The Kingdom of Cambodia - Country assistance strategy

Document of The World Banlk FOR OFFICIAL USE ONLY Report No. 14465-KB MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE KINGDOM OF CAMBODIA MAY 10, 1995 Country Department 1 East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENT (May 95, official rate) Riel 2,300 = I US dollar WEIGHTS AND MEASURES Metric system ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CEM Country Economic Memorandum CG Consultative Group ESAF Enhanced Structural Adjustment Facility ICORC International Committee for the Reconstruction of Cambodia IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund MEF Ministry of Economy and Finance NGO Non-governmental organization UNDP United Nations Development Programme FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY MEMORANDUM OF THE PRESIDENT OF THE IDA TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE KINGDOM OF CAMBODIA A. Recent Economic and Social Performance 1. Cambodia has made impressive progress reintegrating into the international community and laying the foundation for successful development. With unprecedented support from the United Nations, free elections were held that resulted in the establishment of a democratic government in 1993. The political settlement also opened the door to the resumption of official development assistance to aid in Cambodia's reconstruction. The International Committee on the Reconstruction of Cambodia (ICORC) was established under Japanese and French leadership to generate political and financial support. The Government of Cambodia has since set about the difficult task of stabilizing the macroeconomy, restoring social services, and ensuring stability and security throughout the country. It has achieved some success in each area, though a large agenda of further measures remains. 2. The achievements of the Government and of the country in recent years need to be viewed in light of the awful suffering that Cambodia has experienced during the past quarter century. In 1970 Cambodia had a standard of living comparable to that of neighboring Thailand. While many other countries in the region have enjoyed 25 years of rapid and stable development, Cambodia has been racked by civil war. The scars of this experience will affect Cambodia's development over the next decade and beyond. It is now one of the poorest countries in the world, with a per capita GNP of around US$200, about one-tenth the level of Thailand's. The war has taken a huge toll on the physical infrastructure and the natural resources of the country. Land mines remain scattered throughout many rural areas, posing a serious threat to people and hampering agricultural production. 3. Many countries that have had their physical infrastructure destroyed by war have rebounded quickly. Japan, Korea, and the nations of Western Europe are all examples. The key to a quick rebound was that the institutions and human resource bases of these economies remained largely intact, so that reconstruction of the capital stock could occur rapidly. Cambodia's development poses unique challenges because during the years of Khmer Rouge rule, 1975-79, the institutions and human resource base were destroyed to a remarkable extent. By the end of Khmer Rouge rule Governrnent institutions had largely been dismantled, the legal system destroyed, and money abolished. (The central bank was actually blown up by the Khmer Rouge.) Cambodia's human resources were also dramatically altered during the years of civil war. In particular, there is a large imbalance in the population between women and men; a very small fraction of highly educated people; and an unusually large share of the population under the age of 15. 4. While prospects for Cambodia are brighter now than at any time in the past 25 years, the elected Government nevertheless faces a difficult situation, as the institutions and human resource base for development are very weak. The Government's problems are compounded by the fact that the Khmer Rouge insurgency continues in rural areas. The insurgency has two negative consequences. First, it necessitates the Government maintaining a significant army of its own. Without strong institutions, This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  2 however, it has proved difficult for the Government to keep its army firmly under control. Second, the ongoing insurgency makes it difficult to pursue vigorously rural development in some parts of the country. Nearly 90% of the population lives in rural areas, so that broad-based rural development must be the key to Cambodia's long-term stability and growth. Without such development, the Government is likely to see the gradual erosion of popular support. The Khmer Rouge's original appeal was based on the claim that development was benefiting only the urban population, that cities in effect were parasites prospering at the expense of the countryside. Its continued insurgency is aimed at making this vision come true, by creating an insecure environment in which it is difficult to promote rural development. 5. It is not difficult to identify the pressing development issues in Cambodia. As discussed in more detail in Section C below, the Government already has a general plan for Cambodia's reconstruction. Any discussion of Bank strategy, however, must begin with the recognition that Government capacity is extraordinarily weak. To address Cambodia's problems it is not possible to begin with the types of projects that we routinely support in other countries, because the implementation capacity is limited. This implementation issue is generic to all of the major sectors: macroeconomic management, agriculture, infrastructure, social services, and the environment. The implementation problem has three sources: First, there is a severe lack of trained personnel in Cambodia. Second, the Government's resource problems result in civil service wages that are impossible to live on. Third, it is not easy to restore the rule of law after years of civil strife. 6. Assisting Cambodia is a huge challenge for the World Bank Group and other donors. As the situation stabilizes, we anticipate having a broad assistance program that addresses the institutions of macroeconomic management, agriculture and natural resources, infrastructure, and human resource development. Such a fully articulated assistance program cannot be pursued immediately because of ongoing problems of security and governance and because of a severe lack of data and information. Thus, over the next year the Bank's strategy will focus on (1) capacity building in the central government, (2) analytical work to increase the knowledge base, and (3) selected windows of opportunity to support rehabilitation and reconstruction within each sector. It is hard to imagine a country more in need of international assistance. The risks of delay or even failure in this effort, however, are real and should not be minimized. 7. Macroeconomic Developments. The Government has achieved some important successes in strengthening macroeconomic management in recent years. In the early 1990s the economy was experiencing inflation in the range of 150%. The root source of this inflation was weak public finances, in particular a large fiscal deficit for which there was not adequate financing. Cambodia at this time was still isolated from the international community because of political factors. The election of the new government in May 1993 set the stage for a successful stabilization supported by the IMF, the Bank, and other donors. The Government reached agreement with the Bank and the Fund on a Policy Framework Paper and entered into an ESAF arrangement with the Fund in May 1994. Its stabilization policies have brought inflation down to moderate levels (31 % in 1993 and 26% in 1994). The objective is to bring inflation down to a level similar to trading partner countries (5%) with a transitional target of 10% in 1995. 8. Cambodia has grown fairly well given its difficult circumstances. But any discussion of growth should begin with the caveat that economic data for Cambodia are weak and that strengthening the statistical base is an important task for the years ahead. Our assessment is that current national accounts data reflect the broad outline of macroeconomic developments, but do not cover all of the country or provide a sharp picture of sectoral developments. Official data show real GDP growth of  3 4.1% in 1993 and 4.0% in 1994. After years of war, however, Cambodia is starting from a very low base of economic activity. Growth rates that would be respectable for many countries represent in the case of Cambodia at best moderate progress toward economic reconstruction. It should also be noted that the growth that has been achieved is thin and fragile. Much of the growth in recent years has been in the services and construction sectors and is driven by the large foreign presence in Phnom Penh and by donor activities throughout the country. Growth in agriculture and in the rural economy more broadly has been slow. Reversing the stagnation in agriculture is critical for the country's prospects, as the sector accounts for about 45% of GDP and 80% of the labor force. (Services account for 35% of GDP, and industry and construction for the remaining 20%.) Economic developments are analyzed in more detail in the Bank's reports for the ICORC meetings (Reports No. 12667-KH, February 1994, and 13965-KH, February 1995). 