Cambodia Economic Watch October 2008

CAMBODIA
ECONOMIC WATCH
OCTOBER 2008
ECONOMIC INSTITUTE of CAMBODIA

Research Director : Sok Hach
Project Team Leaders : Neou Seiha
English Editor : Alanna Jorde
Authors : Neou Seiha
Chhun Dalin
TABLE OF CONTENTS
List of Abbreviations and Acronyms iii

List of Tables and Figures v
Foreword vi
Executive Summary vii
Part I: Recent Economic Developments and Outlook 1
1. Cambodian Economic Growth 3

1.1. Agriculture 4
1.2. Industry 6
1.3. Service 8
2. Trade, Investment and Productivity 11
2.1. External Trade and Capital Movements 11
2.2. Private Investment and Stocks of Capital 13
2.3. Productivity 14
3. Price and Monetary Development 17
3.1. Inflation 17
3.2. Exchange rate 18
3.3. Money supply 19
3.4. Interest rate 20
4. Fiscal Development and External Debt 23
4.1. Budget Revenue 23
4.2. Budget Expenditure 24
4.3. Budget Financing and External Debt 26
5. Labor Force, Incomes, and Poverty 29
5.1. Employment 29
5.2. Incomes 30
5.3. Poverty 30
EIC - Cambodia Economic Watch - October 2008 i

Part II: Structural Reforms: Current Implementation and Prospects 33
6. Banking and Financial Sector Reform 35

6.1. Banking and Non Bank Finance 35
6.2. Microfinance 37
7. Public Financial Management Reform 39
7.1. Reform Outcomes: Revenue Collection and Budget Disbursement 39
7.2. Overall PFMRP Revisited and Process for Platform 2 40
8. Trade Reform 45
8.1. Economic Integration 45
8.2. Trade Facilitation 47
9. Public Administrative Reform 49
9.1. Central Administration Reform 49
9.2. Sub-National Administrative Reform 50
10. Legal and Judicial Reform 53
10.1. Achievements and Progress of Legal Reform 53
10.2. Judicial and Alternative Dispute Resolution (ADR) 54
11. Land and Natural Resource Reform 57
11.1. Land Reform 57
11.2. Forestry Reform 58
11.3. Fisheries Reform 59
Bibliographic References
Appendix 1: Key Economic Indicators 63
Appendix 2: Key Structure Reforms 77
ii EIC - Cambodia Economic Watch - October 2008

LIST OF ABBREVIATIONS AND ACRONYMS
ADR Alternative Dispute Resolution

AEC ASEAN Economic Community
ASEAN Association of South East Asian Nation
BSP Budget Strategic Plan
CAMEX Cambodia Stock Exchange Market
CAR Council for Administrative Reform
CDC Council for the Development of Cambodia
CDRI Cambodia Development Resource Institute
CED Custom Excise Department
CIS Credit Information Sharing
CLJR Council for Legal and Judicial Reform
CMA Cambodia Microfinance Association
CMDG Cambodia Millennium Development Goals
COBRA Cambodian Offsite Bank Reporting for prompt corrective
Action
CoM Council of Minister
CR Cambodian Riel
CSES Cambodia Socio Economic Survey
D&D Decentralization and Deconcentration
EIC Economic Institute of Cambodia
ELC Economic Land Concession
EU European Union
FA Fishery Administration
FMIS Establishment of Financial Management Information System
FSDS Financial Sector Development Strategy
GDCC Government-Donor Coordination Committee
GDP Gross Domestic Product
HRD Human Resource Development
HRM Human Resource Management
HRMIS Human Resource Management Information System
ILO International Labour Organization
IMF International Monetary Fund
JMI Joint Government-Donors Monitoring Indicators
MAFF Ministry of Agriculture, Forestry and Fisheries
MBPI Merit Based Pay Initiative
MDTF Multi-Donor Trust Fund
MEF Ministry of Economy and Finance
MFI Microfinance Institutions
MIS Management Information System
MLMUPC Ministry of Land Management, Urban Planning,
EIC - Cambodia Economic Watch - October 2008 iii

and Construction
MoC Ministry of Commerce
MoH Ministry of Health
MoJ Ministry of Justice
NA National Assembly
NBC National Bank of Cambodia
NCDD National Committee for D&D
NIS National Institute of Statistics
NLDA National Authority for Land Dispute Resolution
NSDP National Strategic Development Plan
OWOs One-Window Offices
PFMRP Public Financial Management Reform Program
PMG Priority Mission Group
PPD Public Procurement Department
RGC Royal Government of Cambodia
RSM Royal School of Magistracy
SAD Single Administrative Document
SCM Supreme Council of Magistracy
SSC-TD&TR Sub-Steering Committee on Trade Development and Trade-Related
Investment
TFCP Trade Facilitation and Competitiveness Project
TWGFE Technical Group on Forestry and Environment
VND Vietnam Dong
WB World Bank
WEF World Economic Forum
WTO World Trade Organization
iv EIC - Cambodia Economic Watch - October 2008

LIST OF TABLES
Table 1.1: Cambodia's Real GDP Growth by Sector (%, 2000 prices)
Table 1.2: Trends in the Agriculture Sector (% increase, 2000 prices)
Table 1.3: Trends of Industry Sectors (% increase, 2000 prices)
Table 1.4: Trends of Service Sectors (% increase, 2000 prices)
Table 2.1: Cambodia's Balance of Payments (Million of US Dollar)
Table 2.2: Approved Private Investment Projects*
Table 2.3: Productivity of Workers (% Increase, US$2000 price)
Table 3.1: Cambodia’s Monetary Survey (Billions of Riel)
Table 3.2: Cambodia’s Interest Rate (% per annum, end of period)
Table 4.1: Cambodia’s Central Government Revenue (Billion of riel)
Table 4.2: Cambodia’s Central Government Expenditure (Billions of Riel)
Table 4.3: Cambodia’s Financing Budget (Billion of Riel)
Table 5.1: Cambodia's Population and Labor Force (000's)
Table 6.1: Interest Rates as of June 2008
Table 6.2: Overall Achievements in Banking Sector, Insurance Industry, and
Financial Market (As of August 2008)
Table 7.1: Indicators Tracking PFMRP Progress
Table 7.2: PFM Objectives and Key Indicators
Table 8.1: Status of Remaining WTO-related Laws
Table 8.2: Trading Across Borders
Table 10.1: Adopted Legal Texts in Third Legislature by the NA
Table 10.2: Progress on the Remaining Fundamental Draft Laws
LIST OF FIGURES
Figure 3.1: Cambodia’s Consumer Price Index (December 2002=100)

Figure 3.2: Cambodian riel against US$, Thai baht, and Vietnamese dong
(December 2002=100)
EIC - Cambodia Economic Watch - October 2008 v

FOREWORD
With the aim of providing a broad-based economic analysis to policy makers

and stakeholders, the Economic Institute of Cambodia (EIC) has great pleasure in
presenting the latest issue of “Cambodia Economic Watch”. This EIC series of
publications not only serves as a policy-oriented research paper, but also as a
reference for all readers who wish to gain a snapshot of the Cambodian economy
or monitor its development.
As in previous issues, this edition presents the latest economic performance
and prospects based on the analysis of current data from many reliable sources. It
takes an in-depth look at the trends of the main economic indicators and the
progress of reform policies. It also highlights the urgent measures that need to be
taken to address any of the problems encountered.
In brief, two main phenomena have been noted in 2008. Firstly, the double
digit economic growth rate could not be maintained due to slower growth expected
for garment industry and negative growth rate anticipated for construction sector;
despite tourism sector and financial sector remain relatively strong. These trends
are likely to carry over 2009, and thus a lower economic growth rate is also
expected accordantly.
Secondly, inflation rate is doubled to that of 2007 because of soar in food
prices and impressive increase in transportation, household good and medical care.
Increase of prices of crude oil and food price in the international market and
depreciation of the US dollar, as well as dependency on imported consumer goods,
are main reasons for this huge inflation.
We would like to thank the World Bank for its generous support. Special
thanks to Chea Huot and his team for their invaluable comments, to Dane Hor,
Chhim Rothsothea, and EIC research assistants for their excellent assistance, to all
EIC staff for their enthusiasm, and to other institutions and individuals too
numerous to list.
Sok Hach, Director

Economic Institute of Cambodia
vi EIC - Cambodia Economic Watch - October 2008

EXECUTIVE SUMMARY
Economic Growth
Besides the fourth consecutive year of double digit economic growth realized
in 2007, data from 2005 to 2007 also showed a successive decline in the rate of
economic growth in Cambodia from 13.3 percent in 2005 to 10.2 percent in 2007.
Available data for the first nine months of 2008 and current local and global
economic trends suggest that Cambodia’s economic growth is likely to continue to
slow significantly in 2008.
Cambodia’s two main economic growth-supporting industries, garments and

construction, are continuing their downward trend in 2008. External factors, such
as fears of a recession in the US and the anticipated end of safeguarding measures,
which were imposed by the US and EU against Chinese exports, are adversely
affecting the growth of Cambodia’s garment industry. Residential construction
growth is expected to slow to a negative rate in 2008 and spark bubble risks, given
drops in prices expected for residential construction and land, and housing loan
credit restrictions.
In the meantime, the number of foreign tourist arrivals in Cambodia is continuing

to increase steadily, but at a slightly slower pace because of the global economic slowdown
as well as current dispute along Thai and Cambodian border. The financial sector is still
booming. And, the agricultural sector remains strong thanks to optimal weather conditions
and expanding markets for agro-products. Still, investment in agro-industry has remained
slim in 2008.
In combination with soaring prices for imported raw materials and consumer
goods during the year, Cambodia is expected to enjoy only moderate economic growth of
7 percent in 2008, 3.2 percent-point lower than that of 2007. The downward trend is likely
to carry over to 2009, when the economic growth rate is expected to slow to about 6
percent.
The anticipated launch of a Cambodia Stock Exchange Market and

exploitation of the extractive industries such as oil and gas continue to attract
attention and draw big investors to Cambodia. Cambodia’s economic growth could
be speeded up if significant progress is made in critical reforms. These reforms,
together with effective anti-corruption policies, would improve the economic and
investment environment and potentially spur even higher economic growth.
Trade and Investment
During the first half of 2008, total exports increased by only 6.7 percent,
while total imports increased by 36.3 percent. The total trade deficit is expected to
EIC - Cambodia Economic Watch - October 2008 vii

