Cambodia: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
20 Aug 2007
eISBN:
9781451821857
Language:
English
Keywords:
ISCR; CR; pay; wage bill; government; reform; bank; bill data; wage supplement; remuneration policy; bill to GDP; bill development; Wages; Public sector wages; Government wage bill; Civil service reform; Asia and Pacific; Caribbean
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This Selected Issues paper analyzes the potential impact of oil on economic growth and policy for Cambodia. It shows that a hypothetical moderately sized oil sector would have a significant, but not overwhelming, impact on macroeconomic prospects; but reaping the benefits while avoiding economic problems would depend, in particular, on sound fiscal policies. The paper looks at the role of wage and employment policies within the broader civil service reform agenda. It also analyzes wage bill developments since the 1990s and proposes steps to accelerate pay and civil service reforms.

Abstract

This Selected Issues paper analyzes the potential impact of oil on economic growth and policy for Cambodia. It shows that a hypothetical moderately sized oil sector would have a significant, but not overwhelming, impact on macroeconomic prospects; but reaping the benefits while avoiding economic problems would depend, in particular, on sound fiscal policies. The paper looks at the role of wage and employment policies within the broader civil service reform agenda. It also analyzes wage bill developments since the 1990s and proposes steps to accelerate pay and civil service reforms.

III. Civil Service and Public Wages in Cambodia1

A. Introduction

1. This chapter analyzes wage bill developments in Cambodia and suggests steps to move forward wage and civil service reforms. The wage bill since the early 1990s has been influenced by socio-economic developments in the country, including the privatization of public enterprises in the late 1980s, the wage adjustments linked to hyperinflation of the early 1990s, the acceleration of the demobilization program in late 2001, and the economic adjustment programs under the ESAF in 1994 and the PRGF in 1999. 2 In 2002, the government adopted the National Program for Administrative Reform (NPAR), aimed at raising remunerations, improving incentives, and strengthening human resource management. After describing wage bill and employment developments since the 1990s, the chapter evaluates Cambodia’s wage bill, using internationally accepted standards, and provides an update of progress under the NPAR, before suggesting steps for moving forward the reforms.

B. Main Issues

2. In assessing the appropriateness of the public administration in Cambodia, the key issues to be considered are overall size, quality of staff, pay structure, and functional distribution, both in absolute terms and in comparison with other countries.

3. The cost to the economy of the public sector wage bill is small. The ratio of the wage bill to GDP was on a declining trend from the mid-1990s, dropping from over 4 percent in 1994 to about 3 percent in 2001. This decline reflected both the effect of the demobilization process and civil service reform actions conducted under Fund-supported programs. In 2001, the government completed a census of the civil service, fingerprinting and registering civil servants in all provinces (the census identified about 9,000 ghost workers). Since 2002, the authorities’ policy has been to raise the level of remunerations, while keeping staff levels in check. The weight of the wage bill in government finances has declined substantially, to 21 and 29 percent of total expenditure and revenue, respectively (Table 1).

Table 1:

Cambodia: Assessment of the Wage Bill, 1994-2007

article image
Sources: Cambodian authorities; and staff estimates.

Including National defense and Security

Figure 1:
Figure 1:

The wage bill (in percent of GDP) has been on a declining trend since the 1990’s.

Citation: IMF Staff Country Reports 2007, 291; 10.5089/9781451821857.002.A003

4. Peace has enabled the government to lower the cost of the military. The wage bill for defense and security was reduced from the equivalent of 2.7 percent of GDP in 1994 to less than 1 percent in 2007. The share of defense and security in the wage bill declined from 66 percent to less than 30 percent during this period—the shift being noticeable from 2001, following the acceleration of the soldier demobilization program. Moreover, in 2006, police officers and prison staff were also integrated in the civil service.

Figure 2:
Figure 2:

The weight of defense and security in the wage bill has declined, in favor of civil service

Citation: IMF Staff Country Reports 2007, 291; 10.5089/9781451821857.002.A003

5. Civil service staff are concentrated in the social sectors. Over recent years, about 60 percent of the civil service wage bill has been allocated to the ministries of education and public health. Since the majority of employees in the social sectors, particularly teachers, work in the provinces (over 85 percent of wage bill in these sectors), the civil service wage bill managed by provinces represents about two-thirds of the total civil service wage bill. Similarly, the two ministries employ about two-thirds of total civil service, estimated at 194,105 in 2007. 3 Notwithstanding the government’s stated policy of stabilizing civil service employment, the numbers of reported permanent civil servants increased from 164 thousand in 2002 to 175 thousand in 2007, with most of the increase in the ministries of education and health.