9. While Cambodia has done fairly well with short-term stabilization, there are a number of pressing issues that will have to be addressed if growth is to accelerate and be sustained over the medium term. Domestic resource mobilization is very low at the moment. This is true both for the public sector and for the economy more broadly. Government revenue was only 5.2% of GDP in 1993. Stabilization in that context required that expenditure be severely restrained and that budget support be provided from the outside. Government revenue increased to 9.2% of GDP in 1994, but some of this increase came from unsustainable logging. Tax reform to diversify revenue sources and strengthen public finances is a critical issue. 10. The problem of weak resource mobilization goes beyond the government sector. Gross national savings is less than 10% of GDP. Investment has increased sharply in recent years owing to the greater availability of foreign savings, both private and official flows. Investment increased from 15% of GDP in 1993 to 20% in 1994, as the current account deficit expanded from 6% to 14% of GDP. In the short run this inflow of foreign resources should be a positive factor spurring the growth of the economy. In the longer term, however, it will be essential for domestic savings to increase and to provide a growing share of the financing for development. The weak savings performance is not surprising given Cambodia's very low level of income and the uncertainty in the present environment. Calling forth a stronger savings performance will not be easy. It requires maintenance of sound macroeconomic policies, as well as longer-term institution building, notably in the banking sector and in the legal framework for protection of property rights and commercial transactions. 11. Utilization of Bank Assistance. Once the elected government was in place, the Bank moved quickly to provide financial assistance. The first IDA credit for Cambodia was approved in FY94. It provided US$63 million for emergency rehabilitation, the bulk of which has already disbursed. This was followed by a technical assistance credit of US$17 million in FY95. The Bank has also stepped up its analytical work, preparing reports as background documents for ICORC meetings. As Cambodia was a new borrower about which the Bank had limited information, the first two credits were presented to the Board without the benefit of a Country Assistance Strategy. This CAS is thus the first one for Cambodia; its scope, however, is necessarily somewhat limited. It is difficult for the Bank at this juncture to lay out a medium-term program with confidence. Our knowledge of the sectors is still somewhat sketchy, making it hard to assess priorities. Perhaps more important is that the security situation remains uncertain and the political situation fragile, so that it is difficult to say now what might be feasible in rural areas three years hence. Cambodia would normally be on a two- or three-year cycle for the CAS. Because Cambodia's environment is rapidly changing, however, we think that it is important to prepare an annual CAS for the time-being. Hence this CAS focuses particularly on activities  4 for the next year, with an indication of the broad direction in which the assistance program will develop in the medium term if conditions permit. B. The External Environment 12. The external environment that Cambodia faces has changed very favorably in recent years. Cambodia was for a long time isolated from the economies around it. During the 1980s it received substantial assistance from the Soviet Union and Viet Nam; otherwise it had little involvement in international trade and investment. The political settlement in 1993 opened the door to renewed trade and private investment from the dynamic economies nearby, as well as to official assistance. The growing openness of Cambodia's economy can be seen clearly in the merchandise trade data: exports have increased from US$86 million in 1990 to US$359 million in 1994, while imports grew over the same period from US$164 million to US$673 million. The ratios of exports (15%) and imports (28%) to GDP remain low, however, compared to those for other small open economies; there is much scope for Cambodia to increase its participation in international trade. Furthermore, many of Cambodia's exports are re-exports, that is, originating in other countries. Domestically produced exports were estimated to be US$120 million in 1994, of which US$104 million consisted of log exports. 13. Foreign investment also appears to be on the rise in Cambodia, though this is another area in which good data are not available. Foreign investment can be a positive force for development, as it has been in other countries in the area. However, there are also dangers, especially in Cambodia's environment of under-developed institutions and weak governance. The large amount of re-exports noted above, for example, partly reflects the assessment of traders that they can move goods easily into Cambodia and then trans-ship them overland to Thailand and Viet Nam. Low trade barriers are good for development, but it would be unfortunate if Cambodia developed a reputation as a country with no trade rules or regulations at all. Another area of concern is foreign investment for the exploitation of natural resources, including timber and minerals. Foreign investment without appropriate regulation may lead to unsustainable practices. Finally, in an environment in which civil servants earn very low salaries (US$25 per month on average), corruption is a danger and there is concern that they will focus on developing partnerships with private commercial firms, rather than on their public duties. 14. The financial assistance offered to Cambodia by the international community has been very impressive. The UN effort to oversee elections and the transition to a democratic government required nearly US$2 billion. In a succession of ICORC meetings over the past two years an additional US$2 billion in ODA has been pledged for Cambodia's reconstruction. Disbursement of this potential assistance has been very slow, however, because of problems with implementation. As a group, donors have not taken adequate account of the Government's weak implementation capacity in designing their programs. ODA disbursements in 1994 were US$164 million. IDA provided more than one-quarter of total aid disbursements to Cambodia in 1994. 15. Cambodia entered this era of reconstruction burdened by significant external debts from the past, most of which are in arrears. At the end of 1993 the external debt amounted to US$380 million of hard currency debt, as well as 840 million transferable rubles of debt to Russia. In January 1995 Cambodia was offered new, improved debt relief terms by the Paris Club that would allow up to a two- thirds write-off of the debts to Paris Club members, which represent most of the hard currency debt. Cambodia has accepted these terms as the basis for discussion of debt relief with Paris Club members and plans to approach Russia for a similar rescheduling of its non-convertible debt to that country. As most of Cambodia's new financing is coming on highly concessional terms, its debt service burden over the  5 medium term should be sustainable. By 1997 debt service, excluding non-convertible debt, is projected to amount to 18% of exports. C. Cambodia's Development Objectives and Policies 16. Carnbodia's long-term development potential is good. The country is rich in natural resources. Compared to Viet Nam, for example, it has three times as much arable land per capita, and much of this is high-productivity land. Thus, there is good potential to produce rice, rubber, and other crops, for domestic consumption as well as for export. Cambodia still has abundant forests, and sustainable forestry practices could yield significant revenues on a permanent basis. There are considerable mineral deposits, probably including offshore oil and gas reserves. The potential for tourism earnings is also high. Finally, there is some potential for labor-intensive manufacturing. In addition to possessing these good underlying endowments, Cambodia is also fortunate to be in a dynamic region, surrounded by rapidly growing economies. 17. While long-run economic potential is good, short-run obstacles are daunting. The Government's National Program for Rehabilitation and Development, presented to the 1994 ICORC meeting, sets out the broad outline of its plans for addressing problems in the areas of macroeconomic management, security and governance, human resources, rural development, and infrastructure. Table 1: Major Macroeconomic Indicators Base Scenario 1993 1994 1995 1996 1997 GDP Growth (%) 4.1 4.0 7.0 7.5 7.5 Current Revenue/GDP (%) 5.2 9.2 8.1 8.5 9.2 Current Expenditure/GDP (%) 6.7 10.5 9.8 9.4 9.4 Current Budget Deficit/GDP (%)a -1.5 -0.7 -1.5 -0.7 0.0 Overall Budget Deficit/GDP (%)' -5.9 -6.0 -7.8 -7.1 -6.6 Investment/GDP (%) 14.5 19.5 22.0 22.5 23.0 Gross Domestic Savings/GDP (%) 8.2 5.5 7.2 7.6 9.4 Current Account Deficit/GDP (%) -6.3 -14.0 -14.8 -14.9 -13.5 a Cash basis. 