Cambodia: Staff Report for the 2012 Article IV Consultation—Informational Annex
Author: International Monetary Fund. Asia and Pacific Dept
Publication Date:
08 Jan 2013
eISBN:
9781475580822
Language:
English
Keywords:
ISCR; CR; headline inflation; private sector credit; financial asset; exchange regime; resident representative in Phnom Penh; representative in Phnom Penh; Financial Sector Assessment Program; Loans
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Despite the global slowdown, Cambodia’s economy has been holding up, driven by resilient exports and tourism and a strong real estate recovery. Fiscal policy has remained anchored in rebuilding government deposits and maintaining long-term fiscal debt sustainability, while providing adequate financing for Cambodia’s vast development needs. Executive Directors identified greater mobilization of fiscal revenues imperative to rebuild government deposits, and maintained that focus should be on measures that would generate substantial additional revenue and create strong positive externalities.

Abstract

Despite the global slowdown, Cambodia’s economy has been holding up, driven by resilient exports and tourism and a strong real estate recovery. Fiscal policy has remained anchored in rebuilding government deposits and maintaining long-term fiscal debt sustainability, while providing adequate financing for Cambodia’s vast development needs. Executive Directors identified greater mobilization of fiscal revenues imperative to rebuild government deposits, and maintained that focus should be on measures that would generate substantial additional revenue and create strong positive externalities.

Fund Relations

(As of October 31, 2012)

Membership Status

Joined December 31, 1969; accepted the obligations under Article VIII, Sections 2, 3, and 4 on January 1, 2002.

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans: None

Latest Financial Arrangements:

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Formerly PRGF

Projected Payments to the Fund 2/

(SDR Million; based on existing use of resources and present holdings of SDRs):

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Multilateral Debt Relief Initiative

As part of the Multilateral Debt Relief Initiative (MDRI), the IMF Executive Board on January 5, 2006 approved relief on 100 percent of debt incurred by Cambodia to the IMF before January 1, 2005. This resulted in the forgiving of all of Cambodia’s outstanding debt to the IMF, a total of SDR 56.8 million (about US$82 million). The authorities intend to spend the resources over a number of years, initially on rural irrigation projects. The National Bank of Cambodia (NBC) transferred the full MDRI proceeds to the Ministry of Economy and Finance effective March 2006.

Safeguards Assessment

A voluntary safeguards assessment of the NBC was completed in January 2010 at the request of the authorities, which updated the previous March 2004 voluntary assessment. The update assessment found that the NBC had taken steps to strengthen aspects of its safeguards framework; however, important recommendations proposed in 2004 were still outstanding, and some new risks had emerged in the area of external audit.

Exchange Rate Arrangement and Payments System

Cambodia’s exchange regime is classified as stabilized. The de jure regime is a managed float. The official exchange rate, which is expressed in riels per U.S. dollar, applies to all official external transactions conducted by the central government and state enterprises, and is used for accounting purposes by the NBC. It is determined by the foreign exchange market, with the official rate adjusted to be within 1 percent of the market rate on a daily basis.

Cambodia accepted the obligations of Article VIII, Sections 2, 3, and 4 on January 1, 2002. Cambodia maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

Article IV Consultation

Cambodia is on the standard 12-month Article IV consultation cycle. The last Article IV consultation discussions were held in Phnom Penh during November 24–December 8, 2011. The Executive Board approved the staff report (IMF Country Report 12/46) on a lapse of time basis on February 3, 2012.

Financial Sector Assessment Program (FSAP)

The joint IMF-World Bank FSAP mission took place in March 2010 and the assessment was completed in October 2010.

Technical Assistance

Technical assistance is currently focused on bank supervision, monetary operations, public financial management, tax and customs administration, tax policies, macro-fiscal and revenue forecasting, financial sector supervision, and macro-financial statistics. Delivery is through a resident advisor at the NBC, peripatetic experts, and short-term visits from headquarters.