widen by 37.6 percent in 2008, reaching about 16.7 percent of GDP. The widening
of the trade deficit coupled with an expected income balance deficit will create a
deficit of current accounts (including capital transfer) totaling about 3.9 percent of
the GDP, despite a significant increase in balance of services and a surplus in
transfer accounts.
The deficit is expected to be financed by foreign grants, loans and direct

investment. The overall balance of payments for 2008 is likely to be a surplus of
about 2.1 percent of GDP. Growth in external trade is expected to slow in 2009
because of a slowdown in both in Cambodia garment exports and imports of raw
materials used in the garment and construction industries. Following the same
phenomenon, the balance of payments for 2009 is expected to reach a surplus of
about 2.9 percent of GDP.
During the first half of 2008, the Council for the Development of Cambodia
approved 50 investment projects (most of which were mega projects) worth about
US$4.4 billion in fixed assets. That represented a 3.8 percent decrease in the
number of investment projects, but a five-fold increase in value of fixed assets
compared to the same period in 2007. Most of the investment projects involved the
garment and tourism sectors. Only two investments in agro-industry were approved,
despite increases in agricultural prices and the high rater of agricultural production so
far this year.
Prospects are slim that the number of projects approved in 2009 will
increase significantly given the current global financial crisis and limited local skills
and resources. However, the launch of the Cambodian Stock Market and oil and
gas industry opportunities are likely to attract foreign investors and massive
injections of foreign investment, which should make for a positive investment
outlook for the next few years.
Prices and Exchange Rate
Data for the first eight months of 2008 revealed that inflation jumped to
22.6 percent in August 2008 compared to only 5.2 percent in August 2007. The
price of food rose 36.9 percent, household goods 27.4 percent, transportation 25.8
percent and medical expenses 11.2 percent in August 2008, compared to increases
of 9.9 percent, 0.5 percent, 2.9 percent, and 5.3 percent, respectively, in August
2007. Other consumer prices increased slightly during this period.
Despite an active agricultural sector, and near capacity production of crops,

livestock and fish, food prices continue to increase significantly. This is because
large amounts of local food products (mainly paddy and fish) are informally
exported to neighboring countries, where they are subsequently sold for
considerably higher prices. That is causing shortages of local food supply;
viii EIC - Cambodia Economic Watch - October 2008

Cambodians thus import food mainly from Thailand, at higher prices than it was
exported. This, in turn, pushes the price of food consumed in Cambodia up
considerably.
Recent spikes in transportation costs, meanwhile, are mainly due to

sustained recent jumps in the price of crude oil on the international market. Oil
accounts for a significant share of the production cost of food and other consumer
items. Sustained increases for oil also push up prices for other consumer products
such as medical care items and household goods because Cambodia does not
produce these items nationally and therefore remains highly dependent on imports.
Based on trends from previous years, the overall inflation in December 2008
is expected to be about 21 percent, which is much higher than that of December
2007. However, given a decrease in price of crude oil on the international market,
inflation rate is expected to decrease in 2009.
In year average, the riel in 2008 was relatively stable against the US dollar
and Vietnam dong; but depreciated against the Thai baht by 7.2 percent. Together
with prudent monetary policy of the NBC, the relative strength of the riel was
mainly a result of the US economic recession. The extent of US economic recession
into 2008 would continue weaken the US dollar and the surplus of the balance of
payment would enable the government capacity to maintain a stable exchange rate
against US dollar.
Besides a fixed-rate with the US dollar, fluctuation of the riel against other
trade partner currencies, such the Thai baht, should also be taken into
consideration. Cambodia’s main import partners are Thailand, Vietnam and
Singapore. In theory, the depreciation of the riel against the Thai baht should
encourage Cambodia to increase trade with Thailand. But instead it results in
increases in domestic consumer prices because limited local production capacity
force Cambodians to use higher imported products.
Fiscal Development
During the first half of 2008, the central Government collected CR2,658
billion in revenue, or 66.5 percent of the total it had expected to collect for the
entire year. Tax revenue reached 67.5 and other revenues 62.5 percent of the
planned budget. A high average inflation rate of 20.9 percent during the period was
the main factor in the nominal increase. In real terms, however, central
Government revenue is perceived to achieve only what was planned during the first
half of 2008.
Taxes on income, profit, and capital gain have increased significantly in

2008 and about 77.4 percent of all tax revenue under the budget plan has been
collected. Meanwhile, about 46.9 percent of projected export taxes and 41.8 percent
EIC - Cambodia Economic Watch - October 2008 ix

of import taxes on petroleum were collected. A drop in garment exports and a
Government subsidy on gasoline import taxes explain why revenue has fallen short
of targets in the Government budget. Informal exports and petroleum imports
from neighboring countries are also to blame for state revenue leakage.
Given the pattern of economic activity so far in 2008 and previous trends,
the Government is only expected to meet its budget targets in real term for 2008.
Domestic revenue is expected to reach CR4,766 billion in nominal terms, which
would be a 18.7 percent increase over 2007 and account for 10.8 percent of the
GDP for 2008.
On the expenditure side, the Government spent 44.9 percent of its budget
plan total during the first half of 2008. About 44.5 percent and 45.6 percent had
been used for current expenditure and capital expenditure, respectively. The
Government spent 40.4 percent of the total it had budgeted for civil administration
and 65.1 percent for defense and security. Late reporting from line ministries may
explain why the spending figures were so low halfway through the year.
However, it is worth nothing that spending on civil administration wages

had reached only 41.5 percent of the plan. In the wake of high inflation, the late
disbursement of pay is certain to compromise the ability of civil servants to survive
given that their salaries tend to be low. Spending on national defense and security
may increase significantly during the year due to the current border dispute between
Thailand and Cambodia.
Based on previous trends and given higher-than-expected revenue, total

expenditures are expected to meet targets for 2008. As a share of GDP, total
expenditure for 2008 is likely to increase slightly to 14.6 percent, from 14.4 percent
in 2007. Budget disbursement as a share of GDP for priority sectors may reach 2.4
percent, which would include a slight increase in wages. To maintain living
standards and achieve poverty reduction, spending on wages for civil administration
and priority sectors should, at the very least, keep pace with the rate of inflation.
Overall, the budget deficit is expected to be about CR1,684 billion in 2008,

about a 64.1 percent increase over 2007. As a percentage of GDP, the deficit in
2008 is expected to be about 3.8 percent. The budget deficit is mainly financed by
international borrowing and foreign assistance, of which external loans account for
about 60 percent, which allows Cambodia to avoid domestic debt financing.
Total public debt stock was about US$2.4 billion by the end of 2006 and
was on a sustainable path. But, moderate risks do remain, given the current low
level of Government revenues, the continued existence of external arrears and the
potential for contingent liabilities.
Progress of Structure Reform
x EIC - Cambodia Economic Watch - October 2008

For banking reform, the National Bank Cambodia granted licenses to a new
commercial bank and two specialized banks were transformed to commercial banks. The
National Bank also issued new Prakas on “the Maintenance of Reserve Requirements
against Commercial Banks’ Deposits and Borrowings” which increased the reserve
requirement to 16 percent for foreign currencies. This tool is aimed to reduce the
amount of currency in circulating, tighten loans offering, and reduce the use of US
dollar.
There was also progress made in important reforms in non-banking finance, the
insurance industry and financial market. The Ministry of Economy and Finance issued a
Prakas on “Life Insurance Business” in August 2008 and sub-decree on Micro-Insurance has
been drafting. Capacity building on the future stock exchange continues with the
assistant from Korea.
In the area of Public Financial Management Reform, platform 1 of budget

credibility was completed in December 2007, but some actions do remain. The
incomplete actions in platform 1 have been included in the action plan for platform 2
which was initially expected to start in March 2008. However, platform 2 has not been
implemented as of yet.
In the area of trade reform, the general ASEAN charter, which was signed at
th
the 13 ASEAN summit, was ratified by the king on March 31, 2008 and was forwarded
to the ASEAN Secretary-General on April 02, 2008. Beside, concerning with the WTO
law enactment program, there are two laws were promulgated during the first semester
of 2008. In total, 29 out of 46 promised regulations for the WTO were promulgated.
ASYCUDA was officially launched in May 2008 at Sihanouville port. Average

time of inputting a custom declaration had fallen from one hour to around 20 minutes.
However, traders need time to familiarize themselves with system.
One-stop service office was introduced in the Phnom Penh Special Economic
Zone in September 2008 to simplify investor procedures in the zone.
In the area of administrative reform, a royal decree on “Special Operating Agencies”

was promulgated in March 2008 to improve the quality and capacity of public service
delivery and to strengthen the professional ethics of officials. Beside, the revision of
Merit Based Performance Incentives (MBPI) was revised at the meeting of CAR, MEF,
ministries, and development partners. Then sub-decree “No 29 on MBPI” was approved
in April 2008, which abrogates the sub-decree “No 98 & 38”.
The law on “Administration and Management of Capital, Provinces, Municipalities, Districts and
Khans” was adopted in April 2008 as part of the ongoing Decentralization and
Deconcentration process. The law stipulates that sub-national councils will be
established through indirect elections as required by the Law on “Election of Councils for
Capital, Provinces, Municipalities, Districts and Khans,” which was adopted in April 2008.
EIC - Cambodia Economic Watch - October 2008 xi

Due to the relation of sub-national financial management regime and the
Decentralization and Deconcentration reform, law on “Public Financial System” was
adopted and promulgated in May 2008. A scope of the law is recognized as a
fundamental law to manage the national public financial as well as sub-national in
Cambodia.
In the legal and judicial reform, up to 140 legal texts, including 3 main codes,
were adopted as of June 2008. The law on “Establishing the Commercial Court” which sets
out the details for the court’s structure is being drafted and is expected to be reviewed
after the Ministry of Commerce’s second roundtable discussion. The draft will be
forwarded to the Council of Ministers.
Besides judicial solution, Alternative Dispute Resolution is recognized as quickly

mechanism in dealing with cases. A continuing process of the Alternative Dispute
Resolution tasks have been confirmed by a pilot of Center for Justice Service at District
and labor disputes solution via labor arbitration. Though, a national arbitration center
has not been established yet since the draft sub-decree on “Organizing and Functioning of the
National Arbitration Center” is not approved.
For the land and natural resource reforms, as of December 2007, land systematic
registration result in 1,061,414 land parcels and 794,639 land titles have been distributed
by Royal Government of Cambodia. In the Social Land Concession area, a total amount
of 4,770 hectares has been registered as state private land by the Land Allocation for
Social and Economic Development pilot project and the land will be used for
distributing land to poor and landless families, a statement by the chairman of TWG for
Land in the 12th meeting of the GDCC.
In a statement in phase II of its Rectangular Strategy, the Government

encourages the private sector to plant economically-viable private forests, with proper
and clear technical guidelines, especially on degraded forest land.
According to the Fishery Administration’s 2007 annual report, 509 fishing and
fish shelter communities, in both marine and fresh water, have been established, of
which 447 are fishing communities and 62 are fish shelter communities. In line with its
goals under phase II of the Rectangular Strategy to strengthen the fishery sector, the
Government has said it will take serious action against illegal encroachment of flooded
forests and illegal fishing equipment.
xii EIC - Cambodia Economic Watch - October 2008

