Cambodia - Country assistance strategy public information notice (CPIN)

Report No. PIN30 Report No. PIN30 Cambodia: Public Information Notice World Bank Board Discusses Cambodia Country Assistance Strategy On February 29, 2000, the World Bank's Board of Executive Directors discussed the World Bank Group's Country Assistance Strategy (CAS) for Cambodia covering the period mid-1999-2003. This is the first Cambodia CAS to be prepared jointly between IDA and IFC. It has been shaped primarily by inputs from and interactions with the government and key stakeholders in the country, including the Prime Minister and the Chairman of the National Assembly, representatives of the government, the opposition party, the National Assembly and Senate, private businesses, civil society including local and international NGOs in Phnom Penh, and the provincial capital of Battambang, and with the donor community. Poor communities were also consulted in focus group discussions. Country Context In many respects, these are hopeful times for Cambodia. The country is at peace, the economy is stabilizing, and recent economic performance is promising. Communities are slowly being rebuilt and the country's cultural heritage is being rediscovered. With its accession to the Association of Southeast Asian Nations (ASEAN) Cambodia is redefining its political and economic position in the region. Yet Cambodia faces a formidable array of development challenges. This is a post-conflict country where many of the foundations for growth and development-physical, social, human, and economic-have been shattered and need to be put back in place. Annual per capita income is $290. Over one-third of the population live below the poverty line, 90 percent of them in rural areas. They lack voice and access to services and opportunities. Both human and physical capital have been depleted by decades of conflict, resulting in severe capacity constraints, and social indicators are among the worst in the region. Social capital, destroyed by conflict, also has to be restored, and trust in public institutions re-established. Allegations of corruption and impunity are widespread. The private sector, the driving force behind the country's economic recovery in rural and urban areas and essential for poverty-reducing growth, is constrained by limited and high-cost infrastructure, uncertain land and property rights, limited access to credit, and a weak and unpredictable regulatory framework. Cognizant of these challenges, Cambodia's leaders have pledged to improve the lives of the Cambodian people: to attack poverty and restore social and economic infrastructure. They are working to build a stable macroeconomic framework and have made encouraging progress in raising revenues. They have launched difficult reforms in the public sector-fiscal management, civil service restructuring, and military demobilization-and have agreed to have these reforms closely monitored by local and international donors. An IMF Poverty Reduction and Growth Facility (PRGF) was approved in October 1999 to support these reforms; a complementary IDA Structural Adjustment Credit (SAC) was presented to the Board with this CAS. Quarterly government-donor consultations, chaired by the Prime Minister, and recent contractual arrangements with a reputable international non-governmental organization (NGO) to monitor progress in forestry reforms are important indicators of a willingness to engage at the highest levels. Dialogue with private businesses and civil society is increasing. Cambodia has the potential to exploit diverse sources of growth: agriculture, natural resources, light industry, and culture/tourism. Its ability to exploit these hinges partly on tackling its physical and human resources constraints but primarily on  the government sustaining the momentum of the reforms. Although the reforms may take years to accomplish, they are essential for mobilizing investment and savings and putting Cambodia on a sustainable growth path that will help to reduce poverty. The government has committed to pursuing structural reforms in public finance and public sector management and improving its fiscal discipline, while making steady progress in institutional capacity-building, governance, and anti-corruption measures. This would greatly enhance the effectiveness of aid and would stimulate private sector development, leading to a steady 6 percent growth rate. Provided the private sector responds fully to this improved policy environment and the regional recovery continues, per capita income could increase substantially, and the level of poverty fall below 20 percent by 2005. Bank Group Strategy In this context, the main objective of this CAS is to help the authorities build the foundations for sustainable development and poverty reduction for the medium to long term. These foundations are: (i) good governance including an efficient and accountable public administration and a credible legal and judicial framework that safeguards basic human and property rights; (ii) greater access for the poor to basic social services and economic opportunities; and (iii) a policy environment that encourages private investment and entrepreneurship. Over the next four years, coinciding with the present government's term in office, the Bank Group will support an integrated package of measures to strengthen governance, improve physical infrastructure, rebuild human and social capital, and promote the long-term development of the private sector, including rural income-generation. Interventions will be largely targeted to rural areas where the majority of the poor live, including increasing access and opportunities for women. Capacity-building elements will be integrated into all interventions, with an emphasis on knowledge transfer and the development of long-term skills and leadership abilities. Partnerships These ambitious goals will be difficult to achieve by continuing to rely on the conventional project-oriented approach of previous strategies. A stronger partnership with the government and others in the development arena, including donors, civil society, and the private sector, built on the shared goal of poverty reduction, is essential. Partnership is thus the central theme and strategic instrument. The Bank Group will make concerted efforts to formalize strategic partnerships in policy dialogue, analytical work, and the development and implementation of sector strategies under the government's leadership. Our resources would then complement financing from other partners. The CAS therefore paves the way for a gradual transition from an individual project-based to a more concerted approach based on shared sector strategies and expenditure programs. Sector-wide approaches (SWAPs) will be explored in priority areas-governance, infrastructure, health, and possibly education, to pilot this partnership strategy. In the initial stage of the SWAPs, the government will take the lead in refining or formulating sector strategies, share these with all partners, and then prepare expenditure programs to support them. Partners could then finance "slices" of these expenditure programs through their projects. A lead donor would coordinate technical and financial support in each area. In a second stage of the SWAPs, development partners would work towards harmonizing project processing and implementation procedures to lighten the burden on the government of administering projects. However, given the difficulties involved in developing these shared expenditure programs and particularly in harmonizing procedures, it is anticipated that only the initial stage of the SWAPs could be developed during this CAS period. Successive CASs would carry the approach further. Moreover, since it would be too ambitious to initiate SWAPs in so many areas, carefully targeted project support will also be provided outside the SWAP arrangement in other areas deemed important to the CAS objectives of increasing access and opportunities for the poor, especially in rural areas, until the capacity exists to support SWAPs in most areas. - 2 -  Developing SWAPs allows the CAS to adopt some of the principles of the Comprehensive Development Framework (CDF) that are useful to Cambodia but which can be adapted to its particular circumstances of serious institutional constraints in a multiple donor-NGO environment. Proposed Assistance Program The assistance program in FY00-03 is expected to commit a number of new loans totaling US$270 million, conditional on effective implementation of the World Bank's existing project portfolio and satisfactory policy performance. The focus of IDA lending will be on rural infrastructure and rural development, health and education, with some fast-disbursing support for public sector/expenditure reform. More limited lending is envisaged in the areas of governance-such as anticorruption and legal/judicial reform-and capacity-building. Analytical work will be oriented primarily towards the SWAPs and governance issues. We will also assist the government in preparing its national Poverty Reduction Strategy Paper (PRSP), in collaboration with the IMF, beginning with an interim paper in FY01, and with related analytical work. IFC's program in Cambodia focuses on microenterprise/small and medium enterprise development through the Mekong Project Development Facility (MPDF); state-owned enterprise reform/privatization and infrastructure development. IFC and IDA will continue to work jointly on policy issues, improving the legal and regulatory framework and facilitating private participation in both infrastructure and social services. A priority in this CAS is to expand the Bank Group's field presence. A full-fledged country office will be opened in Phnom Penh in FY01. -3-