Table 2:

Cambodia: Wage Bill for Health and Education, 2005–2007 1/

(In billions of Riels)

article image

Wage bill data up to 2006 follow the old budget nomenclature.

6. Low education is a major constraint to civil service performance. 4 Government employees in categories C and D (high school and below) represent over 50 percent of the total. 5 Civil servants that have completed college education (Category A) represent only 11 percent of the total; the other 21 percent (Category B) have some post-secondary vocational training. Out-of-category positions (ministers, secretary of state and undersecretary of state) and advisors are concentrated in sovereign institutions (National Assembly, Senate and Council of Ministers). The Ministry of Education employs a disproportionately high share of employees in categories C and B (secondary education and post-secondary vocational training).

Figure 3:
Figure 3:

Civil Service by Category, 2007

Citation: IMF Staff Country Reports 2007, 291; 10.5089/9781451821857.002.A003

Table 3:

Distribution of civil servants per category, 2007

(in percent)

article image
Source: Cambodian authorities.

7. Despite the authorities’ efforts to raise remuneration over recent years, average wages in Cambodia’s public sector remain very low by international and regional standards. 6 The ratio of average civil service wage relative to GDP per capita is lower than elsewhere in Asia and in most regions of the world. The civil service does not appear bloated—the ratios of civil service relative to the population and total employment are lower than in neighboring countries. As a result, the relative budgetary cost of the wage bill, as measured by the ratios of the wage bill to total spending and total revenue, is low. Indications also are that the structure of public wages is not attractive for highly skilled staff: (i) the compression ratio is 5.5, well below the benchmark of 12 used internationally;7 and (ii) average public sector wages are reported not to be competitive relative to the market (donors, NGOs, and private sector), particularly in the health sector. 8

8. A skilled and motivated staff is required to sustain the increasingly sophisticated economy. Although increased revenue collections and the prospective coming on stream of oil production and revenue could provide space for raising public wages, salary increases need to be considered in the context of a comprehensive civil service reform that contains the wage bill within a sustainable macroeconomic framework, rationalizes civil service employment, and improves efficiency in service delivery.

Table 4:

Key Wage Indicators and International Comparisons 1/

article image

Regional data used for comparison refer mainly to the 1990s.

The wage bill as estimated by Fund staff.

Including off-budget expenditure

C. The National Program for Administrative Reform (NPAR)

9. In October 2001, the Government launched a medium-term (2002–06) civil service reform program articulated around four strategic pillars: (i) improve the delivery of public services; (ii) enhance pay and employment; (iii) develop capacity; and (iv) promote the use of ICT. Donors have supported elements of the NPAR, focusing on pay and employment. 9 The World Bank’s support was in the form of a grant provided to the CAR Secretariat in 2003. 10 To lay the analytical foundation for reforms, the World Bank and the Government agreed to complete, by September 2003, five analytical studies: (i) labor market pay comparator analysis; (ii) pay and employment fiscal sustainability analysis; (iii) reallocation and retrenchment analysis; (iv) development of a functional analysis methodology and its application to select ministries; and (v) preparation of an establishment register for select ministries. These studies were to underpin sustainable remuneration policy and a strategy to strengthen capacity and human resource management.

10. The implementation of the NPAR has been extremely slow and has generally followed a piece-meal approach. Although the government has achieved its target of raising the average monthly wage from US$28 in 2002 to US$51½ in 2006 (the minimum wage in the garment industry) through 10–15 percent annual increases—the average salary was US$52½ in 2006—civil service wages remain extremely low relative to the market. The economy has grown considerably, and public wages have fallen far behind those in the private sector (such as the garment and tourism industries), undermining the motivation of qualified staff. Overall, progress over recent years with regard to the reforms has been slower than envisaged and most of the achievements were realized before 2004. 11