Recent Economic
Part Developments and
I Outlook
EIC - Cambodia Economic Watch – October 2008 1

2 EIC - Cambodia Economic Watch – October 2008
Chapter 1
Cambodian Economic Growth
Beside the fourth consecutive year of double digit economic growth rate
realized in 2007, the series data between 2005 and 2007 also showed that Cambodia’s
economic growth rate is slowing down successively, from 13.3 percent in 2005 to
10.2 percent in 2007. Available data for the first nine months of 2008 and current
local and global economic trends suggest that Cambodia’s economic growth is likely
to continue its downward trend significantly over to 2008. This downward trend is
also expected to carry on into 2009.
Table 1.1: Cambodia's Real GDP Growth by Sector (%, 2000 prices)
2004 2005 2006 2007 2008p 2009p
Agriculture -1.0% 15.5% 5.5% 5.1% 5.5% 5.3%
Paddy -12.2% 43.7% 4.3% 7.5% 6.2% 5.6%
Industry 17.0% 12.9% 18.4% 8.4% 6.4% 4.1%
Garments 24.9% 9.2% 20.4% 10.0% 8.8% 6.8%
Services 13.2% 13.1% 10.1% 10.2% 8.4% 7.3%
Tourism 23.4% 22.3% 13.7% 10.3% 9.3% 8.6%
Non-tax GDP 9.4% 13.8% 11.0% 8.1% 7.0% 5.8%
Total GDP 10.3% 13.3% 10.8% 10.2% 7.0% 6.0%
Non-Agriculture 15.8% 12.3% 13.0% 12.2% 7.6% 6.3%
Sources: Compiled from NIS for 2004-2007, EIC projection for 2008-2009
The Cambodia’s two main economic growth-supporting industries,

garments and construction, are continuing their downward trend in 2008. External
factors, such as fears of a depression in the US and the anticipated end of
safeguarding measures, which have been imposed by the US and EU against
Chinese exports, are affecting the growth of Cambodia’s garment industry.
Residential construction growth is expected to slow to a negative rate in 2008, and
spark bubble risks, given drops in prices for residential building and land, and
housing loan credit restrictions.
In the meantime, the number of foreign tourist arrivals in Cambodia is
continuing to increase steadily, but at a slightly slower pace because of the global
economic slowdown as well as current dispute along Thai and Cambodian border.
The financial sector is still successful. And, the agricultural sector remains strong
thanks to optimal weather conditions and expanding markets for agro-products.
Still, investment in agro-industry has remained slim in 2008.

In combination with soaring prices for imported raw materials and
consumer goods, Cambodia is continuing its downward trend and enjoy only
moderate economic growth of 7.0 percent in 2008, 3.2 percent-point lower than
that of 2007. The downward trend is likely to carry on to 2009, when the economic
growth rate is expected to slow to about 6 percent.
The anticipated launch of a Cambodia Stock Exchange Market (CAMEX)
and exploitation of the Extractive Industry such as oil and gas continue to attract
attention and draw big investors to Cambodia. Cambodia’s economic growth could
be speeded up if significant progress is made in critical reforms. These reforms,
together with effective anti-corruption policies, would improve the economic and
investment environment and potentially spur even higher economic growth rate.
1.1. Agriculture
2008 has been another rainy year, and has followed equally wet years in 2007, 2006
and in 2005. The agricultural sector continues to be natural resource-based and growth is
expected to increase slightly to 5.5 percent growth in 2008 from 5.1 percent in 2007.
Growth has been bolstered by an expansion in cultivated areas, higher exported
agricultural product prices, and a continued increase in livestock production. However,
agro-investment has remained weak, despite soaring prices and demand on the global
market.
Effective irrigation and natural resource management systems are urgently
required to achieve sustainable agricultural growth and thus reduce poverty, since
the agricultural sector is the main source of income for the country’s poorest
inhabitants. Based on current trends, agricultural sector growth is expected to be
about 5.3 percent in 2009 and growth prospects remain slim in the coming years.
Crops, especially paddy, continue to be the main source of income for
Cambodian farmers. Data available for the first nine months of 2008 suggest
weather conditions and the volume of crop production have been as favorable as
the previous three years. Cultivated areas continued to increase in 2008, by about
4,800 ha for paddy, even though some places experienced too little or too much
rain and a significant amount of cultivated land was sold to speculators. In
addition, sale prices increased at relatively the same pace as production costs
thanks to impressive gains in export market prices.
As a result, paddy value-added should increase at a moderate pace of about

6.2 percent in 2008, down from 7.5 percent in 2007, and growth prospects will
remain moderate for the next few years. Other crops, meanwhile, grew at a
significant rate of about 10.1 percent, up from 9 percent increase in 2007, and
growth rates are expected to remain strong in coming years.

Table 1.2: Trends in the Agriculture Sector (% increase, 2000 prices)
2004 2005 2006 2007 2008p 2009p
Paddy -12.2% 43.7% 4.3% 7.5% 6.2% 5.6%
Other Crops 9.5% 12.2% 6.5% 9.0% 10.1% 9.6%
Livestock 3.9% 5.6% 8.2% 3.7% 6.6% 6.4%
Fishery -1.7% 5.6% 3.8% 0.8% 0.8% 0.8%
Rubber & Forestry -0.3% 3.5% 6.6% 1.8% 1.1% 1.2%
Total Agriculture -1.0% 15.5% 5.5% 5.1% 5.5% 5.3%
Sources: NIS for2004-2007, EIC projection for 2008 and 2009
Besides revenue they earn from crop cultivation, livestock is another

potential source of income for many Cambodian farmers. Data available for the
first nine months of 2008 suggest value-added for livestock will increase
moderately by 6.6 percent in 2008, a 2.9 percent-point increase over 2007, due to
rising food prices, slightly improving accessibility to credit in rural areas and the
imposition of Government restrictions suspending some livestock product imports.
However, limited initial capital, together with high interest rates or current
difficulty and complexity of accessibility of credit (even some improvement has
been made), are likely to continue to constrain growth in the livestock sector.
Investment in this sector remains slim despite significant increases in local
consumption and prices. Cambodia continues to import large quantities of
livestock products from neighboring countries. Based on the current situation, the
growth rate for livestock is expected to increase in next coming years, but only
moderately to about 6.6 percent in 2008. Investment for Small and Medium
Enterprises could help to speed up growth in this sector.
Based on available data for the first nine months of 2008, fishery production
is expected to be relatively the same as in 2007. The fisheries’ value-added is
expected to grow slightly, by about 0.8 percent in 2008, the same growth rate posted
in 2007. Small fish, used for the production of a popular salt fish pâté, remain
abundant, while normal fish production continues to lag behind.
However, the number of illegal fishing complaints, the use of illegal fishing
instruments and the destruction of essential fish rearing habitats remain important
concerns for the sustainable growth of the sector. These practices have led to
declining fish stocks and a reduction in the number of places available for fish to
breed. Thus, the prospects that fish stocks will expand in coming years is slim.
Growth in the forestry sector is expected to be about 1.6 percent in 2008,
up slightly from 1.1 percent in 2007. But the sector’s growth potential will remain
weak for the next few years. The rubber sector is expected to post a negative 2.6

percent growth rate in 2008 because old growth rubber trees have been replaced
either by new trees that are still too young to produce raw rubber or other crops.
Rubber growth is thus expected to remain flat in coming years.
1.2. Industry
Industry sector growth is continuing on a downward trend in 2008 due to

slower expected growth in garment exports and negative growth in the construction
sector. Other industrial sectors are growing at a moderate pace. The total industrial
growth rate has grown by only 6.4 percent in 2008, down from 8.4 percent in 2007
and 18.4 percent in 2006.
Based on the current trend, the industrial growth rate is likely to continue its
downward trend in 2009, due to expected continued downward trend of construction
and garment sector, before get back to moderate growth in the next coming years.
Progress in Government reforms in line with effective anti-corruption policies
could accelerate industrial growth.
Table 1.3: Trends of Industry Sectors (% increase, 2000 prices)
2004 2005 2006 2007 2008p 2009p
Garments 24.9% 9.2% 20.4% 10.0% 8.8% 6.8%
Food, Beverages & Tobacco -5.3% 9.0% 3.3% 3.1% 5.5% 5.5%
Electricity, Gas and Water 11.3% 12.7% 31.5% 11.7% 12.2% 11.2%
Construction 13.2% 22.1% 20.0% 6.7% -0.3% -5.7%
Other industries 9.3% 17.4% 14.1% 6.4% 8.3% 7.2%
Total Industry 17.0% 12.9% 18.4% 8.4% 6.4% 4.1%
Sources: Compiled from NIS for2004-2007, EIC projection for 2008-2009
The garment industry, the industrial sector’s main contributor, has remained
strong in 2008, but growth continues to slow. According to the Customs
Department of the Ministry of Economy and Finance (MEF), the number of
garment exports rose by 15.4 percent in the first half of 2008, roughly the same as
the increase posted during the same period in 2007. Exports to the US grew by
13.4 percent and those to other markets, mainly the EU, jumped more than 20
percent.
This growth is mainly due to safeguarding measures imposed by the US and EU
to restrain Chinese exports, low labor costs and depreciation of the riel or dollar against
other currencies, especially the Chinese yuan. A labor compliance project monitored by
the International Labor Organization (ILO) that has created a niche market for
Cambodian apparel, Cambodia’s WTO membership and a reduction in export transaction
bureaucracy also is helping to maintain the sector’s growth.