18. Macroeconomic Management. The Government has worked together with the staffs of the Fund and the Bank to prepare a medium-term macroeconomic program, which is summarized in the  6 Policy Framework Paper for 1995-97. The target is to reach a 7.5% GDP growth rate in 1996-97, following a projected rate of 7.0% in 1995 (Table 1). At the same time the authorities plan to consolidate the recent stabilization and to reduce inflation to 10% in 1995 and 5% in 1997. The growth targets are ambitious but feasible; they take into account that Cambodia should enjoy positive spillovers from the rapidly growing economies around it. 19. In recent years Cambodia's growth has been concentrated -- both sectorally, in services and construction, and geographically, in Phnom Penh. Sustained 7.5% growth will require a strong rebound of the agricultural and rural economy. The natural resource base clearly provides the potential for such growth and development. The Government's development program focuses on critical factors that will enable this potential to be fulfilled: strengthening the security and governance situation; building up human resources; rehabilitating infrastructure, especially in rural areas; and providing necessary technical support to agricultural activities. 20. Maintaining macroeconomic stability will require continued fiscal and monetary restraint. To achieve an improvement in fiscal performance, strong efforts will be made to increase the buoyancy of government revenue, especially non-customs tax receipts. The Government has introduced new tax measures for 1995 so that it can reduce its reliance on revenue from logging and still reach a revenue target of 9% of GDP over the medium term. By holding the growth of current spending below that of revenues, the Government intends to eliminate its current budget deficit by 1997. At the same time the Government plans to shift resources from defense to development. Defense expenditure financed from the budget amounted to 5.4% of GDP in 1994, more than one-half of recurrent expenditure. In 1995 the Government plans to reduce the share of the budget allocated to defense and to increase expenditure for development purposes. As the Government's program is growth-oriented, it is founded on a sustained rise in investment. The Government plans to increase public investment, financed by expanding disbursements of aid. As discussed further below, it also plans a range of structural reforms aimed at increasing private saving and investment. 21. Legal Reform. One of the key things that has been lost during Cambodia's years of civil war is the rule of law. Most notably, many critical areas of economic, financial, and business laws are absent (e.g., land, property, companies, contracts, bankruptcy, mortgages, public enterprises, and intellectual property). Legal reform is an important priority for the Government, but it is not an easy task. The absence of the rule of law creates serious security and governance problems that hinder the investment necessary for sustained growth. They hinder public investment by restricting the Government's implementation capacity; and they hinder private investment by generating an uncertain environment in which firms and households have no confidence that they will reap the benefits of their activities. The Government's medium-term program to develop a suitable enabling environment for private sector activities includes: better coordination of ongoing and future legislative drafting efforts in the context of a coherent legal framework; establishment of a Legal Reform Unit within the Council of Jurists with responsibility to ensure this coordination; preparation of priority legislation and the development of legal institutions to enforce such legislation; and organization of a Cambodian Investment Board as a one-stop service agency for foreign investors. 22. Administrative Reform. Legal reform is necessary but not sufficient to strengthen governance in Cambodia. The Government is also preparing a wide-ranging "National Program to Reform the Administration." There are too many civil servants (roughly 150,000), all of whom are poorly paid. The Government plans to reduce the civil service by 20% by 1997 and to increase salaries as permitted by the revenue situation. There is an acute need for trained personnel, and training is an  7 area in which the Government is seeking support from the donor community. In the meantime the Government is also making use of expatriate Khmers in key technical positions. A final component of the Government's program to strengthen governance is military reform that would result in a smaller, more professional army. Reform of the military; a smaller civil service; intensive retraining programs; tax reform to broaden the revenue base; and higher wages as revenue permits -- these are the key ingredients to improving the effectiveness of government in Cambodia over the next few years. The military and civil service reforms will release several tens of thousands of workers from the public sector. However, if the economy grows at the targeted rate of 7-7.5%, absorbing these workers into the expanding private sector should not be a problem. 23. Rural Development and Natural Resource Management. Agriculture and natural resources will constitute the backbone of the Cambodian economy for the foreseeable future and will provide employment for the great majority of the population. The Government emphasizes the need for accelerated rural development as the major weapon in its campaign to raise rural living standards and to overcome the Khmer Rouge insurgency. An immediate priority here is de-mining, which is supported by a range of donors. The Government's medium-term strategy comprises a number of specific objectives: to improve food security (increasing food production and decreasing reliance on food aid); to create more secure conditions for the improvement of agricultural land and the marketing of agricultural products; to improve infrastructure and social facilities in rural areas, with increasing community participation; to strengthen the capacity of the Ministry of Agriculture to provide technical support; and to rehabilitate Cambodia's rubber plantations as an efficient source of employment and foreign exchange. Cambodia clearly has comparative advantage in rice production. With the current policies and with supporting investments in rural infrastructure, it is realistic for the country to return to rice self-sufficiency by 1997 and to become a rice exporter in future years. 24. Infrastructure. Cambodia's infrastructure is in disastrous condition. The Government's general strategy is to move from emergency rehabilitation to more general nationwide reconstruction, and eventually to expansion of capacity. The key areas that require attention are the transport sector, power, and water resource management. In transport the first priority is to rehabilitate the road system. Roads are the dominant mode for moving both freight and people, and their rehabilitation is necessary if Cambodia is to develop a national market and to expand its economic links with other countries. In transport, the Government plans to concentrate on investments in fixed infrastructure and to privatize fleet operating companies. In power, the Government will begin with upgrading the system in the Phnom Penh area, and then extend the rehabilitation program to provincial cities and rural areas. Establishing the power companies as commercial entities separate from the Government is an important institutional reform that will accompany the rehabilitation of the capital stock. In the water sector there are important needs in both urban and rural areas. Improving water supply and waste treatment is a critical health and environmental issue for the cities. In the countryside, rehabilitating rural roads and developing safe water supplies are among the highest priorities for rural infrastructure investment. 25. Human Resource Development. There are two dimensions to the human resource problem in Cambodia. First, there is a critical shortage of trained personnel to work in the public sector, a major factor contributing to weak institutions of governance, as noted above. Second, education and health indicators for the broad population have declined sharply. A once strong human resource base has been devalued by years of civil war and chaos, so that in terms of human resources Cambodia today compares unfavorably with other low-income countries. Infant mortality is estimated to be twice as high as in other low-income countries; life expectancy is a mere 51 years, compared to 62 years in the average low- income country; and 30% of the adult population is illiterate. The two problems are inter-related in that  8 lack of capacity to run an effective government and to deploy teachers and health workers makes it difficult to address the health and education needs of the broad population. Thus, the Governmnent is trying to address both problems at the same time. It has brought in foreign advisors to help manage key services and is encouraging donors and NGOs to assist directly in provision of social services throughout the country during the transition. 