Cambodia's growth prospects are at risk by the phasing out of garment quotas to the

US and European Union in January 2005, a World Bank report warns.

The garment industry contributed $1.6 billion, or nearly 80 percent of all exports,

in 2003.

The risk could be managed if the government takes decisive action to improve the

investment climate, to boost competitiveness and yield the 6-to-7 percent growth

rate targeted in the 2003-2005 National Poverty Reduction Strategy.

The East Asia and Pacific Regional Update, issued April 20, called on the Cambodian

government to mitigate constraints and develop new opportunities in the rural business

environment and cultivate new sources of growth including export diversification.

A concrete reform agenda was needed to restore momentum in the medium term and improve

the quality of growth through greater poverty alleviation.

The report criticized the on-going political impasse, and lack of progress on the

anti-corruption agenda, military demobilization, and civil service reform.

The World Bank has delayed signing a new long-term loan with Cambodia until a new

government is formed.

The report noted the deadlock had prevented government revenues reaching more than

85 percent of the budget target and the revenue shortfall led to a reduction in spending

such as health, education, agriculture and rural development.

Poverty remains a major concern, with figures showing that 43 percent of the population

is below the poverty line. In 2005, an estimated 5.8 million Cambodians will be living

on less than $1 a day and the World Bank country director Nisha Agrawal says the

poverty reduction rate is not keeping pace with the population growth rate.

The growth in Cambodia's economy was lower than expected in 2003, which indicated

4.8 percent compared to 5.5 in 2002, and was harmed by the anti-Thai riots and SARS.

But the report was optimistic about economic prospects for 2004, with an expected

recovery and growth expectations of 5.5 percent.

During a video conference from Washington (linking Manila, Bangkok and Cambodia)

Homi Kharas, the World Bank's chief economist for the East Asia and Pacific region,

said that to make progress in the next 10 years, "there are a number of things

that could be done: to reduce the Cambodian cost of starting a new business, of moving

goods through customs, trade facilitation, of the many access costs that appear to

face Cambodia businesses when they try to invest. This would be a central plank of

any growth strategy."

Businesses have long complained of having to pay bribes to operate in Cambodia.