However, the price of Cambodian apparel continues to decline as
competition for the US garment market intensifies, especially from Vietnam and
China, and US economic depression. Cambodian clothing exports to the US are in
direct competition with Vietnam (88 percent) and China (70 percent). The sluggish
US economy has also been a factor in declining prices for Cambodian apparel.
Cambodia’s garment export prices declined by 7.4 percent in the first half of
2008. Prices for garments exported to the US market declined by 10.2 percent
while those to other markets remained roughly the same. The value of garment
exports during the first half of 2008 increased by only 7.8 percent. The value of
exports to the US rose by only 2.2 percent while the value of exports to other
markets such as the EU remained strong.
The Cambodian garment industry is expected to grow by about 7.7 percent
in 2008. But growth is likely to shrink in future years, especially as safeguarding
measures, which have figured prominently in the sustained growth of the
Cambodian garment industry, are set to expire at the end of 2008. Cambodia is
seen as weak in terms of international competitiveness compared to China and
Vietnam and most of Cambodia’s garment factories are owned by foreigners, many
of whom are Chinese.
The end of safeguards need not necessarily prove devastating, however.
Cambodian garment producers have managed to create a niche market thanks to an
ILO-monitored labor compliance project and relatively low labor costs. Together
with Government efforts to reduce transaction export bureaucracy through such
measures as one Window Service and its membership in the WTO, Cambodia
seems poised to retain its major clients/buyers in the EU and US.
Cambodian garment industrial growth will fluctuate along with global
demand in the coming years. In addition, a recent increase in the minimum wage of
garment workers in Vietnam and China is likely to prompt hundreds of garment
factories to relocate elsewhere and industry analysts expect some will move to
Cambodia. Nevertheless, it’s unlikely the industry will be able to post significant
gains unless Cambodia can convince the US to grant it duty-free status under the
US’ New Partnership for Development Act.
Growth in the construction sector, meanwhile, is on a downward trend even
though steel imports increased by 33.6 percent during the first half of 2008. The
number of construction projects recorded by Phnom Penh Municipality during the
first quarter of 2008 was roughly the same as 2007. But prices for imported
materials used in the construction sector during the first half of 2008 increased
significantly compared to the same period in 2007. The price of imported steel, for
instance, increased by 18.2 percent.
Sale prices for newly-constructed residences were perceived as stagnant
during the first half of 2008 and are expected to decrease in the second half of
2008. The value-added for the construction sector is thus expected to decrease by

0.3 percent in 2008, compared to an increase of 6.7 percent, 20 percent, and 22.1
percent in 2007, 2006, and 2005, respectively.
While such negative growth affects a few of the services sectors, and most
notably real estate, it will not undermine the economy like it has in the US. This is
because construction sector and real estate sales transactions are mostly done in
cash in Cambodia. Timely actions from the banks to restrict credit for housing
loans also help to reduce potentially negative impacts of downturns in the
construction sector.
Most of mega construction projects are owned to Korean. As current global
economic crisis is affecting the Korean economy, the Cambodia construction
sector’s growth is expected to carry on its negative growth rate before recovery.
This negative growth is likely to widen to 5.7 percent into 2009, given that sale
prices continued their stagnant or decline.
The food, beverage and tobacco sector is growing at a faster rate in 2008
given higher food prices, according to available data for 2008. The depreciation of
the riel against the Thai baht, ongoing Thai political instability and border disputes
between Thailand and Cambodia should boost the competitiveness of local
products against those imported from Thailand.
However, because investment in agro-sectors remained weak during the first
half of 2008, consumers in Cambodia simply swapped Thai products for
Vietnamese and Chinese products. The food, beverage and tobacco sector is
expected to grow at a slightly higher pace, reaching 5.5 percent in 2008, compared
to 3.3 percent in 2007. This trend is expected to carry on in next few years.
Other industrial sub-sectors such as electricity, gas, water and other
manufacturing sectors are likely to grow at about the same pace they did in 2007.
Moderate growth is projected for these sectors as Cambodia starts to import more
and more electricity from neighboring countries as part of long-term investment
programs.
1.3. Service
Last but not least, the service sector may grow significantly in 2008, but it’s
unlikely to post double-digit growth as growth is expected to slow somewhat in the
tourism, trade and transport sectors. The overall service sector, excluding public
administration, is expected to expand by only 8.7 percent in 2008, which is a drop
from a growth rate of 10.5 percent in 2007 and 10.6 percent in 2006.
Service sector growth has been bolstered by annual increases in the number
of foreign tourist arrivals in Cambodia and a significant expansion in economic
activity, especially the trade, transportation, communication, and financial service
sectors. Based on current economic trends, service sector growth likely will remain
strong but will slow slightly over the next few years.

Table 1.4: Trends of Service Sectors (% increase, 2000 prices)
2004 2005 2006 2007 2008p 2009p
Transport & Communication 9.5% 14.5% 2.1% 7.2% 6.1% 6.2%
Trade 5.9% 8.5% 7.1% 9.5% 7.1% 6.5%
Hotels & Restaurants 23.4% 22.3% 13.7% 10.3% 9.3% 8.6%
Finance 20.6% 19.6% 23.9% 22.2% 32.0% 18.9%
Other Private Services 19.2% 13.1% 14.2% 11.5% 8.2% 7.0%
Total Private Services 14.3% 13.4% 10.6% 10.5% 8.7% 7.5%
Public Administration -6.7% 5.9% -1.3% 0.1% 0.2% 0.8%
Total Services 13.2% 13.1% 10.1% 10.2% 8.4% 7.3%
Sources: NIS for2004-2007, EIC projection for 2008-2009
Trade accounts for the biggest portion of Cambodia’s service sector,

followed by transport and communication. The sectors continue to grow at a
significant pace as a result of the current country’s economic performance.
However, soaring prices for imported oil products and high inflation are expected
slow growth of most services. Trade is expected to grow by 6.1 percent and
transport and communication by 7.1 percent in 2008, compared to 7.2 percent and
9.5 percent, respectively, in 2007.
Meanwhile, physical infrastructure remain poor, especially and roads and
railways. Further rehabilitation and reconstruction of roads is essential to enhance
trading opportunities in remote areas of the country. Increased mobility of people,
goods and services will, in turn, create a positive circle of market dynamics. That
said growth in trade and transportation activities will remain strong in the next few
years.
The hotel and restaurant sector contributed significantly to overall service
sector growth. The number of foreign tourist arrivals in Cambodia during the first
seven months of 2008 increased by only 11.9 percent compared to 22.5 percent
during the same period in 2007. The number of tourists who arrived in Cambodia via
Siem Reap airport declined by 7 percent, while those who came through Phnom
Penh airport and by land/boat increased by 11.9 percent and 30.4 percent,
respectively. The global economic slowdown likely explains these figures and Thai
political instability could also be a factor.
In combination with higher inflation during the year, the tourism sector is
expected to expand by about 9.3 percent in 2008, a drop in growth of about 1
percent-point compared to 2007. However, the number of foreign tourist arrivals is
expected to grow significantly, but with a slower pace, based on expected slower
growth rate of global economy. This means that the hotel and restaurant sector will

remain strong, but its growth rate will continue its downward trend to about 8.6
percent in 2009, from 23.4 percent in 2004, before recovery.
The financial and real estate sectors performed well during the first half of
2008 and the financial sector is expected to continue to grow in the second of 2008
due to the expansion of economic activities and bank trust. But the real estate
sector will slow significantly as a result of declining prices expected for land and
residential construction, and credit restrictions imposed by banks.
In 2008, the growth rate is projected about 32 percent for financial sector
and only 5.8 percent for the real estate sector, compared to 22.2 percent and 10.8
percent, respectively, in 2007. Even though most real estate transactions were
completed in cash rather than bank credit, a slowdown in growth in this sector may
adversely affect growth in other service sectors such as entertainment activities.
Other service sectors are expected to grow only about 8.2 percent in 2008, on
average, down from 11.5 percent in 2007. These downward trends are expected to
continue for the next few years.

Chapter 2
Trade, Investment and Productivity
In 2008, Cambodia’s garment external trade is slowing down, but the value of
imported cars, motorcycles, buses, trucks, tractors, and alcohol increased
significantly. That leads to widen the Cambodia’s trade deficit. However, trade
deficit, as well as income account deficit, is totally financed by revenues from foreign
tourists, private and government transfers, and impressive foreign investment.
2.1. External Trade and Capital Movements
Total exports in the first half of 2008 increased by 6.7 percent, compared to
12.6 percent during the same period in 2007, according to available data from the
MEF. The drop reflects a slow down in the volume of garment exports. While
exports of agricultural products rose sharply, their overall volume remained low and
were made through informal channels, causing serious leakages in tax revenue.
In contrast, imports accelerated 36.3 percent during the first half of 2008 and
imports of petroleum and raw materials, especially those used in the garment sector,
made up the lion’s share. While growth in the value of imported fabric slowed, the
value of imported cars, motorcycles, buses, trucks, tractors, beer and other alcohol
increased significantly. Growth in imports is a sign of an emerging middle class
whose disposal income has grown as a result of land and housing speculation.
The total trade deficit is expected to widen in 2008, reaching about US$1.8
billion in nominal terms or about 16.7 percent of GDP, up about 37.6 percent from
2007.
Due to a significant increase in the number of foreign tourist arrivals in
Cambodia, the income generated from tourist spending (travel) is expected to reach
about US$1.5 billion in 2008, representing a 32.3 percent increase from 2007.
Unfortunately, revenue from tourist transportation remains low and is likely
to reach only about US$255 million in 2008, a 21.7 percent jump from 2007, since
Cambodia does not have a stake in any of the airlines or other transportation
industries serving international markets that are funneling tourists into the country.
The service sector surplus continues to improve significantly in 2008 in
nominal terms, up by 42 percent from 2007 and climbing to 8.3 percent of GDP.
Outflows of income continue to figure prominently in 2008 and largely take
the form of dividends and profits from foreign investments in the country,
particularly in the garment industry, and payments for foreign technical assistance by
donors. The 2008 income account is expected to reach a deficit of about US$430
million or about 3.9 percent of GDP, which is an increase of about 19.3 percent
from 2007.

