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© 2003 International Monetary Fund
March 2003
IMF Country Report No. 03/58
Cambodia: 2002 Article IV Consultation and Sixth Review Under the Poverty Reduction and Growth Facility—Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cambodia
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2002 Article IV consultation with Cambodia and sixth review under the Poverty Reduction and Growth Facility, the following documents have been released and are included in this package:
the staff report for the combined 2002 Article IV Consultation and sixth review under the Poverty Reduction and Growth Facility, prepared by a staff team of the IMF, following discussions that ended on November 22, 2002, with the officials of Cambodia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 3, 2003. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a Public Informationa Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its February 20, 2003, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.
a statement by the Executive Director for Cambodia.
The document(s) listed below have been or will be separately released.
Joint Staff Assessment of the Poverty Reduction Strategy Paper
Letter of Intent sent to the IMF by the authorities of Cambodia*
Memorandum of Economic and Financial Policies by the authorities of Cambodia*
Poverty Reduction Strategy Paper
Selected Issues Paper and Statistical Annex/Appendix
*May also be included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
CAMBODIA
Staff Report for the 2002 Article IV Consultation and Sixth Review Under the Poverty Reduction and Growth Facility
Prepared by the Asia and Pacific Department
(In consultation with the Fiscal Affairs, Legal, Monetary and Exchange Affairs, Policy Development and Review, Statistics, and Treasurer’s Departments)
Approved by R. Anthony Elson and Matthew Fisher
February 3, 2003
A staff team visited Phnom Penh during November 7-22 to conduct discussions for the 2002 Article IV consultation and the sixth review under the PRGF arrangement. The team consisted of Messrs. Lee (Head), Doi, Marciniak, and López-Mejia (all APD), Mr. Ishikawa (PDR), Ms. Eulate (APD, staff assistant), and was assisted by Mr. Hagemann (Resident Representative). Ms. Indrawati and Mr. Segara (OED) attended the policy meetings,
The mission met with Senior Minister of Economy and Finance Keat Chhon, Senior Minister of the Council of Ministers Sok An, Governor Chea Chanto of the National Bank of Cambodia, Minister of Commerce Cham Prasidh, and other senior officials. It also met with representatives from the labor union, business community, and NGOs.
The authorities have expressed interest in continued Fund support through a successor PRGF arrangement. To help maintain economic reform momentum until a possible successor arrangement is put in place, understandings were reached on a macroeconomic framework for 2003 and on supporting structural reforms as elaborated in the attached MEFP (Attachment).
Cambodia accepted the obligations of Article VIII, Section 2, 3, and 4 in January 2002, and has maintained an exchange system that is free of restrictions on payments and transfers for current international transactions.
Disbursement of the second tranche of the World Bank Structural Adjustment Credit is being delayed mainly due to problems in the forestry sector. These relate to (i) the government’s decision to terminate the role of Global Witness as an independent monitor, which could weaken the forestry monitoring system, and (ii) a delay in the government’s review process of existing concession contracts and agreement on any actions required following the outcome of the review.
The government has agreed to the publication of the staff report, MEFP, National Poverty Reduction Strategy (i.e., the PRSP), and Joint Staff Assessment in line with Cambodia’s past practice under the PRGF.
Contents
Executive Summary
I. Introduction
II. Stocktaking of Performance Since 1998
III. Report on the Discussions
A. Medium-Term Prospects and Challenges
B. Outlook and Policies for 2003
IV. Staff Appraisal
Text Boxes
1. Structural Conditionality
2. Competitiveness
3. Government Contracts and Their Revenue Implications
4. Governance and Corruption
5. How Do Policy Recommendations Affect the Poor?
6. Financial Intermediation
Figures
1. Selected Economic Indicators, 1997-2002
2. Indicators of Program Performance, 1998-2002
Tables
1. Selected Economic Indicators, 1998-2003
2. Balance of Payments, 2000-2007
3. Monetary Survey, 2000-2003
4. Summary Accounts of the National Bank of Cambodia, 2000-2003
5. General Government Operations, 2001-2003
6. Quantitative Performance Criteria and Benchmarks, June-December 2002
7. Structural Policy Actions for the Sixth PRGF Review
8. Medium-Term Macroeconomic Framework, 1999-2007
9. Indicators of Fund Credit, 2000-2011
Annexes
I. Key Achievements Under the PRGF-Supported Program
II. Technical Cooperation Action Plan (TCAP)
III. Public and External Debt Sustainability
IV. Fund Relations
V. World Bank Policy Dialogue and Its Relation with the IMF
VI. Relations with the Asian Development Bank
VII. Statistical Issues
VIII. Socio-Demographic Indicators, 1990-2000
IX. Summary of Technical Assistance Provided by the Fund, 1998-December 2002
Attachment
Letter of Intent
Memorandum of Economic and Financial Policies for 2003
Executive Summary
After decades of unrest, political and social stability was regained in late 1998, when a coalition government headed by Prime Minister Hun Sen (Cambodian People’s Party) was formed. The first-ever commune elections were held in February 2002 where the CPP gained a significant majority. National elections are slated for end-July 2003.
Supported by inflows of development aid, economic activity regained vitality in 1999. The government’s macroeconomic strategy, which was supported by a PRGF arrangement, yielded positive results. Real GDP growth averaged 7 percent per annum during 1999-2001, and inflation was subdued. Some progress was also made in strengthening customs and tax administration, restructuring the banking system, and introducing various legislative changes; however, deep-rooted governance problems and human resource constraints hampered progress in judiciary reform and capacity building.
Economic performance in 2002 was broadly satisfactory. Real GDP is estimated to have slowed to 4½ percent due to adverse weather conditions. Government revenue is expected to have fallen short of earlier expectations, but larger external financing allowed a net repayment to the National Bank. Gross international reserves increased steadily to about US$665 million (equivalent to 3½ months of imports) by year-end. All end-September quantitative performance criteria and the structural performance criterion for end-October were observed. Progress in structural reforms has been broadly satisfactory, albeit with some delays.
Real GDP growth could reach 6-7 percent over the medium term. However, the foundations to support such growth still remain weak. Cambodia’s wages are relatively high, infrastructure is poor, and the regulatory environment is unpredictable. Decisive efforts are needed to strengthen governance and public administration. Strengthening fiscal revenue performance will be key for the government to be able to afford competitive civil service wages, and thereby upgrade the quality of public services, as well as to raise social spending. Establishing a sound judiciary will also be essential.
The main near-term policy issue, including for the sixth review, is to reverse the erosion of the revenue base and improve customs and tax administration. In particular, measures are needed to meet the 2003 fiscal revenue target of 12¾ percent of GDP, which is consistent with the medium-term framework. Limits need to be placed on government spending, especially in light of the national elections slated for July, to avoid recourse to bank financing.
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Public Information Notice (PIN) NO.03/21
FOR IMMEDIATE RELEASE
February 28, 2003
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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Public Information Notice (PIN) NO.03/21
FOR IMMEDIATE RELEASE
February 28, 2003
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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February 19, 2003