11. Progress in introducing performance-based pay has been limited. The Priority Mission Groups (PMGs) provide an inadequate incentive tool: (i) they cover only slightly over a thousand staff in 20 ministries; and (ii) the monthly remuneration provided under PMGs (US$50 to US$150) is very compressed and low relative to market wages. In this connection, the Merit-Based Pay Initiative (MBPI) was launched in September 2005 on a pilot basis, with the assistance of the World Bank and other donors. The MBPI aimed at providing substantial increases in remuneration (with more decompression) for a small group of officials selected based on merit, with the longer-term aim of providing a framework for introducing the principles and practices of meritocracy into Cambodia’s civil service. 12 The MBPI is currently operational only in the MEF. It covers staff in charge of the implementation of the Public Financial Management Reform Program (PFMRP). The extension of the initiative to other ministries, notably the Ministry of Public Health, has been difficult, because of the lack of agreement on the staff to be covered and on donor/government contributions.

12. In the absence of a full-fledged strategy to improve pay and employment conditions, the MBPI cannot address the fundamental motivation problems in Cambodia’s civil service. The 2007 report of the External Advisory Panel that assessed Cambodia’s PFMRP pointed out a number of policy and administrative issues. The funding of the initiative does not provide a sustainable foundation for a broad-based civil service reform,13 especially given that donors’ participation is to decline over time. The selection of departments covered by the initiative is also problematic, as it left out the Tax and Customs departments, the main source of government revenue. Moreover, the report found that the MBPI may lead to distortions in the incentive system,14 and includes a compression of wage levels between the bottom and top professional scales. The report also noted the lack of sanctions for non-performance. It stressed the need to improve the efficiency and equity of the MBPI. 15

13. Progress with regard to the World Bank-financed studies was below expectation. The first study (the labor market survey) was completed in 2005. Three additional studies (employment policy analysis, pay and employment policy, and the operational review) were completed only in early 2007. The last study on establishment control is being conducted by the MEF under the PFMRP. According to the World Bank, the completed studies were not satisfactory, as they did not address all the issues in the terms of reference.

D. Steps for Moving Forward Civil Service Reform

14. Improvements in civil service pay are essential to attract and retain skilled staff, increase efficiency, and reduce corrupt practices. It is critical that the adopted remuneration policy be financed on a sustainable basis, promotes efficiency, and is not detrimental to Cambodia’s competitiveness. With the coming on stream of oil production, pressures for “adequate” remuneration would increase. Therefore, there is an urgent need to develop a suitable remuneration strategy, that does not hinder the development of the non-oil sector and that can be sustained even after the exhaustion of oil resources. Such a strategy can be effective only in the context of a comprehensive civil service reform, which could be guided by the following steps:16

  • A policy-oriented analysis of the recommendations of the studies should be carried out. In spite their shortcomings, these studies could provide helpful guidance to the reform process. Where necessary, these studies could be completed, on the basis of the information available at CAR. In particular, it is critical to have a good diagnosis of the size and composition of public sector employment, and the pay structure per various skills and functions. Such a diagnosis will provide indications of the adequacy of staffing and incentives, which is essential for redeployment, downsizing and hiring decisions. The labor market survey should provide wage comparators with the market, that will help develop benchmarks for public sector remuneration and skill retention. 17

  • Remuneration and personnel policies should be carried out in the context of a medium-term fiscal framework. This will ensure that wage and personnel policies are consistent with development priorities stated in the NSDP and long-term fiscal sustainability.

  • Lessons from the MBPI pilot should be drawn to guide a general incentive policy. The findings of the external performance audit of the MBPI pilot should help in applying the MBPI principles to the entire civil service. Delays in completing the pilot run the risk of affecting staff morale. 18 Issues to be addressed relate to: (i) the sustainability of the MBPI scheme; (ii) management and control; and (iii) its future full integration with PMGs.

  • Transparency and accountability are essential for civil service management. A unified MEF/CAR employee database should be set up and hiring decisions should be in line with budgeted positions. The practice of wage supplements should be discontinued, and all wage spending should be recorded under the wage bill (chapter 64 of the new chart of accounts).

  • Human resource management should be strengthened. In view of the scarcity of Cambodia’s skilled personnel, efforts should focus on human resource development, including improved recruitment, career development, training, appropriate evaluation and sanction systems. The government should also apply strictly the ethics code for civil service.

References

  • International Monetary Fund, 2003, Cambodia: Selected Issues and Statistical Appendix, Country Report No. 03/59 (Washington).

  • International Monetary Fund, 2004, Cambodia: Poverty Reduction Strategy Paper Progress Report, Country Report No. 04/333 (Washington).

