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IMF sees Cambodia progress

IMF sees Cambodia progress

The International Monetary Fund (IMF) released a largely upbeat country review March

1, saying Cambodia had made significant progress on reform, despite hurting a number

of "entrenched interests".

Priorities for the three-year Poverty Reduction and Growth Facility (PRGF) in 2002

included improving tax and customs administration as well as reforming the Foreign

Trade Bank in preparation for privatization.

The country's high level of external debt was also troubling, with the IMF concerned

at "slow progress" in finalizing debt rescheduling agreements.

Even if Cambodia's debt was rescheduled under conventional terms, the report noted

repayments would still rise to 14 percent of government revenue in 2003. Cambodia

owes $1.3 billion to the Russian Federation and $300 million to the US, with almost

all in arrears.

The IMF review predicted Cambodia's economy would continue to be affected by the

global economic slowdown, with economic growth expected to drop to 4.5 percent in

2002.

Cambodia has been hurt by the slowing global economy. The IMF had expected growth

of 6 percent for 2001 but after September 11 revised that to 5.25 percent. Inflation

remained negative in 2001 with prices down 0.6 percent.

Weaker prospects for both garment exports and the tourism industry were the primary

causes of the economic slowdown. Garment exports were partly cushioned by a diversion

of orders from countries perceived as a security risk after September 11, but still

declined by between 10 and15 percent.

The report stated that growth over the medium term would be positive. Inflation was

expected to remain low, with annual growth likely to reach 6 or 7 percent.

Increasing the amount the government raises in taxation and duties is key to reducing

the country's reliance on donor funds. To that end the IMF believes revenue will

increase from 12.5 percent to 13.5 percent of GDP in 2003.

That will come from doubling the duty on beer to 20 percent, adding 2 cents a liter

to the price of petrol and twice that to the price of diesel, and higher royalty

fees from the country's numerous casinos. Renegotiating the revenue sharing agreement

at the main tourist attraction Angkor Wat will also help.

The increased revenue along with an expected decrease in military spending should

allow "a significant increase in spending on health, education, agriculture

and rural development", the report stated.

While praising the Ministry of Economy and Finance's strict control over financial

management, the government's implementation of the national budget came in for sharp

criticism.

"[C]umbersome budgetary procedures, deficiencies in overall cash management,

and institutional rivalries have adversely affected the implementation of the budget,

resulting in large allocations at the end of the year to meet agreed spending targets,"

it stated.

The review reserved its strongest criticism for forestry reform, which "fell

short of objectives". The IMF had made "addressing slippages in forestry

policy" a condition of the PRGF for the current year. The IMF pulled out of

Cambodia in 1997 over the lack of progress on forestry reform.

However the IMF welcomed progress on banking reform, computerization of the civil

service payroll, and the establishment of a governance action plan. It noted that

revenue mobilization, expenditure management, civil service reform, and demobilization

would all require sustained reform efforts to succeed.

The IMF released a further $10.4 million credit February 6 under the PRGF bringing

total disbursements to $52 million.

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