Table 2.1: Cambodia's Balance of Payments (Million of US Dollar)
2004 2005 2006 2007 2008p 2009p

Exports of Goods 2,589 2,910 3,694 4,089 4,823 5,358
Imports of Goods 3,269 3,928 4,749 5,424 6,660 7,230
Trade Balance -681 -1,018 -1,056 -1,335 -1,837 -1,872

Agriculture 179 350 401 532 799 983
Textiles & Garments 1,082 1,173 1,409 1,534 1,767 1,860
Oil & Gas -610 -842 -1,123 -1,306 -2,119 -2,106
Other Goods -1,332 -1,698 -1,742 -2,094 -2,284 -2,609
Balance of Services 291 471 504 644 915 1,085

Transportation -194 -233 -271 -301 -407 -493
Travel 556 743 841 1,012 1,342 1,578

Others -72 -38 -65 -67 -21 -1
Balance of Incomes -221 -254 -290 -360 -430 -487
Balance of Transfers 497 535 764 797 809 821

Private Transfers 176 209 315 381 383 385
Government Transfers 321 326 449 416 426 436
Current Accounts -115 -265 -77 -253 -543 -453

Financial Accounts 219 335 322 669 774 808
Official Loans Net 154 144 141 120 129 144
Foreign Direct Investment 279 381 408 866 724 550
Others -214 -190 -226 -317 -80 114
Change in Foreign Reserves 105 70 245 415 231 355

At the National Bank (NBC) 70 109 182 277 243 260
Outside NBC 35 -39 63 138 -12 95
Sources: Compiled from NBC for 2003-2007, EIC projection for 2008-2009
Net private transfers are expected to reach US$383 million in 2008, relatively
the same as 2007. Combined with a large inflow of foreign aid, Cambodia is likely to
have a surplus of about US$809 million in its transfers account in 2008, which
represents about 7.3 percent of GDP. In total, its current account deficit, including
official transfers, has increased to US$543 million or about 3.9 percent of GDP.
Nevertheless, the financial account is expected to be in surplus by about

US$774 million, reaching 7.3 percent of GDP in 2008, which is about a 15.7 percent
increase from 2007 because of an impressive foreign investment expected during the
year. To sum up, the overall balance of payments is expected to reach a surplus of

about US$231 million in 2008, which represents a 44.4 percent decrease from 2007
and about 2.1 percent of the GDP.
It is worth noting that since Cambodia is a dollarized economy, with
individuals and institutions able to hold foreign currencies, the overall change in
the balance of payments reflects not only foreign reserves held by the National
Bank of Cambodia (NBC), but also economic agencies and households.
Growth in external trade (both exports and imports) is expected to slow due
to anticipated drops in the growth of Cambodian garment exports and of imports
of raw material used in the garment industry and the construction industry.
The trade deficit is expected to be relatively the same in 2008 because of an
expected drop or stabilization in the prices of oil and other construction materials on
international markets. Therefore, Cambodia’s trade deficit may reach only 15 percent
of GDP in 2009, about 1.7 percent point lower than in 2008.
Despite continuous improvement in balance of services, thanks to expansion in
the tourism sector, the deficit in current accounts is expected to reach 3.6 percent of
GDP in 2009, down from 4.9 percent in 2008.
The deficit was partly financed by foreign aid in the form of grants and
loans and foreign private investment in Cambodia, which represented about 6.5
percent of GDP. Overall, Cambodia’s balance of payments for 2009 is expected to
reach a surplus of about US$355.
2.2. Private Investment and Stocks of Capital
During the first half of 2008, the Council for the Development of
Cambodia (CDC) approved 50 investment projects worth about US$4.4 billion in
fixed assets. That represented a 3.8 percent decrease in the number of investment
projects, but a five-fold increase in value of the fixed assets compared to the same
period in 2007 because most of the projects approved in 2008 were mega projects.
Most of the investment projects involved the garment and tourism sectors,
which accounted for 24 and 6, respectively, of the approved investment projects and
US$25 million and US$4.1 billion of fixed assets. The investment activity was bolstered
by healthy garment exports and tourism activities during 2008. It is worthy noting that
only two investments in agro-industry have been approved, despite increases in
agricultural prices and high agricultural production this year.

Table 2.2: Approved Private Investment Projects*
2008
2003 2004 2005 2006 2007
(Jan-Jun)
Number of Approved Investment Projects
Total 66 60 104 99 130 50
Garments 31 35 53 49 39 24
Hotels 11 3 4 4 11 6
Others 24 22 47 45 80 20
Fixed Assets Approved (Millions of US Dollars)
Total 314 231 695 4,451 2,667 4,430
Garments 75 85 118 212 171 90
Hotels 114 23 65 22 1,101 4,108
Others 125 123 512 2,217 1,395 232
Source: Compiled from CDC, Cambodian Investment Board

(*) Excluding registered investments of mega-projects of more than US$1 billion
In total, investment projects continued to increase in 2008, but at a slower pace

than in 2007. Investment in garment factories continued in 2008 even though US and
EU safeguard measures are slated to end soon because it is widely speculated that
Cambodia will host some of the foreign investors who are expected to move out of
Vietnam and China. Meanwhile, investment in tourism projects is likely to remain high.
But investment in the construction sector is likely to fall in 2008, especially
residential construction because of expected of the stagnant or decline in sale prices and
restrictions on housing loans. Limited infrastructure development and lack of skilled
human resources will keep projected growth in agro-industry to a moderate level.
For 2009, together with global crisis and limited local skill and resources,
expected number of approval projects became slim. However, the investment
outlook remains optimistic for the next few years as the upcoming launch of the
Cambodian Stock Market and oil and gas industry opportunities are likely to attract
foreign investors and massive injections of foreign investment.
2.3. Productivity
Productivity is the key to increased competitiveness and creating the sort of

businesses that are attractive to investors. According to an EIC estimate, the total
productivity of workers (value-added per worker) in Cambodia increased by about
6.1 percent per annum during the last decade, while real GDP growth rose by 9.3
percent per annum. This growth has allowed Cambodia to remain relatively strong
competitively.

Table 2.3: Productivity of Workers (% Increase, US$2000 price)
2004 2005 2006 2007 2008p 2009p
Agriculture -3.1% 13.0% 3.3% 3.3% 4.0% 3.9%
Paddy -14.2% 40.5% 2.2% 5.6% 4.6% 4.2%
Industry 7.4% 2.3% 6.2% 2.4% 1.0% 0.5%
Textile & Garment 9.4% -0.7% 5.6% 1.7% -0.3% -0.2%
Private Services 8.6% 6.5% 4.9% 6.6% 9.8% 4.6%
Tourism 8.2% 7.9% 5.1% 3.9% 3.5% 3.3%
Total (*) 6.1% 9.8% 7.2% 5.5% 5.3% 3.9%
Source: EIC Estimate

(*) Excluding Public Administration
Growth in agricultural production in 2008 has spurred productivity. Labor

productivity in the agricultural sector is expected to grow by 4 percent in 2008, up
from 3.3 percent in 2007. Since the agricultural sector remains almost totally
dependent on weather conditions, the key to maintaining steady growth in
productivity is investing in irrigation systems. Based on projections for the
performance of the agricultural sector over the next few years, labor productivity is
likely to continue to increase at the same pace it did in 2008.
In the meantime, productivity in the garment industry is expected to
decrease by about 0.3 percent in 2008, compared to a 1.7 increase in 2007 as
garment exports slow. The drop is expected despite a boost in training
opportunities for mid-level factory management. Labor productivity in the
construction sector is also expected to decrease, while that of other industrial
sectors continues to grow at a very moderate rate.
Total labor productivity in the industrial sector is expected to increase by
only 1 percent in 2008, down from 2.4 percent in 2007. Based on the current
performance of the industrial sector, labor productivity growth is likely to remain
slim over the next few years.
In contrast, labor productivity in the service sector (excluding public
administration) is expected to increase at a faster rate of about 9.8 percent in 2008,
up from the 6.6 percent increase in 2007. This is largely due to a significant
increase in labor productivity in the real estate and financial sectors and moderate
growth in other service sectors.
To sum up, total annual worker productivity growth, excluding public
administration is expected to slow to 4.8 percent, reaching US$1,143 per worker in
real terms and is expected to continue to slow over the next few years.

Chapter 3
Price and Monetary Development
The inflation is accelerated during 2008 with double speed by soaring in
food prices and transportation cost. At the same time, the exchange rate of the riel
against US dollar is relatively stable; whereas the riel in circulation increased
significantly compared to that of US dollar.
3.1. Inflation
The inflation rate jumped to double digits in December 2007 to 10.8

percent from only 2.8 percent in December 2006. External factors such as soaring
crude oil and food prices, fears of a US economic recession and weak economic
performances in certain sectors of the Cambodian economy have caused higher
inflation. These problems have persisted in 2008.
Figure 3.1: Cambodia’s Consumer Price Index

(December 2002=100)
Source: National Institute of Statistics
Data for the first eight months of the year revealed that inflation jumped to
22.6 percent in August 2008 compared to only 5.2 percent in August 2007. The
price of food rose 36.9 percent, household goods 27.4 percent, transportation 25.8
percent and medical expenses 11.2 percent in August 2008, compared to increases
of 9.9 percent, 0.5 percent, 2.9 percent, and 5.3 percent, respectively, in August
2007. Other consumer prices increased slightly during this period.
Despite an active agricultural sector, and near capacity production of crops,
livestock and fish, food prices continue to increase significantly. This is because
large amounts of local food products (mainly paddy and fish) are informally

exported to neighboring countries, where they are subsequently sold for
considerably higher prices on the international market.
These informal exports create shortages of local supply to local demand for
food. The local market responds to such shortages by importing food (for higher
prices than it was exported), mainly from Thailand. This, in turn, pushes the price
of food consumed in Cambodia up considerably.
Recent spikes in transportation costs, meanwhile, are mainly due to
sustained recent jumps in the price of crude oil on the international market. Oil
accounts for a significant share of the production cost of food and other consumer
items. Sustained increases for oil also push up prices for other consumer products
such as medical care items and household goods.
Because Cambodia does not produce these items nationally and therefore
highly dependent on imports and depreciation of the riel against other currencies is
also the reason for higher inflation. Based on trends from previous years, the
overall inflation in December 2008 is expected to be about 21 percent, which is
much higher than that of December 2007.
3.2. Exchange Rate
The riel remained relatively stable against the US dollar during the first six
months of 2008 at around CR4,000 for one US dollar. The riel appreciated from
CR4,077 in August 2007 to CR3,990 in February 2008 for one US dollar. The riel
then began to depreciate against the US dollar in March 2008 and was down to
CR4,078 for one US dollar in June 2008.
In average, the riel appreciated about 1.3 percent against the US dollar
during the first half of 2008 compared to the same period of 2007. This relative
strength of the riel was due to an economic crisis in the US and increasing demand
for the riel in rural areas during the farming season. Farmers need the riel to begin
agricultural cultivation. Prudent monetary policy by the NBC and surplus of
balance of payment are the main reasons.
However, the US dollar began to re-appreciate against other currencies,
including the Cambodian riel, in March 2008. Thus, prudent monetary policy and
timely action is crucial to maintaining a stable exchange rate. The average exchange
rate for 2008 is expected to be about CR4,081 for one US dollar, an appreciation of
about 0.6 percent over 2007.

