Cambodia has made great progress in economic growth, poverty reduction and human development. However, a significant proportion of the population remains vulnerable to slipping back to poverty.

We observed the International Day for the Eradication of Poverty on Saturday, making this a fitting time to look into the challenges and how Cambodia can promote more inclusive growth and sustainability, particularly in light of Cambodia’s goal to become an Upper Middle-Income Country (MIC) by 2030, and the global launch of the 17 Sustainable Development Goals in New York last month.

Cambodia’s GDP has risen dramatically in recent years, almost double the global average. Behind this growth, however, remain levels of poverty and inequality that need to be addressed. While a high labour participation exists and the employment to population rate in Cambodia is among the highest in the world, there is still a need to expand opportunities for decent employment, for instance in the garment industry.

The Industrial Development Policy, which includes among its goals a “minimum wage that could ensure a good standard of living, competitiveness and industrial diversification”, is a positive step towards reducing vulnerability at the household level and inequality among Cambodia’s workforce.

Cambodia is one of the top 10 countries vulnerable to climate change. The impacts of climate change, especially on agriculture, increase vulnerability of the rural population. Subsistence farming is predominant, driving most households to resort to labour migration.

Many rural households depend on the viability of ecosystems including water, soil quality and biodiversity which are highly prone to change as climate change progresses. A 2013 study by the International Food Policy Research Institute showed that productivity of key crops is predicted to decline, and can be partially compensated for by better seed stocks, cultivation practices and irrigation. Current reforms such as the modernisation of the Ministry of Environment, the establishment of the National Council for Sustainable Development and the Environment Code are steps in the right direction.

So are the recent moves to hold economic land concessions more accountable. Cambodia also has a comprehensive Climate Change Strategic Plan that aims to mainstream a climate-change response across government agencies.

Another challenge is improving incentives to invest in human capital. Households spend far too little on education wherein private returns, while not negative, have been steadily declining. Too few households have been investing in lower secondary education.

If Cambodia is to take advantage of its ongoing demographic dividend period, it needs to have 60 per cent to 70 per cent of its population with at least a lower secondary level education. Currently, only 23 per cent of the Cambodian population have completed lower secondary education.

Moreover, structural reasons at the household level encourage young people to drop out. While in other countries completion of mandatory education is supported by parents, in Cambodia it lacks a critical mass of middle-aged groups that are capable of financing the education of the youth. While the current reforms in the education sector are welcome, these must be accompanied by economic restructuring to create better employment opportunities for the youth.

If the first two challenges are to be addressed, the economic and social upgrading of Cambodia’s key economic sectors and taking advantage of opportunities offered by regional value chains will be key.

Social upgrading is important since it is not enough to create just any job; Cambodia needs better paying employment and working conditions, at a scale. Without the social upgrading of its industries, it will be difficult to reverse the declining private returns to education.

Economic upgrading is also key. If Cambodia is to have better paying jobs, it would need to diversify the economy and add value to it. Higher value addition also creates opportunities for backward linkages to small and medium enterprises.

Economic and social upgrading is also needed if Cambodia is to improve domestic resource mobilisation and increase the levels of public spending to MIC levels. International experience shows that in the transition to MIC status, public spending must reach a threshold if it is to build resilience, accumulate human capital, and crowd-in private sector investment.

In neighbouring MICs like Laos, Malaysia and Thailand, public spending levels are at 14 per cent to 15 per cent of GDP. Cambodia’s public spending currently stands at only 5 per cent. It will be challenging to raise this on an economy built on vulnerable employment, subsistence agriculture, or low value-added industries.

The Industrial Development Policy is a step in the right direction. It recognises the need not only to upgrade value chains, but also to improve wages and working conditions, and foster backward linkages to SMEs. Strengthening TVET and its links to higher value added production will be critical.

In this light, UNDP helps Cambodia sustain the economic miracle and translate it to a human development miracle as a partner for policy, knowledge and innovation together with many partners.

Setsuko Yamazaki is the country director of the United Nations Development Programme in Cambodia.