  • Lindauer, D., and B. Nunberg, 1994, Rehabilitating Government; Pay and Employment in Africa, World Bank Regional and Sectoral Studies (Washington: The World Bank).

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  • Lindauer, D. “Does Indonesia have a ‘low pay’ civil service?”, Bulletin of Indonesian Economic Studies, Vol. 37, No. 2: 189–205.

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  • Schiavo-Campo, S., 1998, “Government employment and pay: the global and regional evidence,” Public Administration and Development, 18: 457–478.

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1

Prepared by Joseph Ntamatungiro.

2

For details on past civil service and wage policy reforms in Cambodia, see Country Report No. 03/59.

3

About 10 percent of the total number includes nonpermanent staff (contractual and casual labor) managed by the Ministry of Economy and Finance (MEF).

4

Categories are determined by the level of education at entry: A for bachelor degree and up; B for high school plus 2 years; C for high school; and D for other.

5

Information on government employees was provided by the MEF. Staff did not obtain data from the computerized civil service database (HRMIS) managed by CAR.

6

Comparing the wage bill across countries is not an easy task in particular because of: (i) lack of information on non-monetary fringe benefits; (ii) lack of data comparability (central versus general government); and (iii) classification of some wage elements under other expenditure categories. For example, in Cambodia, civil servants receive “supplements” from foreign-financed projects, outside the wage bill. For details, see Schiavo-Campo, 1998.

7

See Lindauer and Nunberg, 1994.

8

The 2004 NPRS Progress Report refers to the “demotivation” of doctors and medical workers in the public sector and to the brain drain to the private sector (Country Report No. 04/333).

9

World Bank assistance in this area was based on the joint World Bank-AsDB Integrated Fiduciary Assessment and Public Expenditure Review (IFAPER) of 2003, which identified serious problems afflicting the civil service: low and compressed pay, low skills, and low capacity. It pointed out that low wages in the public sector encouraged corruption practices. For example, to make a living, teachers charge informal fees.

10

The (US$310,000 grant) was rated as unsatisfactory; it closed at end-March 2007.

11

Achievements included the census, a Human Resources Management Information System managed by CAR (HRMIS), a new employee classification system and salary grid, and the design of Priority Mission Groups (PMGs), an incentive mechanism for staff in priority sectors. For details, see Country Report No. 03/59.

12

The MBPI was established by Sub-Decree 98 of August 5, 2005. MEF has selected 264 staff (out of a possible 300 maximum under stage 1), with monthly remunerations ranging from US$126 to US$679. The MBPI is funded out of a multi-donor trust fund administered by the World Bank, with a total of disbursed resources of US$1 million). The World Bank’s PRGO aims at raising the MBPI coverage to 1,500 civil servants in 5 priority ministries by 2009.

13

The MBPI in the MEF is essentially financed by donors, with an initial government participation of 11 percent. The latter is to increase progressively over time, to 35 percent by 2011.

14

The EAP report notes that it is financially more attractive to remain in a lower MBPI position than to be promoted to more senior non-MBPI position.

15

A detailed external performance audit of the MBPI scheme is planned for late 2007.

16

CAR is developing a set of six policies to deepen and widen the reform over the next five years. One component is to raise monthly basic wages to US$100 by 2013 by annual increases of 20 percent.

17

In comparing public/private pay in Indonesia, Lindauer (2001) finds that the use of average pay was misleading, given that less-educated government employees earned more than in the private sector, which was not the case for high-education staff.

18

The 2007 EAP’s survey suggests that non-MBPI staff in MEF had a positive view on the MBPI scheme because they expected to receive MBPI benefits in the future.

Same Series

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Cover IMF Staff Country Reports
Cambodia: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 291
Publisher:
International Monetary Fund
ISBN:
9781451821857
ISSN:
1934-7685
Pages:
71
DOI:
https://doi.org/10.5089/9781451821857.002
  • View in gallery

    The wage bill (in percent of GDP) has been on a declining trend since the 1990’s.

  • View in gallery

    The weight of defense and security in the wage bill has declined, in favor of civil service

  • View in gallery

    Civil Service by Category, 2007

The wage bill (in percent of GDP) has been on a declining trend since the 1990’s.

The weight of defense and security in the wage bill has declined, in favor of civil service

Civil Service by Category, 2007