26. Aid Coordination. The Government of Cambodia recognizes that the country needs a lot of international assistance for its development program and that coordination of this assistance is an important task for it. The three successive ICORC meetings have been extremely successful at bringing Cambodia's problems and needs to the attention of the international community. The meetings, however, have not substituted for normal aid coordination sessions that would focus primarily on economic and technical rather than political aspects of development. The participants of the March 1995 ICORC meeting recognized this shortcoming and have agreed that a Consultative Group for Cambodia should be organized and should meet on a regular basis. The first CG meeting is likely to be held in Tokyo in 1996, following consultations on the modalities among the Bank, Cambodia, France, and Japan. There was also a recognition that the ICORC meetings play an important political function as well. The Government has requested that an ICORC meeting be held in Phnom Penh in 1997. Its proposal is to hold ICORC meetings from time to time to enable the diplomatic community to keep abreast of Cambodia's progress and ongoing needs, while handling normal aid coordination through annual CG meetings. The Government expects in this way to channel donor resources to high priority areas and to ensure an efficient division of labor among donors. D. The Bank's Assistance Strategv 27. The Bank's long-term objective in Cambodia is to promote broad-based and sustainable development that results in a rapid reduction in poverty. The Bank agrees with the Government's general strategy for achieving this objective outlined in Section C above. We are concerned, however, that priorities for specific reforms and investments have not been established clearly enough. There is a real danger in the next few years that the Government -- and donors -- will spread themselves too thin and try to do too much, with the result that little gets achieved. To address this situation the Bank proposes for the next year a three-pronged approach: (1) to assist the Government to strengthen its capacity to set clear priorities and to implement development programs; (2) to carry out analytical work that will improve the knowledge base; and (3) to support critical rehabilitation and reconstruction that will have a significant impact quickly. 28. Capacity building and analytical work are key tasks in the short run. They will enable the Government to develop and implement fully articulated strategies in the areas of human resource development, agriculture, natural resource management, and infrastructure. Implementation of these programs will take time. At the same time, there are emergency needs that should not be ignored. In some cases emergency needs cannot be addressed because of security problems; in other cases critical problems are being met by the assistance of other donors. Thus, in each sector we will be looking for high-return activities that are feasible in the current environment and that complement the work of other donors. This strategy requires us to be very flexible and to undertake some small-scale interventions, while at the same time we lay the foundation for a more coherent program of long-term assistance. In the short run, we will emphasize technical assistance, studies, small projects, and quick-disbursing support; in the long run, more investment projects and sustained interventions in a few sub-sectors identified as high priorities for Bank support. Capacity building will take time, and this expected shift in the product rnix is likely to occur gradually over a decade, not within two to three years.  9 29. Capacity Building. The need for capacity building is felt throughout the Government. The Bank proposes to focus its support in four areas: the institutions of macroeconomic management; legal reform; sectoral management; and aid coordination. These are areas that the Government has requested the Bank to address. In each area the Bank will be one of the major providers of technical assistance. In the macro field the Bank's work is closely coordinated with the IMF, which is taking the lead in technical assistance for monetary policy and tax reform. The Bank's work will address issues of resource mobilization, expenditure control, public investment management, and aid coordination. The key instrument here is the Technical Assistance Credit which recently became effective. The technical assistance will strengthen expenditure management by improving procurement practices in several key ministries, including Defense; help establish a public investment budgeting unit within the Ministry of the Economy and Finance; and help establish a debt management unit within MEF. The Bank will also help the Government design a workable civil service reform. In this area, the Bank's intervention is designed to complement other technical assistance provided by UNDP and the European Union. Civil service reform is a critical area in which the Government has made a commitment: to reduce employment 20% by 1997. Several bilateral donors are assisting Cambodia with military reform, and IDA's support for the design and implementation of departure packages for redundant civil servants and demobilized soldiers will complement that effort. 30. Timber policy is another critical public management issue on which the Bank will be providing advice. There are both fiscal and environmental issues involved. On the fiscal side, it is important that the revenue from timber go to the budget and not be an off-budget item financing the military. The two prime ministers made a commitment to such a policy at the March 1995 ICORC meeting. IDA and other donors will monitor the implementation of this decision during the next year. There is also the important environmental issue of setting logging targets that result in sustainable use of forests. The current policy is to ban the cutting of timber for export but to allow export of logs that have already been felled. This policy is reasonable in the current situation. Over the medium term, however, the Government needs to develop a coherent timber policy that ensures sustainable use of the country's extensive forest resources. The Bank will advise the Government as it prepares this policy during the next two years. 31. Reform of the core institutions of government as described above is one element of strengthening governance in Cambodia. A complementary issue is the fostering of the rule of law through reform of the legal framework, and this is the second aspect of capacity building on which the Bank will focus. Although today there does exist a body of law, however imprecise, and much on-going preparation of new laws and regulations aimed at completing and improving the legal framework, the evolution of the state to one in which the rule of law prevails is severely hampered by at least three major obstacles. First, the crises which Cambodia has experienced since 1970 have resulted in the destruction of much of what was the prevailing legal system. (The Khmer Rouge regime of the late 1970s simply abolished all recourse to law.) Second, there exists a very significant lack of resources -- financial, physical, and human -- to support legal institutions. Third, the present imperfections in the political system, as well as weak overall governance, often adversely affect the Government's program of legislative reforms. This state of affairs fosters non-transparency, uncertainty, and insecurity which, in practice, have a chilling effect on foreign and domestic direct investments. The Government's medium-term program to promote the rule of law and develop a suitable enabling environment for the development of private sector activities through legal reform is supported by the Technical Assistance Project which includes a component on legal reform. Under that component, a legal reform unit will be established to coordinate legal reform activities in Cambodia and to supervise the implementation of legal diagnostic studies, legal training needs assessments, and the establishment of key legal institutions such  10 as the Official Journal and a system for publishing the legal decisions of Cambodia's higher courts to help develop a body of jurisprudence and doctrinal writings. 