Resident Representative

The IMF Resident Representative in Phnom Penh (Mr. Faisal Ahmed) was appointed in July 2011. From July 2010 to June 2011, the IMF’s Resident Representative for Indonesia (Mr. Milan Zavadjil) also assumed the responsibilities for the Cambodian IMF office.

IMF-World Bank Collaboration

(October 2012)

The Bank and the IMF country teams for Cambodia, led by Mr. Mathew Verghis (Sector Manager, EASPR) and Mr. Olaf Unteroberdoerster (IMF Mission Chief for Cambodia), maintain a close working relationship and have an active dialogue on a range of macroeconomic and structural issues.

Recent key areas of cooperation and coordination include:

  • Macroeconomic policy advice to the authorities. The IMF and the World Bank staffs have consulted each other on key macroeconomic policy messages to the authorities to avoid sending conflicting messages. The two teams also regularly share information outside missions, and discuss and exchange institutional views on key macroeconomic developments. Bank staff share and discuss the quarterly fiscal monitor and review of macroeconomic developments. IMF staff share policy notes and analytical background notes related to Article IV consultation missions.

  • Financial sector reform and FSAP. World Bank and IMF teams have worked closely together while undertaking the 2010 FSAP, which was completed in October 2010. Following the recommendations by the FSAP, technical assistance missions are now ongoing and close coordination between the IMF and the World Bank continues.

  • Public financial management and tax and customs administration reform. Both institutions are working to strengthen coordination of work on public financial management, and tax and customs administration reform. Both teams share as much as possible the work done in this area.

  • Article IV consultations. IMF Article IV consultations regularly share their macroeconomic data with the World Bank and hold working sessions to try and reconcile macroeconomic data sets. The collaboration is closest on the debt sustainability analysis, a joint product, but extends more broadly into other areas of the consultation as well. This is extremely important for both institutions in Cambodia’s scarce data context. World Bank staff are also invited to and do participate in some of the key meetings.

  • Structural reforms. The IMF staff and the World Bank teams have worked together to share views on a range of other issues, including structural reforms for a better investment climate, economic diversification, , customs modernization, and rural development.

The presence of a locally-based IMF resident representative (Mr. Faisal Ahmed) has further deepened collaboration on economic and debt sustainability analysis and the IMF’s involvement on the Public Financial Management Reform Program.

Based on the above partnership, the World Bank and the IMF share a common view about Cambodia’s macroeconomic and structural reform priorities. These include:

  • Sustaining growth. Real GDP growth is holding up despite the global slowdown. However, it needs to be sustained with appropriate fiscal consolidation and continued management of the banking sector risks, against the backdrop of global uncertainty. Removing impediments to investments, reducing infrastructure and skills bottlenecks, promoting diversification, and supporting rural development continue to be the key to promote self-sustaining and inclusive growth.

  • Rebuilding fiscal space. Macroeconomic stability critically depends on prudent fiscal policies. Fiscal space to address near-term downside risk is limited and greater fiscal consolidation efforts are needed to rebuild fiscal buffers, including through improving revenue collection, prioritizing spending, rebuilding government deposits, and better monitoring of contingent liabilities. Greater mobilization of fiscal revenues is imperative if Cambodia is to meet its vast development needs and maintain fiscal sustainability in the long run.

  • Improving effectiveness and credibility of monetary policy. Gradually raising the reserve requirement is consistent with the robust economic expansion and constitutes critical step towards safeguarding financial stability in light of rapid credit expansion. Developing an interbank market remains a necessary step for a transition to a more effective and market based monetary policy operations.

  • Safeguarding financial system stability. Implementing the key recommendations of the 2010 FSAP remains critical to safeguard financial stability. These include implementing a moratorium on new bank licenses, strengthening coordinated supervision, developing the foreign exchange market, and improving the supervisory capacity.

  • Improving governance. Both the World Bank and IMF have stressed the critical role of governance in improving the quality of service delivery and the business environment.

The teams are committed to continue the close cooperation going forward. The table below details the specific activities planned by the two country teams over the next 12-month period along with their expected deliveries.