Figure 3.2: Cambodian riel against US$, Thai baht, and Vietnamese dong
(December 2002=100)
Source: EIC, Data compiled from the IMF and NBC
The riel depreciated slightly against the Vietnamese dong and Thai baht during
the first half of 2008. The riel appreciated about 0.9 percent against Vietnamese dong,
trading around VND4 for one riel, and depreciated about 7.2 percent against Thai baht,
trading around CR124 for one baht during the first half of 2008.
The depreciation of the riel against the Thai baht generally boosts the
competitiveness of Cambodian consumer products, especially agricultural products,
in terms of exports and local consumer products compared to Thai products.
However, since the capacity of Cambodian producers tends to be static and/or
limited, Cambodian consumers must continue to rely on higher-priced imported
products from other countries, especially from Vietnam and Singapore.
3.3. Money Supply
Total money supply continued to rise sharply during the seven months of
2008. Total money supply reached CR12,707 billion in July 2008, a 38.9 percent
increase from July 2007 or 12.3 percent increase from December 2007. During this
period, both local currency in circulation and foreign currency deposits increased at
the same rate, because the Government tends to increase riel circulation in the
market during depreciation of US dollar.
Growth of foreign currency deposits slowed to only 38.7 percent in July
2008 compared to 57.9 percent in July 2007; whereas the amount of local currency
in circulation increased 44.1 percent in July 2008 compared to only 14.7 percent in
July 2007. As a percentage of GDP and based on current trends, the total money
supply is expected to increase 40.9 percent of current 2008 GDP, compared to only
32.3 percent in 2007, thank to significant increase of local currency in circulation.

Table 3.1: Cambodia’s Monetary Survey (Billions of Riel)
2003 2004 2005 2006 2007 Jul-08
Total Money Supply 3,329 4,329 5,025 6,942 11,311 12,707
Local Currency in Circulation 908 1,115 1,282 1,600 1,990 2,424
Foreign Currency Deposits 2,310 3,079 3,589 5,196 9,138 10,050
Other Liquidity 111 135 153 147 183 233
Total Money Demand 3,329 4,329 5,025 6,942 11,311 12,707
Credit to Private Sector 1,337 1,817 2,394 3,628 6,385 9,493
Credit to Public Sector 360 360 327 287 297 270
Other Money Demand 1,632 2,153 2,305 3,028 4,629 2,944
Source: NBC
Foreign currency continues to dominate money supply in 2008, representing

about 79.1 percent of the total money supply and 33.6 percent of GDP. Riel
liquidity has remained limited, despite it increases significantly during the year,
representing about only 19.1 percent of the total money supply and only 6.6
percent of the GDP. The growth in foreign currency reflects strong activity in
sectors such as tourism and garments. At the same time, a large amount of foreign
currency, and especially US dollars, was transferred out of the country by foreign
investors to their respective countries.
On the demand side, credit to the public sector continued to decline,
together with an increase in Government deposits. Credit to the private sector
continued its sharp increase, jumping 94.2 percent in July 2008 compared to 57.5
percent increase in July 2007.
Lower interest rates in 2008 compared to 2007 and growing demand for
credit among the trade, services (including real estate), agricultural and
manufacturing sectors has resulted in the expansion of credit. The expanding
private banking system, meanwhile, helped push interest rates down. It is worth
noting that the demand for credit among the construction sector decreased by
about 1.7 percent during the first half of 2008 compared to the same period in
2007. These trends are expected to continue in 2008. In total, credit to the private
sector is expected to reach 33.4 percent of the GDP in 2008.
3.4. Interest Rate
The average interest rate on 12-month deposits and loans in riel increased
slightly to 7.6 percent and 22.5 percent in august 2008 from 7 percent and 22 percent
in August 2007, respectively. This slight increase resulted from a shortage of and
growing demand for loan credit in riels, especially in rural areas, given favorable
climate conditions during the last three years and higher price of agro-products.

Table 3.2: Cambodia’s Interest Rate (% per annum, end of period)
2004 2005 2006 2007 Aug-08
Riel 12-months Deposits Rate 6.6 6.8 6.4 7.1 7.6
US$ 12-months Deposits Rate 3.7 4.0 4.8 4.9 5.6
Riel 12-months Lending Rate 18.7 18.6 23.1 22.3 22.5
US$ 12-months Lending Rate 16.7 16.2 16.7 16.0 15.9
Inflation rate (yearly average, in riel) 3.9 5.8 4.7 5.9 -
Inflation rate (yearly average, in US$) 2.9 3.8 4.4 7.1 -
Source: NBC and NIS
Average interest rates of a 12-month deposit in US dollars continued to

increase gradually to about 5.6 percent in August 2008, about 13.6 percent up from
August 2007. Nevertheless, the average interest rate of 12-month loans decreased
slightly to 15.9 percent in August 2008, about 4.5 percent decrease from August
2007, due to increased competition among the commercial banks that are providing
credit. This came despite of an increase of bank reserve required by the National
Bank.
However, the average of interest rate loans is expected to increase in 2009.
Because most of credit loans provided by the local banks are perceived to already
reach the peak, while credit demand keeps increasing in real estate and construction
sector.
Interest rates loans have remained high because of a shortage of local
deposits, which are required to satisfy the demand for credit resulting from
economic expansion and the high risks associated with lending. The informality of
businesses, the lack of infrastructure or a legal framework, and poor law
enforcement are factors behind this high level of risk and uncertainty, which forces
banks to charge higher interest rates than they would in other countries.
In addition, to avoid the high risk of unpaid loans, a large amount of local
deposits have gone overseas and are therefore unavailable for lending to local
borrowers. At the same time, most local borrowers derive their credit from
overseas. Thus, annual interest rates on loans or deposits in riel and US dollars are
quite high compared to neighboring countries.
Cambodians, particularly those in rural areas, are mostly short of initial

capital and are unable to benefit from the country’s economic growth. Lower
interest rates would encourage them to invest, thereby spurring economic growth
in rural areas.

Chapter 4
Fiscal Development and External Debt
During 2008, the Government also collected much revenue to what has
been planned. However, this amount remained relatively stable compared to the
level of nominal GDP, as well as that of Government expenditure. The deficit will
be mainly financed by foreign assistance. Cambodia’s debt situation remains on a
sustainable path with moderate risk of debt distress.
4.1. Budget Revenue
In 2008, the central Government expects to raise CR3,997 billion in

revenue, which would be an increase of 21.5 percent over its planned revenue for
2007, assuming Cambodia’s economy grows 6 or 7 percent in 2008. Taxation
remains its main source of revenue and is expected to account for 82.7 percent of
total revenue or 23.3 percent more than the amount the Government collected in
taxes in 2007. Other sources of state income, including capital revenue, represent
only about 17.3 percent of total revenue.
Revenue from the Custom’s Department accounts for 51 percent of total
planned revenue; whereas that of domestic tax represents only 27.8 percent.
However, the share of domestic tax revenue as a portion of total tax revenue has
been increasing gradually, up from 6 percent in 1994 to about 27.8 percent in 2008
of total planned revenue, due to the strong performance of the domestic private
sector.
During the first half of 2008, the central Government collected CR2,658
billion in revenue, or 66.5 percent of the total it had expected to collect for the
entire year. Tax revenue reached 67.5 and other revenues 62.5 percent of the
planned budget. An high average inflation rate of 20.9 percent during the period
was the main factor in the nominal increase. In real terms, however, central
Government revenue is perceived to achieve only what was planned during the first
half of 2008.
Taxes on income, profit, and capital gain increased significantly in 2008, of
which about 77.4 percent of the plan was implemented, reflect private activities.
Meanwhile, revenue collected in international trade taxes was only 58 percent of
the projected total in nominal terms. About 46.9 percent of project export taxes
were collected and 41.8 percent of import taxes on petroleum. A drop in garment
exports and a Government subsidy on gasoline import taxes explain why revenue
has been short of targets in the Government budget. Informal exports and
petroleum imports from neighboring countries are also to blame for state revenue
leakage.

Given the pattern of economic activity so far in 2008 and previous trends,
the Government is only expected to meet its budget targets in real term for 2008.
Domestic revenue is expected to reach CR4,766 billion in nominal terms, which
would be a 18.7 percent increase over 2007 and 10.8 percent of the GDP for 2008.
Table 4.1: Cambodia’s Central Government Revenue (Billion of riel)
2004 2005 2006 2007e 2008p 2009p
Total Domestic Revenues 2,127 2,626 2,918 4,015 4,766 5,524
Tax Revenues 1,577 1,911 2,271 3,396 4,077 4,785
Profit Taxes 117 172 262 388 490 593
Excise Taxes 304 380 418 731 878 1,052
Value Added Taxes 598 730 870 1,143 1,430 1,707
International Trade Taxes 513 573 645 1,020 1,140 1,269
Other Tax Revenues 44 56 76 114 140 164
Non-tax Revenues (1) 549 715 647 619 688 739
Tourism Activity (2) 118 160 190 224 300 348
Quota Auction/Export License 76 123 123 123 123 123
Posts & Telecommunication 94 123 83 77 118 134
Other Non-tax Revenues (1) 261 310 251 196 148 134
Memorandum Items
Taxes From Petroleum Products 442 461 592 718 766 807
Tax Department Revenue 405 556 727 1,029 1,363 1,695
Customs Department Revenue 1,173 1,355 1,544 2,367 2,714 3,090
Sources: MEF for 2004-2007, and EIC for 2008-2009
(1) Including Capital Revenue