32. The Bank also intends to help with the development of sectoral strategies. This work will begin with the preparation of a Country Economic Memorandum and an informal Agriculture Sector Report during the next fiscal year. In addition to macroeconomic issues, the CEM will cover agriculture, the environment, human resources, and the key infrastructure sectors and will lay the foundation for the preparation of a coherent public investment program. The Government will be closely involved in the preparation of the report. The Bank's analytical work is coordinated with the efforts of other donors. UNDP, ADB, and Sweden have financed a transport sector study, whereas in education the ADB, Australia, and France have taken the lead in helping the Govermnent to define priorities. The Bank's economic and sector work will complement and build upon these other studies. This analytical work will also be complemented by technical assistance for training and capacity building in sector ministries. Some of this TA will be provided through the IDA TA credit; other elements will be provided by the donors working in parallel with the Bank. 33. Aid Coordination. In the same way that the Government is not sufficiently focused on the highest priority tasks, donors collectively are trying to do too many different things in Cambodia. As discussed immediately above, there are many good examples of donor coordination in Cambodia. But there are also serious problems of poor coordination, with the result that in some sectors there is a lack of attention to the most immediate problems. This obviously limits the effectiveness of international assistance to Cambodia. Given the large amounts of assistance that have been pledged for Cambodia, one of the most valuable things that the Bank can do is to assist the Government with aid coordination so that these resources are utilized effectively. There are both external and internal dimensions to the problem of weak coordination. The plan to organize a Consultative Group with a first meeting in 1996 is aimed at improving external aid coordination. 34. Addressing the internal aid co-ordination issue is a critical component of the capacity building efforts of the Bank and its partners. Representatives of donors on the ground in Cambodia need to meet and coordinate regularly -- with each other and with the Government. This is not happening to a sufficient extent at the moment. The Bank has proposed that sectoral coordinating meetings be organized for the major sectors and held in-country. The transport sector meeting scheduled for May in Phnom Penh will be the first such meeting. We anticipate that these meetings will be ad hoc rather than held on a regularly scheduled basis. As analytical work becomes available -- for example, for agriculture or education -- good sector coordinating meetings would go a long way to establish priorities and to sort out the division of labor among donors. The Bank will take the lead in coordinating assistance in some areas, such as legal reform and health, while other donors take the lead in other sectors. The ADB, for example, will take the lead in education, following up on its analytical work. 35. The Bank has tentative plans to open a resident mission in Phnom Penh in the second half of FY96, provided that the security situation has shown continual improvement. The central role of the Bank office would be to work with other donors and with the Government to establish good coordination at the local level and to assist with the implementation of the assistance program, including macroeconomic dialogue. 36. Balance of Payments and Budget Support. The large commitments made by donors potentially can provide the medium-term financing required for Cambodia's reconstruction. At the moment, however, donor funds are disbursing slowly, owing partly to the Government's weak  11 implementation capacity and partly to donors' lack of knowledge of and experience in Cambodia. The activities described above are designed to help improve the Government's and the donors' collective capacity to design and implement effective development programs. In the meantime Cambodia has balance of payments and budget financing needs that cannot be met without quick-disbursing loans. In concert with other donors, IDA will continue to provide balance of payments financing consistent with reasonable burden sharing. The IMF has a three-year ESAF arrangement in place that provides annual BOP financing of US$40 million. In the context of the adjustment program, an Economic Rehabilitation Credit will be presented to the Board in the near future. This credit will provide US$40 million of BOP support during 1995-96, to be disbursed against a positive list of critical materials, equipment, and spare parts. These imports will help ensure that the economy has adequate inputs for continued growth. This will be a single tranche operation with the release of funds not tied to specific policy conditionality. However, in conjunction with this project the Government is preparing a Statement of Development Policy to help clarify its medium-term reform priorities. This rehabilitation credit is an intermediate step between the emergency credit and adjustment lending. The choice of this instrument reflects the fact that the Government's capacity to implement structural reforms is still limited, but will be strengthened over the next two years through the technical assistance provided by IDA and other donors. 37. Human Resource Development and Poverty Reduction. Cambodia today needs an innovative approach to human resource development that takes account of the country's extreme poverty and the Government's weak capacity. The Social Fund Project to be presented to the Board shortly attempts to take such an innovative approach; it is a good example of the kind of small, flexible project that is appropriate for the current environment. The Fund will finance sub-projects in the areas of (1) social infrastructure, including the rehabilitation of education and health facilities; (2) economic infrastructure, including rehabilitation of roads, bridges, sanitation facilities, and water supply; and (3) social services, including equipment, materials, and training for programs in primary health, education, and nutrition. Community groups, NGOs, local governments, and line ministries will be able to apply to the Fund for grants up to a maximum of US$250,000. To be eligible for financing, projects must benefit the poor and be labor-intensive or otherwise generate a significant social impact. Thus, the project aims to help poor households generate employment and income immediately, while at the same time contributing to the rehabilitation of social services needed for longer-term human resource development. 38. While this Social Fund project is being implemented, the Bank will also be working on capacity building -- especially in the Ministry of Health -- and on sectoral analysis. A Poverty Assessment will commence in FY96; it should provide important insights for the health and education sectors, as well as for rural development strategies. The Bank will also build on ADB's education review with some small focused studies within the education sector. In terms of investment projects, the first one in the social sectors is likely to be a Health Development Proiect in one to two years. This proposed project would support rehabilitation and expansion of the public health system, with a focus on control of communicable diseases, tuberculosis, and malaria -- all of which are prevalent in Cambodia -- and of HIV/AIDS, which is in danger of expanding rapidly. The important issue of primary education will be addressed in a comprehensive manner in an ADB project. In the meantime IDA's Social Fund will support emergency rehabilitation of schools and restoration of primary education programs. 39. Agriculture and Natural Resources. The Bank's support of agriculture and natural resource management will focus on (1) capacity building in the Ministry of Agriculture and related training and research institutes and (2) projects that have a quick but lasting impact on rural poverty. The principal vehicle for this support will be an Agricultural Productivity and Rural Development Project proposed for  12 FY97. One component of the project will stress institutional development, including rehabilitation of training institutes, retraining of staff, and pilot field activities. The other component of the project is likely to be a rural development program for the southeast, covering rural roads and small-scale infrastructure. Many donors are active in the northwest of Cambodia, and the geographic focus of the first IDA project has been chosen so as to complement the work of other players. The Bank will also prepare an agricultural sector report as input into the longer run strategy for rural development. In the area of the environment, the Bank is considering providing technical assistance to prepare comprehensive and realistic management plans for forests and waters resources. These will form part of the National Environmental Action Plan to be prepared over the next few years. 40. Rehabilitation of Infrastructure. Cambodia's needs in the area of infrastructure are very large, and establishing priorities for rehabilitation and expansion is a critical task. The Social Fund and Rural Development Projects will address some of the immediate issues of rural infrastructure. Also, as a follow up to the Emergency Rehabilitation Credit, the Bank is preparing an Infrastructure Rehabilitation Project to finance urgent rehabilitation needs, focusing in particular on river transport, the railway network, and water supply facilities of several cities. This project complements the work of other donors, for example the French in the rail sector. Beyond emergency rehabilitation, the Government must develop coherent medium-term plans for the transport, power, and water sectors. This is another area in which the Bank will provide support. All of the major infrastructure sectors will be covered in the comprehensive economic report, which should begin the analytical work to establish longer term priorities. In terms of investments, the Bank will look selectively for projects that are feasible in the current environment and that are not being financed by others. In the power sector, for example, the private sector and large donors such as Japan are concentrating on new generation facilities, so that the Bank will focus initially on rehabilitation of the existing distribution system. A Power Rehabilitation Project is being prepared for FY96 that would focus on restoring the network in the Phnom Penh area. Institution building will also be an important part of the agenda in each sector. The power project under preparation, for example, will include technical assistance to prepare and implement sector reform measures, including establishment of the power utility as an autonomous commercial entity. 