EXECUTIVE SUMMARY
PERFORMANCE DURING SEDPI
· Economic growth between 1995 and 2000 fell short of the target rate of 7.5 percent because of the domestic political and Asian financial crises during 1997-1998 and slow agricultural growth. But growth was still quite strong at just over 4 percent per year. The industry sector far exceeded expectations, growing at 13.5 percent per annum.
· Fiscal management improved as the revenue to GDP ratio rose from 9.0 percent of GDP to 11.8 percent in 2000, primarily because of a rise in tax revenue attributable to introduction of a value-added tax. Current expenditure rose slightly to 9.9 percent of GDP in 2000, and the shift from deficit to surplus in the current budget balance permitted an increase in locally-financed investment. Total capital expenditure remained stable as a ratio of GDP for most of the period, rising in 2000 to 7.4 percent of GDP.
· The inflation rate was above the target of 5 percent in 1996-1998, but below in 1999 and 2000.
· A feature of the period was the rapid and unanticipated growth of domestic exports from 6.3 percent of GDP in 1995 to 30.3 percent in 2000. Garment exports grew to account for 85 percent of domestic exports in the latter year. The trade balance improved, and the current account deficit (exclusive of official transfers) dropped from 17.3 percent of GDP to 8.6 percent, compared with the target of 11 percent.
· Significant progress was made in implementing the economic and structural reform program.
· Progress towards the social development targets set in SEDPI was disappointingly slow, but some of the baseline data may have been overestimates and the targets were ambitious. Infant, child and maternal mortality rates seem to have fallen in 1996-1998; and there was some increase by 1999 in the proportions of urban and rural populations with access to safe water, and in the proportion of the rural population with access to toilet facilities. Education indicators moved in the desired direction, but outcomes were not commensurate with expenditure.
· Poverty as measured by the headcount index probably dropped slightly from 39 to 36 percent, with the fall being concentrated in urban areas.
· A key lesson from the SEDPI experience is that higher, sustained rates of economic growth must be achieved in order to reduce poverty substantially.
· A related lesson is that in a market-based economy a Plan is an instrument for presenting the Government’s public investment program and policies aimed at encouraging development-promoting responses from the private sector and civil society. It is these responses that mostly determine the rate of socio-economic development, which in any society can be affected by domestic and external shocks.
· A third lesson from the experience with SEDPI implementation is that realistic targets need to be set against baseline data of good quality in terms of timeliness, coverage and reliability; and that a formal monitoring and reporting system must be designed as a component of the Plan document.
· A final key lesson is that if development strategies are to be implemented effectively, the Public Investment Program must be linked to annual (recurrent and capital) budget preparation.
SEDPII Development Objectives and Strategy
The Vision
· The Royal Government of Cambodia is committed to the maintenance of peace, security and social stability; to the consolidation and development of democracy and the rule of law; and to the protection of basic human rights, including gender equality and equity. These commitments define the political framework within which the primary development goal of poverty reduction is to be achieved.
· 36 percent of the population lives below a poverty line of 54,050 Riel per head per month (1999 prices); and 90 percent of the poor live in rural areas.
· The fundamental development challenge is to reduce poverty when the size of the population is increasing at the rate of 2.5 percent per year.
· Meeting the challenge requires the achievement of four development objectives: (1) broad-based, sustainable economic growth with equity at a rate of 6-7 percent per year; (2) social and cultural development; (3) the sustainable management and use of natural resources and the environment; and (4) an improvement in the governance environment.
· A reduction in the poverty headcount index to 31 is the major development target. Social development targets include reducing the infant mortality rate to 65 per 1,000 live births; reducing the maternal mortality rate to 200 per 100,000 live births; increasing access of rural households to safe water and sanitation facilities to 40 and 20 percent, respectively; and ensuring that 90 percent of 12 year olds compete Grade 6.
Development Potential and an Overview of Strategies
· The agriculture sector has great potential to lead national economic growth and to reduce poverty. Bringing idle land into cultivation and improving productivity are the means of generating agricultural growth.
· Exceptional fisheries resources exist, but there is a need for an effective resource management system based on an accurate database to be established before the potential for sustained growth in fisheries can be assessed reliably.
· Forestry management reform needs to be consolidated in order for the forest resource to provide a basis for sustainable wood products and wood-processing industries and tourism.
· The economy has a demonstrated comparative advantage in the production of labor-intensive manufactures for export, and the potential exists for further growth in this sector through diversification of markets and production. The creation of export processing zones is a key mechanism for realizing this potential.
· In the services sector, there is plenty of room for improving the efficiency and effectiveness of public administration and thus directly and indirectly promoting growth.
· Tourism has substantial development potential that is based on both natural and cultural assets.
· There is potential for significant financial sector development that will facilitate economic transactions and the efficient mobilization and investment of savings.
· In order to realize development potential, there is a fundamental need to maintain domestic political stability, public order, and internal security within a democratic context. Without these, essential domestic and foreign investment and aid are unlikely to be forthcoming, and implementation of development policy will be undermined.
· The objective of broad-based, sustainable economic growth with equity at a rate of 6-7 percent per year is to be achieved through a general strategy of promoting balanced growth, recognizing that agricultural and rural development are crucial. Specific strategies include:
Ø Implementation of fiscal reforms and maintenance of a stable macroeconomic environment.
Ø Improving the efficiency and effectiveness of the public sector through civil service reform, reform of the judiciary, and public enterprise reform.
Ø Enhancing private sector development while protecting public interests by: (1) improving physical infrastructure, (2) developing the legal and regulatory frameworks within which business enterprises operate, (3) liberalizing trade and investment policies, and (4) supporting banking system reform and financial sector development.