(2) Including Tourism Incomes, Civil Aviation and Visa Fees
However, opportunities exist to further improve revenue collection. More

effective measures have to be taken to enforce the Law on Taxation, to extend the
tax base to the informal sector, and to strengthen tax auditing to reduce the
amount of revenues lost by corruption. Large-scale smuggling continues, especially
of petroleum, due to the high tax imposed in Cambodia compared to neighboring
countries. To combat the illegal trade of petroleum and other products Cambodia
should strengthen its anti-smuggling operations at each border checkpoint.
4.2. Budget Expenditure
The Government expects to expand budget expenditures to about CR5,673

billion in 2008, which is an increase of 22.7 percent from the 2007 budget plan and
exceeds actual 2007 disbursements by 12.5 percent. Civil administration

disbursements are expected to decrease by 6.2 percent, while spending on defense
and security is expected to increase slightly by 1.4 percent in 2008. Spending for
health, education, agriculture, and rural development is stated to increase by 9
percent, 5.1 percent, 10.6 percent, and 25.9 percent, respectively, compared to
2007.
It is worth noting that the increase in spending for all of these priority
sectors, with the exception of rural development, is still planned to be lower than the
average increase in spending for other sectors. Thus, Government funding of
priority sectors is not expected to be sufficient to meet Cambodian needs in 2008.
In addition, the unallocated budget will increase by 41.6 percent in 2008, due to an
increase of reserve budget and budget reserved for other unexpected expenditures. It
shares about 23.4 percent of total planned expenditures.
Table 4.2: Cambodia’s Central Government Expenditure (Billions of Riel)
2004 2005 2006 2007p 2008p 2009p
Total Expenditure 2,962 3,182 4,112 5,041 6,449 7,314
Current Expenditure 1,769 1,967 2,592 3,091 4,197 5,007
Civil Administration 1,346 1,516 2,072 2,410 3,179 3,838
Priority Sector 1 573 644 791 791 1,060 1,282
Other Civil Ministries 773 872 1,281 1,619 2,118 2,557
Defense & Security 423 451 520 681 1,018 1,169
Defense 272 289 344 505 763 861
Security 151 162 176 176 255 307
Capital Expenditure 1,193 1,215 1,520 1,950 2,252 2,307
Through National Treasury 296 315 379 440 718 668
Direct External Financed 896 900 1,141 1,510 1,534 1,639
Memorandum Items
Wages 615 640 711 822 1,621 1,941
Non-Wages Operating Costs 971 1,130 1,256 1,770 2,576 3,066
The Government spent 44.9 percent of the total amount it had budgeted for
expenditures in the first half of 2008, 44.5 percent and 45.6 percent had been used
for current expenditure and capital expenditure, respectively. The Government
spent 40.4 percent of the total it had budgeted for civil administration and 65.1
percent for defense and security.
Late reporting from line ministries may explain why the spending figures
were so low halfway through the year. However, it is worth nothing that, spending
1
health, education, agriculture, and rural development

on civil administration wage reached only 41.5 percent of the plan. This late
disbursement and low salary, together with higher inflation, would burden their
survival life. The spending for national defense and security may increase
significantly during the year due to current conflict between Thai and Cambodian
on border issues.
Based on previous trends and given higher-than-expected revenue, total
expenditures are expected to meet targets for 2008. As a share of GDP, total
expenditure for 2008 is likely to slightly increase to 14.6 percent, from 14.4 percent
in 2007. Budget disbursement as a share of GDP for priority sectors may reach 2.4
percent, which would include a slight increase in wages. To maintain living
standards and achieve poverty reduction, spending on wages for civil
administration and priority sectors should, at the very least, keep pace with the rate
of inflation.
4.3. Budget Financing and External Debt
During the first half of 2008, the deficit reached CR157 billion or 6.3
percent of what was planned in the budget law to be totally financed by foreign
assistance. Late disbursement and impressive increases in tax revenue during the
period explain this low deficit.
Nonetheless, based on previous trends, the budget deficit is expected to
about CR1,684 billion in 2008, about a 64.1 percent increase over 2007. As a
percentage of GDP, the deficit in 2008 is expected to be about 3.8 percent, up
from 2.9 percent in 2007. The budget deficit is mainly financed by international
borrowing and foreign assistance, of which external loans account for about 60
percent, which allows Cambodia to avoid domestic debt financing.
Table 4.3: Cambodia’s Financing Budget (Billion of Riel)
2004 2005 2006 2007p 2008p 2009p

Total Domestic Revenue 2,127 2,626 2,918 4,015 4,766 5,524
Total Expenditure 2,962 3,182 4,112 5,041 6,449 7,314
Total Deficit (cash basis) -835 -556 -1,194 -1,026 -1,684 -1,790
Foreign Financing 894 984 1,584 1,615 1,684 1,790
Grants 372 538 790 730 749 778
Loans (net) 522 446 794 885 935 1,012
Domestic Financing -59 -428 -390 -589 0 0
Banks 25 -199 -333 -1,114 0 0
Others -84 -229 -57 525 0 0
Memorandum Items
Net Foreign Reserves at NBC 2,836 3,336 4,388 5,496 6,468 7,508

Updated data on the public debt is not yet available. Nonetheless, the public debt
stock was revised to about US$2.4 billion at the end of 2006, thanks to a reduction from
US$1,5 billion to US$457 million in debt owed to the Russian Federation. As a
percentage of nominal GDP, the public debt accounted for about 33.2 percent in 2006,
down from about the 37.1 percent in 2005.
Based on Joint IMF/World Bank Debt Sustainability Analysis for 2007, the ratio
of debt to GDP was expected to further decline in 2007. External debt constitutes about
95 percent of public debt and about 35 percent of the external debt was owed to the
Russian Federation and United States.2
Given Cambodia’s continued strong economic growth and the highly
concessional structure of its lending, debt is on a sustainable path. However, moderate
risks remain, particularly given the low level of current government revenues, the
continued existence of external arrears and the potential for contingent liabilities.
If Cambodia reaches debt-rescheduling agreements with the two creditors and
begins servicing debts in 2007, the risk of debt distress will decline further, though low
revenue collection will continue to pose risks to debt sustainability.3
2 IMF, Cambodia 2007 Article IV Consultation.

3 IMF, Cambodia 2007 Article IV Consultation.

Chapter 5
Labor Force, Incomes, and Poverty
5.1. Employment
Updated labor force data is expected with the release of findings from the
Cambodia Socio Economic Survey (CSES) of 2007. The 2004 CSES pegged the total
labor force at about 7.5 million, or 56 percent of the total population, with an
approximated 0.2 million people entering the labor market every year. Based on these
figures, Cambodia’s total labor force was an estimated 8.4 million in 2007 and is likely to
reach about 8.6 million in 2008, of which about 20 percent are under 18 years old.
It should be noted that a very narrow definition of employment was used for
the purposes of the CSES, which included anyone who had worked at least one hour
during the past reference survey week. The employment rate exceeded 99 percent in
2004, according to the CSES. Thus, the rate would have included the under-employed.
EIC projects job growth to be 2 percent in 2008.
Table 5.1: Cambodia's Population and Labor Force (000's)
2004 2005 2006 2007 2008p 2009p
Total Population 13,550 13,829 14,164 14,446 14,679 14,915
Total Labor Force 7,646 7,907 8,165 8,402 8,624 8,844
Total Employment 5,677 5,879 6,085 6,231 6,325 6,425
Formal Sectors 371 411 463 499 521 557
Garment 294 323 368 398 414 445
Tourism 78 88 95 101 107 112
Public Administration 335 335 335 335 335 325
Informal Sectors 5,306 5,468 5,622 5,731 5,804 5,869
Rural 3,973 4,061 4,145 4,215 4,275 4,331
Urban 1,333 1,407 1,477 1,516 1,529 1,537
Sources: Ministry of Planning and EIC estimates
The pace of job created by garment sector slowed-down significantly in 2008.

About 348 thousand of garment workers were employed at export-oriented garment
factories in August 2008, which was a 3.8 percent increase over August 2007. Total job’s
number of garment sector is expected to increase by only about 4.1 percent in 2008,

which was a 4 percent drop in the job growth rate. Slower growth in garment product
exports was to blame for the drop.
At the same time, employment in the tourism sector was expected to be about 5.6
percent in 2008, about 1 percent point lower than in 2007. Job growth rate in agriculture
remains low due to the significant volume of people who are under-employed in the
sector. It was expected to be about 1.4 percent in 2008, relatively the same as that in 2007.
The overall under-employment rate remains high, especially those are in the
countryside. Thus, they are continuing to migrate to Phnom Penh and other urban areas
in search of jobs, which require low skills, in garment factories, the construction and
tourism sectors as well as service sectors at the border.
Total employment was expected to grow about 1.5 percent in 2008, 1 percent-
point lower than that of 2007. On the other hand, the number of new jobs created in 2008
was expected to be enough to absorb only about 47 percent of the new 2008 labor force.
5.2. Incomes
Up-to-date data on income is not officially available for either Cambodia as a

whole or region by region.
Latest daily earning surveys conducted by the Cambodia Development Research

Institute showed that daily earnings of vulnerable workers increased from 2006 to 2007 with
the exception of unskilled construction workers whose daily earnings decreased slightly.
Motorcycle taxi drivers enjoyed the greatest increased a jump in earnings of

about 34 percent compared to 2006; followed by small vegetable sellers and porters,
whose daily earning increased by about 25 percent and 20 percent in 2007, respectively,
compared to 2006. The daily earnings of rice field workers and waitresses in 2007 were
relatively the same as 2006.
5.3. Poverty
Up-to-date data on income is not officially available for either Cambodia as a

whole or region by region. Updated poverty rate figures could be expected very soon
from the CSES 2007.
The poverty rate in Cambodia dropped to 35 percent in 2004 from about 47

percent in 1994. On average, poverty has reduced at a rate of about 1 percent or 30,000
persons per annum. Based on this trend and economic situation, poverty rate of 2008 in
Cambodia is expected to be about 31 percent.
However, this pace perceived as slow compared to other countries in the region.
The slower pace of poverty reduction in Cambodia is reflected in the current pattern of
economic growth. Growth has been primarily generated from the garment and tourism

sectors mainly in the capital of Phnom Penh and tourist town of Siemreap. Growth of
the rural–based economy and the agricultural sector, which is the main income source
for the poor, has been sluggish and unless it improves may lead to a slower rate of
poverty reduction.