41. Volume and Composition of IDA Lending. The base lending scenario for Cambodia involves US$60-75 million of IDA lending per annum, and we propose a program of that size for FY96. The proposed volume and composition of lending would allow IDA once again to provide about one- quarter of total disbursed aid to Cambodia next year. Annex 2 provides a notional three-year lending program. As noted earlier, however, the degree of uncertainty surrounding the Cambodia program is extremely high, and we propose to present an updated CAS next year. Some of the uncertainty arises because the knowledge base is weak. The economic report and other studies during the next year will address this problem. It is also the case that Cambodia is a risky environment. The main risk is that we will devote scarce budget resources and IDA resources but have little impact because of ongoing problems with security and governance. The Bank's activities over the next year -- in concert with others -- aim to reduce these risks, but they are nevertheless real. The Region's assessment of the most likely scenario is that security and governance will gradually improve in Cambodia. The Bank's involvement now, as part of a coordinated international effort, should make a positive outcome more likely. 42. We do not propose a specific high lending scenario at this time. We have set out indicators to measure progress -- or lack of progress -- in priority areas of Cambodia's development program. The matrix in Attachment 1 establishes some indicators for the medium term; these will need to be sharpened as we learn more about Cambodia. In the meantime, there are three areas in which we will look for clear progress over the next year:  13 * resource mobilization, including tax reform and implementation of the decision to channel timber revenue through the budget; * expenditure management, including development of a workable civil service reform program and departure scheme, and a demonstrated shift of resources from non-development expenditures to development programs; and * implementation of development programs. Large amounts of aid have been committed to Cambodia, and IDA and other donors need to see that programs are being implemented and that committed resources are disbursing, if a high level of international support is to be sustained. The base lending scenario for Cambodia is modest and amounts to about US$7 per capita. As we move toward a fully articulated CAS, progress in the above-mentioned areas would be necessary in order to justify a shift to a larger lending volume. 43. Risks. It is worth distinguishing several different types of risk in Cambodia. First, there are security problems that make it difficult to carry out projects in some rural areas. The security situation has gradually improved and the best estimate is that it will continue to improve. However, it is possible that Khmer Rouge terrorism will escalate and that it will become increasingly difficult to operate in rural areas, requiring an alteration and probably a diminution of the Bank's program. A second distinct risk is political. The current political situation is fragile and could quickly change in any number of directions. Large-scale foreign assistance is predicated on the assumption that governance will improve as legal reform, civil service reform, and training programs progress. If these efforts do not bear fruit, then the Bank would respond by pulling back into a small, core program focused on the social sectors. A final risk is that the development program will be uneven, focusing excessively on urban areas to the neglect of rural ones. This would also require an adjustment in the Bank's program, toward smaller interventions at the local level. 44. Portfolio Management and Implementation Issues. Clearly, overall, there are significant problems with implementation, and that is a major theme of this CAS. The dominant feature of the Cambodian administration is the lack of experience of its staff. In recognizing this problem, the Government and donors agreed at the last ICORC meeting to a phased strategy of assistance for capacity building. During the present "rehabilitation" phase, the Government will focus its attention on policy guidance and on meeting the most basic administrative needs while donors and NGOs continue playing an active role in implementing public investment projects. The adoption of a phased strategy comes from the realization that the heavy use of substitution technical assistance and the creation of enclaves within the public sector (project management units) is inevitable in the present context in order to achieve the needed policies, programs, and other outputs, and to rehabilitate Cambodia's infrastructure in the shortest possible time. For this approach to succeed and for the country to avoid falling into a "dependency trap" whereby the country would continue depending on substitution technical assistance past the rehabilitation phase, the Government and donors must ensure that their programs are designed to support the Government's efforts to move from the first to the second phase and to become gradually more responsible and accountable for implementation. IDA's program has been designed in this way. The Social Fund Project, for example, will support emergency rehabilitation largely outside of Government channels. At the same time, The Bank's technical assistance and policy dialogue will help build up the Government's capacity so that over the medium term it can take over the financing and implementation of the kinds of small-scale investments and programs supported by the Social Fund.  14 45. The Bank's assistance program in Cambodia is young, so that there is not much to say yet about implementation of IDA projects, as distinct from the overall implementation of the Government's development program. The first IDA project for Cambodia, the Emergency Rehabilitation Credit, has proceeded smoothly. One positive sign was that it proved easy to reallocate funds within this rehabilitation project from sub-projects that were not ready to other ones that were. That IDA has provided about one-tenth of the aid commitments to Cambodia but more than one-quarter of disbursements indicates that IDA's implementation experience is more positive than that of the average donor. The opening of the resident mission in Phnom Penh should help greatly with implementation of the expanding portfolio. 46. IFC and MIGA Activities. Cambodia is not a member of either the IFC or MIGA, and hence these agencies do not as yet have significant activities in the country. Cambodia is in the process of applying for membership in both agencies. As the country's situation normalizes and private sector development takes off, these members of the World Bank Group should have an expanding role. E. Issues for Board Discussion 47. Over the medium term we propose to develop an assistance program that addresses the Government's priority areas of institution building, human resource development, agriculture, the environment, and infrastructure. As in other countries, we propose to be selective within each of these sectors, taking into account the Bank's comparative advantages and the activities of other donors. Because of a lack of information and of uncertainties in Cambodia's current environment, it is premature for the Bank to lay out such a fully articulated strategy at this time. Hence, we propose to present a CAS to the Board on an annual basis, until the situation stabilizes and our knowledge is more complete. 