Ø Promoting agricultural development and off-farm employment creation in both rural and urban areas, in particular through manufacturing development and sustainable tourism development that is based on Cambodia’s natural and cultural assets.
Ø Empowering the poor to participate in, and thus benefit from, the growth process by improving their access to productive assets (especially land), health and education services, appropriate technology, and credit.
· The objective of social and cultural development is to be achieved through increasing access of the poor to health and education services. Better health and education contribute directly to welfare, and increase the capacity of the poor to take advantage of expanded economic opportunities. The general social development strategy is to redirect public expenditure on health and education towards the poor. Specific strategies include:
Ø Increasing the quantity and quality of investment in education and health (including reproductive health).
Ø Improving access to health and education services, especially for females.
Ø Increasing participation and empowerment of the poor.
Ø Strengthening Cambodian culture.
Ø Extending provision of a social safety net for disadvantaged and vulnerable groups.
· Achieving the objective of sustainable management and use of natural resources and the environment requires a balance to be struck between economic, cultural and environmental objectives, and between economic efficiency of resource use and equity. Specific strategies include:
Ø Prevention of environmental and resource degradation caused by policy distortions and market failures.
Ø Establishing and implementing the legal frameworks for natural resource management.
Ø Enhancing the human resources capacity for natural resource management.
Ø Designing and implementing a land management framework that makes adequate provision for the poor, including local community access to common property resources.
· The objective of improving the governance environment is to be realized through effective implementation of the Governance Action Plan.
THE Context and Framework of SEDPII
The Development Challenge: Population and Poverty
Population Characteristics
· The population is growing at the high rate of 2.5 percent per annum and is projected to rise to 14.8 million by 2006. This makes raising income per head and reducing poverty more difficult, since every extra person requires employment and additional, scarce capital in the form of schools, hospitals, equipment, and land.
· Fertility remains high at 5.3 live births per woman. The infant mortality rate is also high at 89 per 1,000 live births. Lowering these rates is necessary to improving health and the quality of life, and to preventing the loss of human capital.
· Health and education statistics demonstrate a low level of human development. Moreover, there are serious gender inequalities. In the education sector, ensuring that girls are enrolled in school and stay enrolled is imperative. In the health sector, encouraging better birth spacing and providing more accessible reproductive health services to the current generation of women will produce better maternal and child health and help reduce the current high rates of maternal and child mortality.
· Population density is relatively low, but increasing population pressure is contributing to environmental degradation and undermining means of livelihood in certain areas. This is especially the case where some of the land previously controlled by local communities has been taken from them and converted to another use such as a logging concession or a plantation.
· Although the urbanization rate is relatively low at 15 percent, this will increase rapidly. In response, there will be investments in water and sanitation, power, telecommunications, and transport systems; but also in land and urban management and construction standards. The total allocation for the SEDPII period constitutes 3.8 percent of the PIP grand total. The land and urban management program covers the establishment of a land development policy and regulations, protection of natural sites threatened by unregulated urbanization, and preparation of urban development master plans for major urban centers.
· There is already significant unemployment and underemployment, and a problem of low incomes for the employed. The labor force is projected to grow at over 3.2 percent per year, meaning that there will be around 228,000 new entrants to the labor market annually, most of whom will have a low skills level. Providing productive employment for these new entrants, and for demobilized soldiers and retrenched civil servants, will require a rapid expansion in labor demand from the private sector (both formal and informal).
Dimensions of Poverty
· As noted, approximately 90 percent of the poor live in rural areas, with the highest poverty rates found amongst households headed by farmers, and households whose head had no or little formal education.
· The headcount index shows what percentage of the population is poor, but does not show how far the poor fall below the poverty line. Poverty gap and poverty severity indexes suggest that most of the poor are living close to the poverty line, and that consequently there is considerable potential for poverty reduction through growth with equity.
· Extensive quantitative analysis of poverty has been conducted on the basis of regular socio-economic surveys and by the World Food Program’s poverty mapping. This analysis has been complemented by a Participatory Poverty Assessment (PPA) carried out in 154 villages in 70 communes in 24 provinces and municipalities of Cambodia and among 15 non-rural socio-economic groups.
· The PPA confirmed that: (i) the poor lack food security; (ii) life crises render poor people even poorer; (iii) there is a lack of access to natural resources, physical and social infrastructure, and other basic services; (iv) the poor are disempowered, feel hopeless about their lives and those of their children, and are experiencing an erosion of family and community relationships; (v) women suffer from low socio-economic status; and (vi) there is a lack of confidence in (under-resourced) local and provincial administration.
Strategic Responses
· Specific vulnerable groups include working children, orphaned and abandoned children, street people, sexually exploited women and children, people affected by armed conflict, the disabled, and the poor elderly. Priority will be given to the preparation and implementation of legislation for the development of the Ministry of Social Affairs, Labor, Vocation, and Youth Rehabilitation; the development of strategies to improve services to vulnerable groups, especially children; the containment of the sexual trade; and the implementation of labor legislation.
· The Government is committed to improving the status of women, veterans, and their families. During SEDPII, the Ministry of Women’s and Veterans’ Affairs will implement a five-year plan developed from the 1999 strategy, Neary Rattanak, "Women are Precious Gems". The plan focuses on six priority areas: gender mainstreaming, health, education, legal protection, economic empowerment, and strategic management and institutional capacity building. The Public Investment Program, 2001-2003 allocates $15.1 million for women in development and veterans’ development programs, or 0.9 percent of the total PIP allocation.
· In regard to high population growth, the strategic policy response during SEDPII is to improve health and education levels, especially of women, and to increase economic opportunities, so that over the long term high mortality and high fertility rates drop.