Cambodia: Joint Managerial Action Plan, 2012–13

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Relations with the Asian Development Bank

(October 2012)

From 1992 through September 2012, the Asian Development Bank (AsDB) approved funding of US$1,615.9 million including 63 loan projects and programs of US$1,360.26 million with low interest, and 21 Asian Development Fund (ADF) grants of US$255.71 million to Cambodia for structural reform programs and development projects. To date, 43 loan projects for a total of US$927.54 million and 8 ADF grants of US$80.51 million have been completed.

The sector composition and loan/grant amount of the active portfolio is US$628.44 as of September 2012 for (i) agriculture and natural resources, US$151.31 million; (ii) education, US$81.93 million; (iii) energy, US$20.81 million; (iv) finance, US$14.74; (v) health, nutrition, and social protection, US$19.0 million; (vi) industry and trade, US$11.02 million; (vii) multi-sector, US$54.41 million; (viii) public sector management, US$54.09 million; (ix) transport and communication, US$200.12 million; and (x) water supply, sanitation, and waste management, US$21.0 million.

The AsDB’s overarching goal in Cambodia is inclusive and diversified economic growth and poverty reduction. The AsDB’s Country Partnership Strategy ((CPS) 2011–13), endorsed in July 2011, supports implementation of the government’s updated National Strategic Development Plan 2009–13 (NSDP Update)1 and focuses on poverty reduction and inclusive growth with an integrated approach to rural development; on the promotion of urban-rural linkages (including connectivity); and the enhancement of human capital by improving rural water supply and sanitation, and access to quality general education and industry-relevant technical and vocational education and training (TVET). The CPS 2011–13 prioritizes five sectors: (i) transport; (ii) water supply, sanitation, and urban development; (iii) agricultural and natural resources; (iv) education and training; and (v) finance, as well as a facilitating sector, public sector management. The CPS also identifies four critical country challenges of climate change, decentralization, rural-urban linkages, and regional cooperation. The CPS incorporates five key cross-cutting themes into all activities—private sector development, governance, gender equity, knowledge solutions, and partnerships.

The AsDB’s geographical focus remains the Tonle Sap basin where the CPS supports sustainable natural resource use and management; stimulates the growth of competitive farms and rural enterprises; builds sustainable rural infrastructure, including irrigation, to strengthen productivity, market connectivity, and competitiveness; and improves food security and climate resilience in agricultural production. AsDB interventions on transport will focus on expanding the provincial and rural roads network to promote connectivity and trade and tourism activities in Cambodia and the Greater Mekong Sub-region (GMS).

The AsDB will continue its support for the Cambodia Millennium Development Goal targets for improved water supply and sanitation for the large number of people without access in urban and rural areas. In urban areas, we will work to manage the challenges of rapid urbanization and provide basic services and infrastructure to meet the needs of the poor and stimulate the growth of value chains. The AsDB will develop urban environmental infrastructure (drainage, water supply, and sanitation, as well as selective infrastructure to improve the business environment) in border towns and secondary growth centers around the Tonle Sap basin. In education and training, the AsDB will concentrate on the completion of nine years of basic education, leading to further education and training by promoting equitable access and quality and focus on formal and informal TVET for men and women to respond to labor market needs and the demands of business, and to improve rural incomes.

In finance, the AsDB will continue its leading role in the financial sector to (i) consolidate the banking reforms achieved to date, upgrade financial infrastructure, and strengthen the regulatory capability of the National Bank of Cambodia; (ii) support microfinance expansion through regulatory and institutional reforms, and consider appropriate reforms to stimulate SME finance; and (iii) support ongoing reforms to develop the insurance industry. The AsDB will support implementation of the recently updated Financial Sector Development Strategy (2011–20). The CPS also includes support for government measures to deepen public sector management reform and strengthen anticorruption measures. For decentralization and deconcentration, the AsDB will support the program-based approach under the three-year implementation plan (2011–13) in functional assignments, fiscal decentralization (including public financial management capacity development), and sub-national financing mechanisms such as the Sub-National Investment Facility.