48. The Board may wish to discuss the key components of the Bank's assistance strategy for the next year, which may be summarized as follows: * to lay the foundation for a full assistance program through analytical work and capacity building technical assistance; * to assist the Government with the key task of aid coordination, through a Consultative Group and through sectoral coordination meetings in-country; * to support critical rehabilitation of economic and social infrastructure; and * to closely monitor progress in a number of key policy areas described in the Government's Statement of Development Policy, especially timber policy and civil service reform. Richard H. Frank President ad interim  ATTACHMENT I CAMBODIA: POLICY OBJECTIVES AND COUNTRY ASSISTANCE STRATEGY _________ ILLSTRAIVEOBJECTIVES [ACTIONS/STEPS BANK ROLE AND INSTRUMENTS MONITORABLE INDICATORS OBJECTIVES ACTIONS/STEPS _T ~ (ILLUSTRATIVE) A. MACROECONOMIC STABILITY Control expenditures Freeze recruitmcnt; prepare and implement Carry out policy dialogue in framework of Increase the share of the budget departure schemes for civilian and military PFP and ERC; prepare background devoted to development personnel; assign financial controllers to four documents for ICORC and CG meetings; expenditures in 1995; eliminate ministries, including Defense, to establish and prepare CEM. Lending: provide support current deficit of the budget by implement expenditure control and procurement under TA project, in particular help prepare 1997. procedures departure schemes. Increase revenue Channel all public rcvenues through the budget, Carry out policy dialogue in framework of Raise revenue/GDP to 9% by 1996; including revenues from timber exports; adopt a the PFP and ERC; CG; CEM timber revenue reflected in the revised agenda for tax reform; increase customs budget. duties on petroleum products; implement tax on wages and salaries. Continue monetary and Limit bank financing of the budget; carry out Policy dialogue in framework of PFP, CEM Limit bank financing of budget to financial reform and currency reform; strengthen National Bank's 0.2% of GDP; reduce inflation to encourage increased central banking functions; act to establish under 10% in 1995 and lower it to use of domestic market-oriented interest rate determination; level similar to that of neighboring currency maintain positive real interest rates on the new countries (5%) by 1997. riel deposit scheme Strengthen balance of Implement reform program described in Lending for BOP support through ERC Increase gross official reserves to payments position Government's PFP and Statement of 2.4 months of impons of goods and Development Policy services in 1997 B. CAPACITY BUILDING Reduce size of civil Mobilize donor resources to help carry out the Carry out policy dialogue in context of PFP Reduce number of civil servants by service and increase its reform and organize in-countrv aid coordination and aid coordination meetings. Lending for 20% by 1997 efficiency meetings; strengthen interministerial civil service reform though TA project coordination on civil service reform; carry out census of civil servants; adopt and implement l____________________ departure schemes Strengthen Strengthen economic management team; Organize CG meetings. Lending: provide Increase annual aid disbursement implementation strengthen public investment management support through TA project in areas of flows to at least US$200 million in capacity and aid capacity; and develop enabling legal expenditure control, public investment 1995 and US$220 million in 1996. coordination capacity environment for PSD management, debt management, aid coordination, and legal environment for PSD. Establish field presence. Page 1  ATTACHMENT I C. AGRICULTURAL DEVELOPMENT AND NATURAL RESOURCE MANAGEMENT Increase agricultural Continue demining of agricultural land; improve Lending for rehabilitation of training Achieve rice self-sufficiency by production rural roads; reorient existing programs of institutes and retraining of staff, rice 1997 resettlement of refugees/returnees into extension, and land registration under the participatory program of rural development; Ag. Productivity & Rural Dev. project strengthen government capacity to implement program Improve forestry and Prepare comprehensive and realistic Provide technical assistance to help prepare Prepare sustainable timber policy by environment management plan for forestry resourecs National Environmental Action Plan 1996 management D. ECONOMIC INFRASTRUCTURE REHABILITATION Develop rural areas and Rehabilitate transport, energy, and water supply Lending: financing for critical imports for In Phnom Penh, restore full reestablish normal infrastructure; initiate commercialization of rehabilitation of transport, energy, and production capacity of power utility water and electricity power utility and attract private investment in water supply infrastructure under the ERP; by 1998 and water utility by 1996 services in cities electricity generation; establish water utility as support power rehabilitation in Phnom financially autonomous entity Penh and sector reform through Power project E. POVERTY REDUCTION Prepare targeted Target public expenditure and foreign assistance Prepare Poverty Assessment. Lending for Maintain management structure of programs to reach the to rural areas; adopt more differentiated health restoration of community social services Social Fund as negotiated with IDA poor delivery and infrastructure strategies to target and infrastructure through the Social Fund and get implementation under way the poor project with strong local NGO participation F. HUMAN RESOURCE DEVELOPMENT Provide higher quality Increase expenditures on health and education; Lending for drugs and medical equipment Increase government expenditures of health and education increase availability of drugs and medical under the ERP. Prepare Health project. on social sectors to 18% of total services services expenditures in 1995. Page 2  Annex 1 Cambodia - Bank Portfolio Performance and Management Indicator FY94 FY95 (Current) Portfolio Performance Number of projects under implementation 1 2 Average implementation period (years) 0.7 1.1 Percent of problem projects rated U or HU 0.0 0.0 (for past years, rated 3 or 4) Development objectives 0.0 0.0 Implementation progress (or overall 0.0 0.0 status for past years) Cancelled during FY 0.0 0.0 Disbursement ratio (%) 0.5 43.7 Disbursement lag (%) 8.5 5.4 Memorandum item: % completed projects rated unsatisfactory n.a. Portfolio Management Supervision resources (US$'000) 59.7 155.1 Average supervision (US$/project) 59.7 77.6 Supervision resources by location (in %) Percent headquarters 100.0 100.0 Percent resident mission 0.0 0.0 Supervision resources by rating category (US $/project) Projects rated HS or S 59.7 77.6 Projects rated U or HU 0.0 0.0  Annex 2 Cambodia -- Bank Group Fact Sheet, FY94-98 IDA Lending Program, FY94-98 Past Current Planned Category FY94 FY95 FY96 FY97 FY98 Commitments (US$m) 63.0 77.0 (US$60-75 million per annum) Sector (%) Agriculture 30.0 Mining and other extractive Industry Finance Energy Power 76.0 Telecommunicatons Transportation 12.0 55.0 Urban development Water supply and sanitation 12.0 Public sector management Human resources 45.0 Education Population, health, and nutrition Social sector 26.0 Public sector management 22.0 Environment Trade policy reform Preinvestment/portfolio development Other non-sector-specific 100.0 52.0 70.0 TOTAL 100.0 100.0 100.0 100.0 100.0 Lending instrument (%) Adjustment loans -- 52.0 -- 70.0 -- Specific investment loans and others 100.0 48.0 100.0 30.0 100.0 TOTAL 100.0 100.0 100.0 100.0 100.0 Disbursements (US$m) 28.7 32.9 42.0 65.0 48.5 Adjustment loans c/ 30.0 45.0 35.0 Specific investment loans and others 28.7 32.9 12.0 20.0 13.5 Repayments (US$m) 0 0 Interest (US$m) 0 0.1  Annex 3 Cambodia -- Summary of Economic and Sector Work ($'000) FY94 Current Category Actual FY95 FY96 FY97 Agriculture 110.0 Mining and other extractive Industry Finance Energy Power Telecommunications Transportation Urban development Water supply and sanitation Human resources 35.0 62.0 Education Population, health, and nutrition Social sector Public sector management Environment 60.0 50.0 Trade policy reform Preinvestment/portfolio development Other non-sector-specific 279.8 125.0 17.0 18.0 Other economic work 16.4 Poverty assessment 40.0 60.0 Private sector assessment Country economic memoranda 250.0 110.0 Other (specify) Total economic and sector work 279.8 141.4 512.0 300.0   Aiinex 4 Page 1 of 2 Cambodia Most Same region/income group Neca Latest single year recent higher Unit of estimate East Low- Income Indicator measure 1970-75 1980-85 1987-92 Asia income group Priority Poverty Indicators POVERTY Upper poverty line local curT. .. .. .. Hcadcount index % of pop. .. .. .. 12 19 Lower poveny line local cuff. .. .. Hcadcount index % of pop. .. ., .. 9 GNP per capita USS .. .. 200 760 390 SHORT TERM INCOME INDICATORS Unskilled urban wages local curr. .. .. .. Unskilled rural wages Rural terms of trade Consumer price index 1987=100 .. .. .. Lower income Food' Urban Rural SOCIAL INDICATORS Public expenditure on basic social services % of GDP .. .. 8.0 Gross enrollment ratios Primary %school age pop. 42 .. 121 103 Male 4. 126 113 Female 35 .. .. 117 96 Mortality Infant mortality per thou. live births 181.0 160.0 116.0 39.0 73.0 45.0 Under 5 mortality .. .. 169.4 49.0 103.0 59.0 Immunization Measles % age group .. .. 38.0 88.4 72.7 DPT .. .. 38.0 89.5 80.6 Child malnutrition (under-5) ,. 20.0 .. 24.7 38.3 LJb expectancy Total Yam 40 43 51 68 62 63 Female advantage . 2.7 2.9 2.9 3.6 2.4 6A Total fertility rate births per woman 5.5 4.8 4.5 2.4 3.4 3.1 Maternal mortality rate per 100,000 live births .. 500 9000 114 Supplementary Poverty Indicators Expenditures on social security % of total gov't exp. .. .. .. Social security coverage % econ. active pop. .. .. .. . Access to safe water: total % of pop. 45.0 .. .. 