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
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
"[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,"
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.