In the area of private sector development, the AsDB assists the government’s efforts in improving competition policy and regulatory efficiency; strengthening the investment climate and innovation; continuing trade policy reforms and trade facilitation (customs and sanitary and phytosanitary standards for food safety); and leverage public-private partnership opportunities. Assistance has also been provided to help the government improve its competitiveness at the GMS level through reducing border-related costs and distortions; improving physical infrastructure; enhancing transport and trade facilitation, including promoting compliance with SPS standards. Later interventions would be more focused on improving the trade facilitation and logistical links to the sub-region as systems and procedures become more developed and integrated.

Asian Development Bank: Loan/Grant Commitments and Disbursements to Cambodia, 1992–2012

(In millions of U.S. dollars, as of September 30, 2012)

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US$10 million loans and US$42 million grants approved in 2005.

US$62 million loans and US$7.8 million grants approved in 2006.

US$27.1 million loans and US$37 million grants approved in 2007.

US$53.8 million loans and US$30.3 million grants approved in 2008.

US$71.7 million loans and US$72.8 million grants approved in 2009.

US$95.0 million loans and US$65.8 million grants approved in 2010.

US$67.0 million loans and US$3.0 million grants approved in 2011.

US$66.0 million loans approved in 2012. Actual contract awards and disbursements are US$91.6 and US$61.9 million respectively.

Statistical Issues

(November 2012)

Assessment of Data Adequacy for Surveillance

General. Data provision is broadly adequate for surveillance. Extensive TA has been provided by the IMF, United Nations Development Programme, AsDB, and World Bank, as well as from bilateral partners, leading to substantial capacity improvements. Currently, Cambodia is participating in STA’s project on the Implementation of the System of National Accounts and International Comparison Program, funded by the government of Japan. This project will provide TA to build statistical capacity and improve both national accounts and price statistics. However, various shortcomings in macroeconomic data still hamper timely and comprehensive analysis.

National accounts. Although major improvements have been implemented in recent years, weaknesses remain in the quality and timeliness of data. With IMF assistance, the National Institute of Statistics (NIS) continues working to improve the quality of national accounts statistics in accordance with the System of National Accounts 1993, to expand the scope of annual national account aggregates, and to produce a quarterly national accounts series beginning with June 2005. The quality of GDP estimates remains hampered by the lack of comprehensive and reliable source data on a production and expenditure basis, in part stemming from the need to address resource constraints and improve data collection techniques. The authorities recently published the 2011 national accounts; however, a TA mission that visited Cambodia in November 2011 noted inconsistencies in the 2009 data that should be addressed. The November 2011 mission assessed current methodologies used to compile national accounts estimates and provided support with the development of the quarterly national accounts estimates. A mission to assess progress implementing improvements is planned for January 2013. Follow up TA missions within the three-year STA project will focus on improving the accuracy of the annual and quarterly GDP and expanding the scope of the national accounts. Statistics Sweden is also providing support and technical assistance with improving the national accounts for Cambodia.

Price statistics. The compilation of the consumer price index (CPI) suffers from insufficient coverage. An updated CPI series was introduced starting in April 2012. Geographic coverage of the series has been expanded to include Phnom Penh plus five provinces. Statistics Sweden continues to provide assistance with the household budget survey and the CPI; however, the project with Sweden will end in December 2013. An STA TA mission visited Phnom Penh in April 2012 to assist with updating/improving the CPI. The authorities indicated a need for assistance with developing a producer price index (PPI), but no funds have been allocated to support the compilation of an ongoing PPI.

Government finance statistics. The Ministry of Finance and Economy began implementing reforms to the government accounting system and budgetary nomenclature in 2007, based on the Government Finance Statistics Manual (GFSM) 2001, with IMF TA. In addition, several STA missions have assisted with GFS compilation procedures within the GSFM 2001 framework. IMF TA in April 2008 assisted with establishing a bridge between the government’s new chart of accounts (COA) and the GSFM 2001 classifications so that accounting records can be used as source data in compiling GFS. However, use and coverage of the COA has been limited and not fully integrated to activities such as the disbursement of external loans and grants, the government’s budget reserve fund, and capital expenditures.