72.0 68.4 Urban 97.0 ,, 20.0 83.4 78.9 Rural 38.0 24.0 12.0 60.2 60.3 Access to health care Population growth rate GNP per capita growth rate Development diamondb 6+t_ (annual average. percent' I (annual average, percent) *104, Life expectancy 4. | T 2 0 -_____________________ _ lGNP Gross per ' primary I I | ,' l capita enrollment .2 - . .10 I Access to safe water 1970-75 1980-85 1987-92 1970-75 1980-85 1987-92 Cambodia Cambodia - Low-income Low-income a. See the technical notes. p.389. b. The development diamond, based on four key indicators, shows the average level of development in the country compared with its income group. See the introduction.  Annlex 4 Page 2 of 2 Cambodia MVost Same regionl'income groujp Nexa Latest single year recent higher Unit of estimate East Low- income Indicator measure 1970-75 1980-85 1987-92 A4sia income group Resources and Expenditures HUMAN RESOURCES Populiation (mre=1992) thousands 7.098 7,462 9,054 1.688.909 3.194.535 942,547 Age dependcncy ratio ratio 0.80 0.54 0.69 0.5 5 0.67 0.66 Urban %of pop. 10.3 10.8 12.1 29.4 26.7 57.0 Population growth rate annual % 0.5 3.1 2.5 1 4 1 8 1.4 Urban -2.2 4 I 4.7 2.9 3.4 4.8 Labor force (15-64) thousands 3.205 3,602 3.800 928.465 1.478,954 Agriculture % of labor force 76 74 Industry 414 '4 3 6 Female"4 1374c33 Females per I100 males Urban number... Rural NAT'URAL RESOURCES Area thou. sq. km 181.04 181.04 181.04 16,367.18 .38,401.06 40,697.37 Densitv pop. per sq. km 39.2 41.2 48.8 101 8 81.7 22.8 Agricu'ltural land % oI land area 20.5 20.6 20.7 44.5 50.9 Change in agricultural land annual %0.0 0.3 0.3 0.1 0.0 Agricultural land under irrigation %2.5 2.5 2.5 14.5 18.2 Forests and woodland thou. sq. km 134 134 134 Deforestation (net) annual % ...1.0 INCOME Household income Sharc of top 20%/ of households % of income ... .42 42 Share of bottom 40% of households ... .18 19 Share of bottom 20% of households ... .7 8 EXPENDITURE Food % ofGDP .. 19.8 Staples ...3.6 Meat fish, milk, chees, eggs ... .9 Cereal imports thou, metric bonnes Il2 55 II 33,591 46,537 74,924 Food aid in cereals . 226 27 62 581 9,008 4,054 Food production per capita 1987 I 00 112 126 134 133 123 Fertilizer consumption kg/ha 0.0 0.5 2.6 75.1 61.9 Share of agriculWurein GDP % ofGDP ... 44.3 21.5 29.6 Housing % ofGDP . 4.7 Average household size persons per houschold Urban Fixed investment: housing % of GDP . .4.9 Fuel aind power % of GDP ...1.0 Energy consumption per capita kg of'oil equiv. 54 57 55 593 335 1,882 Households with electricity Urban % of households . Rural Transport and communication % of GDP .. 6.2 Fixed investment: transport equipment ... 10.3 Total road length thou. km . INVESTMENT IN IIUNAN CAPITAL Health Population per physician persons 16,248 16.365 9,192 Population per nurse 1,376 . 264 Population per hospital bed 925 ..478 5;53 1.050 516 Oral rehydyration therapy (under-5) % of cases . .6 51 39 Education Gross enrollment ratio Secondary % of school-age pop. 10 ...53 41 Female 6 47 35 Pupil-teacher ratio: primary pupils per teacher 24 23 37 26 Pupil-teacher ratio: secondary 39 ...16 19 Pupils reaching grade 4 % of cohort ...89 Repeater rate: primary % of tota enroll ... .6 Illiteracy % of pop. (age 15+) ..71 30 24 39 Female %/ of fern. (age 15*) ..83 35 34 52 Newspaper circulation per thou. pop. 10 ... .100 Worid Bank Intemnational Economics Department. _A_pril94  Annex 5 Page 1 of 3 Cambodia - Key Economic Indicators Actual Estimated Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 National accounts (% GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture a/ 52.3 51.8 49.4 46.9 45.1 44.6 43.6 42.6 Industry a/ 14.9 15.1 16.3 17.7 18.3 18.8 19.5 19.9 Services a/ 32.8 33.1 34.4 35.4 36.5 36.7 36.9 37.5 Total consumption 97.7 92.2 92.9 91.9 96.1 94.1 93.4 91.4 Gross domestic fixed investment 8.3 9.4 9.8 14.5 19.5 22.0 22.5 23.0 Government investment 1.2 0.4 0.3 4.3 5.3 6.3 6.4 6.5 Private investment 7.1 9.0 9.5 10.2 14.2 15.7 16.1 16.5 (includes changes in stocks) Exports (GNFS) bl cl 6.1 11.9 15.7 13.3 17.3 14.3 11.4 10.5 Imports (GNFS) b/ cl 12.1 13.5 18.4 19.7 32.9 30.4 27.3 24.9 Gross domestic savings 2.1 7.9 7.3 8.2 5.5 7.2 7.6 9.4 Gross national savings NA NA NA NA NA NA NA NA Memorandum items Gross domestic product 1431 1900 2002 2192 2392 2761 3060 3389 (US$ million at current prices) Gross domestic product per NA NA NA NA NA NA NA NA capita (US$, Atlas method) Real annual growth rates (%. calculated from 1989 prices) Gross domestic product at 1.2 7.6 7.0 4.1 4.0 7.0 7.5 7.5 market prices Gross donlestic income NA NA NA NA NA NA NA NA Real annual per capita growth rates (%, calculated from 1989 prices) Gross domestic product at -1.7 4.8 1.9 0.0 1.5 4.5 5.0 5.0 market prices dl Total consumption NA NA NA NA NA NA NA NA Private consumption NA NA NA NA NA NA NA NA a/ Calculated from 1989 prices. b/ Including re-exports. c/ Including factor services. dl Population growth in 1992 and 1993 includes the repatriated population of about 375,000.  Annex 5 Page 2 of 3 Cambodia - Key Economic Indicators Actual Estimated Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 Balance of payments (US$m) Exports (GNFS) a/ b/ 88 227 314 291 415 394 348 357 Merchandise FOB 86 213 265 219 359 318 261 246 Imports (GNFS) a/ bl 182 258 373 432 786 838 836 845 Merchandise FOB 164 245 351 404 673 711 698 697 Resource Balance -94 -31 -59 -141 -371 -444 -488 -488 Net current transfers c/ 45 6 14 100 270 268 280 254 (including official current transfers) Current account balance -50 -25 -45 -41 -101 -176 -209 -234 (after official capital grants) Net private foreign direct NA NA NA 40 10 85 120 185 investment Long-term loans (net) NA NA NA NA NA NA NA NA Official 12 5 -2 5 35 80 65 80 Private NA NA NA NA NA NA NA NA Other capital (net, including NA NA NA NA NA NA NA NA errors and omissions) Change in reserves d/ NA NA NA NA -64 -61 -33 -54 Memorandum items Resource balance (% of -6.6 -1.6 -2.9 -6.4 -15.5 -16.1 -15.9 -14.4 GDP at current market prices) Real annual growth rates (1989 prices) Merchandise exports NA NA NA NA NA NA NA NA (FOB) Primary NA NA NA NA NA NA NA NA Manufactures NA NA NA NA NA NA NA NA Merchandise imports NA NA NA NA NA NA NA NA (CIF) Public Finance (% GDP at current market prices) Current revenues 3.9 4.4 6.2 5.2 9.2 8.1 8.5 9.2 Current expenditures 7.2 7.4 9.5 6.7 10.5 9.8 9.4 9.4 a/ Including re-exports. b/ Including factor services. c/ There exists a break in the series as project grants through NGOs are included from 1994. d/ Gross foreign reserves of the National Bank ( - means increase).  Annex 5 Page 3 of 3 Cambodia - Key Economic Indicators Actual Estimated Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 Current account surplus (+) -3.3 -1.2 -4.3 -1.5 -0.7 -1.5 -0.7 0.0 or deficit (-) a/ Capital expenditure 1.2 0.4 0.3 4.2 5.3 6.3 6.4 6.6 Poreign financing 1.2 0.5 0.1 4.6 6.4 7.8 6.9 6.4 Monetary indicators M2/GDP (at current market 10.3 5.9 9.9 6.0 7.0 7.2 NA NA prices) Growth ofM2(%) 241.1 28.7 214.1 31.8 31.1 20.0 NA NA Private setor credit growth/ 3.7 16.8 49.5 82.8 185.1 75.3 NA NA total credit growth (%) Price indices (1989=100) Merchandise export price NA NA NA NA NA NA NA NA index Merchandise import price NA NA NA NA NA NA NA NA index Merchandise terms of trade NA NA NA NA NA NA NA NA index Real exchange rate NA NA NA NA NA NA NA NA (US$/LCU) Real interest rates NA NA NA NA NA NA NA NA Consumer price index b/ 152.3 87.9 176.8 31.0 26.1 10.0 6.0 5.0 (% growth rate) GDP deflator 145.6 107.4 75.5 107.4 8.9 9.4 9.0 5.6 (% growth rate) a/ Cash basis. b/ December to December.   Annex 6 Cambodia -- Key Exposure Indicators a/ Actual Estimated Projected 1989 1990 1991 1992 1993 1994 1995 1996 Total debt outstanding and disbursed 376.7 408.3 415.7 393.7 383.2 (TD0) (US$m) b/ Net Disbursements (US$m) 5.0 115.0 -1.0 -11.2 -1.4 Total debt service (TDS) (US$m) b/ 1.0 1.0 1.0 13.0 34.4 Debt and debt service indicators (%) TD0/XGS c/ 466.8 465.0 183.5 125.3 131.6 TDO/GDP 26.1 28.5 21.9 19.7 17.1 TDS/XGS 1.2 1.1 0.4 4.1 11.8 Concessional/TDO 63.2 59.1 58.2 59.2 62.4 IBRD exposure indicators (%) IBRD DS/public DS Preferred creditor/public DS IBRD DS/XGS IBRD portfolio share IFC (US$m) Loans Equity and quasi-equity d/ MIGA MIGA guarantees (US$m) a. Convertible area debt only. Non-convertible area debt amounts to transferable Ruble 840 million. b. Includes public and publicly guaranteed debt, private nonguaranteed debt, use of IMF credits, and short-term capital. c. XGS = exports of goods and services. d. Includes quasi-equity types of both loan and equity instruments.  Annex 7 STATUS OF BANK GROUP OPERATIONS IN CAMBODIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1995) Difference between actual and Last ARPP Amount in US$ million expected supervision rating Project Fiscal (less cancellations) disburse- Development Overall ID Year Borrower Purpose IDA Cancellations Undisbursed ments a/ Objectives status 2250 1 994 Cambodia Emergency Rehabilitation 62.70 15.47 1.28 HS HS 2664 1995 Cambodia Technical Assistance 17.00 18.05 0.00 Total 79.70 33.52 1.28 Total disbursed 50.28 Of which has been repaid 0.00 Total now held by IDA 50.28 Amount sold 0.00 Of which repaid 0.00 Total undisbursed 33.52 a/ Actual disbursements to date minus intended disbursements to date as projected at appraisal. B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1995) Cambodia is not a member of IFC   IMAGING RFeport No: 14465 KH Typ!e: CAS