for the authorities and Cambodia’s key bilateral creditors to intensify their collaboration on efforts to resolve outstanding debt issues, with a view to reaching agreement in 2002. It will also be important that Cambodia receive bilateral support on highly concessional terms so as to enable sustainable poverty reduction efforts,” Mr. Aninat said.
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On November 22, 1999, the IMF’s concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.