Monetary and financial statistics. The NBC compiles the balance sheet and survey for the central bank and other depository institutions in accordance with the IMF’s Monetary and Financial Statistics Manual. Since August 2005, the NBC has reported monthly monetary and financial statistics to STA using the Standardized Report Forms. The NBC received TA during the FSAP on the compilation of financial soundness indicators (FSIs). The NBC now compiles monthly core FSIs and shares them with IMF staff irregularly. Some data inconsistencies continue to pose a challenge to the interpretation of FSIs.

External sector statistics. Despite recent improvements, more work is needed to improve balance of payments statistics. The NBC announced in April 2012 to make funds and resources available to the Statistics Department for conducting three surveys, namely, on direct investment, travel, and transport. However, compilers need to conduct sample surveys of largest direct investment enterprises on a continuous basis to permanently close the gap for direct investment position and transaction data. Foreign direct investment, which is believed to be large, relies excessively on approvals, and gaps exist with respect to large build-operate-transfer projects in the energy sector. Compilers should take full ownership and responsibility for collecting data, rather than continued reliance on technical assistance and the use of numerous assumptions and estimations. Customs data have substantial coverage and valuation problems arising from the use of reference prices and limited recording of nondutiable imports, underreporting of re-exports, and weaknesses in customs controls. The NBC receives monthly data from the General Department of Customs and Excise (GDCE) broken down into main commodities, which it uses to generate quarterly BOP figures as well as for internal analysis purposes. The quarterly trade figures, which are much more robust because they include updated monthly figures, are seldom used because they are not timely available, and presented in a different format. These figures also differ from the aggregated monthly figures, and compilers tend to use the latter ones because they are timely and in the preferred format. The compilers also added rather large estimates of ‘unrecorded (shuttle trade)’ and ‘non-declared (smuggling)’ trade. Enterprise transactions, such as payment for imported services, income payments, and portfolio investment abroad are excluded or underreported. A significant improvement of Cambodia’s external sector statistics can be achieved if compilers strive to enhance and increase the use of the existing International Transactions Reporting System, which can serve as a cost-efficient and comprehensive data source to capture BOP transactions. Gaps also exist in public external debt and official transfers (e.g., grants), and no data are available for private external debts.

Cambodia is part of the Asian module of the Project on the Improvement of External Sector Statistics in the Asia Pacific Region, (JSA –funded), starting this year in October 2012 with a workshop in Thailand launching the project. The project will use a modular approach for providing heightened TA in implementing BPM6, and inviting countries to participate in the IMF’s Coordinated Direct Investment Survey and Coordinated Portfolio Investment Survey. The project will consist mainly of short-term TA within the next three years.

Data Standards and Quality

Cambodia participates in the IMF’s General Data Dissemination System. No data ROSC are available.

Cambodia: Table of Common Indicators Required for Surveillance

(As of November 2012)

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Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I), and Not Available (N/A).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

5 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Main Websites of Data

National Bank of Cambodia (www.nbc.org.kh)

Exchange rates

Balance of payments

Interest rates

Monetary survey

Credit granted by deposit money banks and nonbank financial institutions

Ministry of Economic and Finance (www.mef.gov.kh)

Government budget

Fiscal revenue, expenditure, and financing

National Institute of Statistics (www.nis.gov.kh)

Consumer Price Index

National accounts

Population census

Labor force survey

Socioeconomic survey

Household survey

1

The National Strategic Development Plan (NSDP) update is available at: http://www.mop.gov.kh/Home/NSDP/NSDPUPDATE20092013/tabid/206/Default.aspx.

Same Series

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Cover IMF Staff Country Reports
Cambodia: 2012 Article IV Consultation
Author: International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2013: Issue 002
Publisher:
International Monetary Fund
ISBN:
9781475580822
ISSN:
1934-7685
Pages:
69
DOI:
https://doi.org/10.5089/9781475580822.002