STRUCTURAL REFORMS:
Part CURRENT IMPLEMENTATION
II AND PROSPECTS

Chapter 6
Banking and Financial Sector Reform
The Financial Sector Development Strategy 2006-2015 (FSDS 2006-2015) is
an instrument to accelerate development of Cambodia’s financial sector. In line
with financial sector and banking reform, the blueprint considers poverty
alleviation part of overall economic development. This chapter summarizes recent
progress in reforming the banking, non-banking finance, and microfinance sectors.
6.1. Banking and Non Bank Finance
For many, a healthy banking sector signals political stability as much as it does a
stable economy. Net Foreign Direct Investment (Net FDI) flows into banking and
enterprise have bolstered the growth of Cambodia’s banking sector. Today, several
licensed banks are currently operating under the supervision of the National Bank of
Cambodia (NBC).
The NBC granted a license to a new commercial bank, V.I.P bank, and two
banks made the transition from specialized banks to commercial banks after meeting the
NBC provisions 4 during the first half of 2008. Cambodia Agriculture Industrial
Specialized Bank became MARUHAN Japan Bank PLC and Prosperity Investment
Specialized Bank was renamed Prosperity Investment Bank PLC., As of June 2008, there
were 25 licensed banks in Cambodia─20 commercial banks and five specialized banks.
For the regulation accomplishment site, the NBC issued three new
Prakases 5 during the first semester relating to maintenance of required reserves,
financial leasing, and anti-money laundering and terrorist financing. The Prakas on
the Maintenance of Reserve Requirements against Commercial Banks’ Deposits and Borrowings
raised the reserve requirements6 in CR equal 8 percent and foreign currencies equal
16 percent. This tool aims to reduce the amount of currencies in the market,
tighten loan offerings by banks and to strengthen US currency utilized in
Cambodia.
The Prakas on Financial Lease introduced a transaction on leases for movable
property—except land building, and the operation implements under a specific
agreement. The agreement allows lessor to purchase movable property selected by
4NBC, First Semester Report and Targets for Second Semester 2008
5- Prakas on the Maintenance of Reserve Requirements against Commercial Banks’ Deposits
and Borrowings issued on April 25, 2008.
- Prakas on Financial Lease issued on May 30, 2008.
- Prakas on Anti-Money Laundering and Terrorist Financing issued on May 30, 2008
6An old reserve requirement was eight percent for both CR and foreign currencies, Regulation No B797-
02 dated December 26, 1997, on the Amendment of the Maintenance of Required Reserves against
Deposit and Borrowing for the Financial Institutions.

the lessee from the supplier, leases this moveable property to lessee and authorizes
the lessee to periodically pay the lease payment7.
A Financial Intelligent Unit (FIU) was established on January 29, 2008
through sub-decree No 10. The FIU is led by a board of directors and has a
Permanent Secretariat-General, who is under the supervision of the NBC8.
As the banking system evolves and new products and services are
established, the NBC continues to monitor the activities of banks through both
off-site surveillance and on-site inspection. For on-site inspections include a review
of financial statements, business operations, and to supervise the regulations
implementing which issued by the NBC.
The NBC reported in the first semester of 2008 that it had conducted full
on-site inspections of five commercial banks, including a foreign branch bank. The
NBC has used the COBRA9 system to analyze the financial statements of banks as
part of its off-site monitoring program. Analysis of financial statements from banks
using the COBRA system in 2007 uncovered some problems, including:
- Deficit net worth as a result of the provision of loans and mortgages for
real estate;
- Low provisioning as credit rises rapidly;
- Some banks offered loans that totaled more than 20 percent of their
own net worth.
Several banks, meanwhile, are now sharing credit information though the Credit
Information Sharing (CIS) system. However, certain technical constraints continue
to plague the system. After a trial period, concerns were raised about the accuracy
of reports and its slow data security system. The Asian Development Bank (ADB)
provided technical assistance to the NBC during the first semester in an effort to
address the problems and improve the quality of the CIS.
Interest rates on loans in Cambodian riels (CR) remained stable during the
first half of 2008, varying between 19 percent and 22.46 percent in June depending
on the length of the loan compared to from 19.01 percent to 22.26 percent in
March. For loans in US dollars, interest rates in June were slightly lower in June
7 Key words:
- Lessor a person, natural or legal, who transfers the right of possession and use of movable property
to lessee.
- Lessee a person, natural or legal, who receives the right of possession and use of movable property
to lessor.
8 Representative senior officials from ministries/institutes
1. Representative of the NBC.

2. Representative of MoJ.
3. Representative of CoM.
4. Representative of MoI.
5. Representative of MEF.
9 Cambodia Offsite Banking Report for prompt corrective Action.

than in March, with rates shifting from 0.10 percent to 0.16 percent10. Interest rates
on deposits in US$ and CR increased slightly in June compared to March 2008,
depending on the length of deposit. For deposits in US$, interest rates varied from
0.05 percent to 0.07 percent for fixed accounts. Interest rates for fixed accounts in
CR varied from 0.07 percent to 0.11 percent point.
Table 6.1. Interest Rates as of June 2008
Weighted Average
Type of
operation
CR US$ Other Foreign Currency
Loans 19% - 22.46% 16.30% - 15.86% 18% - 23.73%

4.45% - 7.26% (Fixed) 2.94% - 5.04% (Fixed) 4.98% - 6.81% (Fixed)
Deposits
2.05% (Saving) 1.02% (Saving) 2.81% (Saving)
Source: NBC, “Quarter Bulletin No 25”, Quarter 3, 2008
There is also progress in non banking finance, the Finance Industry

Department of the Ministry of Economic and Finance (MEF) has made an effort to
become the supervisor and regulator of the insurance sector and has issued some
important regulations that affect Cambodian insurance companies. Recently, the
MEF issued a Prakas on an Instruction Principle Accounting for General Insurance Business
on July 30, 2008. After feasibility studies on life insurance, the MEF issued a Prakas
on Life Insurance Business on August 12, 2008 that covers the life insurance operation
of the companies. To accelerate micro-insurance transactions, a Sub-Decree on
Micro-Insurance has been drafted and it is in progress.
For processing of financial market, the MEF has prepared regulations to
support the Law on Issuance and Trading of Non-Government Securities to speed up
company registrations in the near future. Training on the stock exchange is
currently being conducted with assistance from Korea. Presently stock exchange
trainings have been provided to human resources where mostly come from private
sector.
The Draft Law on Financial Leasing has been forwarded to the inter-
ministerial meeting and is awaiting approval from the Council of Ministers (CoM).
Financial lease operations for commercial and specialized banks are governed by
the Prakas.
6.2. Microfinance
Microfinance contributes significantly to Cambodia’s development since it is

used primarily to support Small and Medium Enterprises (SME) as well as the
agricultural sector.
Microfinance entities reported an increase in credit volume and customers
in the first semester of 2008. Micro Finance Institutions (MFIs) and Rural Credit
10 NBC (2008), “Quarter Bulletin No 24 Quarter 2 and No 25 Quarter 3”

Operators provided a total of CR 851 billion in credit and the number of
borrowers reached about 672,725 people, which is a 25 percent increase over the
second semester of 2007. MFIs and Rural Credit Operators received close to CR 23
billion in deposits from about 166,588 people, which is a 17 percent increase over
the figure registered at the end of 2007.
The number of MFIs and rural credit operators was the same at the end of
June 2008 as December 200711. Onsite inspections were conducted in seven licensed
MFIs and four rural credit operators, the NBC reported.
While the NBC acts as a supervisor and regulator of MFIs, the Cambodian
Microfinance Association (CMA) oversees operations. The CMA’s 2007 annual report
pegged its membership at 14 MFIs12.
In general, the sector has improved as a result of vigorous supervision and
an increase in the number of development partners and investors who are helping
to facilitate MFIs and the Rural Credit Operators.
Table 6.2. Overall Achievements in Banking Sector, Insurance Industry,
and Financial Market (As of August 2008)
Achievements Remain Issues
Banking Sector Banking Sector

• January 29, 2008: Sub-Decree on Establish the • Enactment of Law on Financial Leasing
Financial Intelligent Unit (FIU) approved
• Drafting sub-decree, Prakas and circulars to
• April 25, 2008: Prakas on the Maintenance of implement the Law on Anti-Money
Reserve Requirements against Commercial Laundering and Terrorist Financing
Banks’ Deposits and Borrowings issued
• Draft Prakas and circulars to limit structure
• May 30, 2008: Two Prakases issued and function of the FIU
9 Prakas on Financial Lease Insurance Industry
9 Prakas on Anti-Money Laundering and • Approving Sub-Decree on Micro- Insurance
Terrorist Financing
Financial Market
Insurance Industry
• Investor education and human resource
• July 30, 2008: Prakas on an Instruction development to support financial market in
Principle Accounting for General Insurance the coming year
Business issued
• Development of regulations to implement the
• August 17, 2008: Prakas on Life Insurance Law on Issuance and Trading of Non-
Business issued Government Securities
Financial Market
• Cooperation with Korea on training human
resources
1117 MFIs, 26 registered NGOs, and 60 unregistered NGOs.

12
1) Angkor Mikroheranhvatho (Kampuchea) Co Ltd., 2) AMRET, 3) Cambodian Business Integrated in
Rural Development, 4) Cambodian Entrepreneur Building Ltd., 5) CHC-Limited, 6) CREDIT
Microfinance Institute, 7) Entean Akpevath Pracheachun Limited, 8) Hattha Kaksekar Limited, 9) Intean
Poalroath Rongroeurng LTD, 10) MAXIMA MIKROHERANHVATHO., LTD, 11) PRASAC
Microfinance Institute Co Ltd., 12) SEILANITHIN Ltd., 13) Thaneakea Phum (Cambodia) Ltd., 14)
Vision Fund (Cambodia) Ltd.

Chapter 7
Public Financial Management Reform
Public Financial Management Reform Program (PFMRP) is a 10-year reform
program supported by several donors via a Multi-Donor Trust Fund (MDTF) under the
supervision of the World Bank (WB). Together with other Development Partners (DP)
provide assistance to the program via a bilateral agreement. Platform 2 of the PFMRP is
to be launched now that platform 1 has been completed. This chapter provides an
overview of the activities that have been completed and those that remain13.
7.1. Reform Outcomes: Revenue Collection and Budget Disbursement
Increasing budget credibility is the main objective of platform 1. Fifteen specific

indicators (see details in Table 7.1) are tracked to monitor the PFMRP’s progress. One
obvious outcome of the reform program was an increase, by CR 4,021 billion, of total
domestic revenue in 2007, which was 22.5 percent higher than the approved budget. Tax
revenue increased by 26.7 percent (direct tax: 41.3 percent and indirect tax 38.4 percent)
and non-tax revenue increased by 7.8 percent.
On the expenditure side, total disbursement for 2007 was CR 5,095 billion,
which exceeded the target by 10 percent. There has also been a noticeable increase in the
use of the banking system, with 72.5 percent of payments reportedly made through the
banking system in 2007. About 92 percent of tax revenue was collected through the
banking system, which vastly exceeded the target of 45 percent for 2007.
Table 7.1. Indicators Tracking PFMRP Progress
Indicator Progress as of first semester 2008

1. Revenue outturn increasingly closer to approved
22.5 % higher than approved budget in 2007.
budget targets.
Software to record age profile arrears and spending
2. No accumulation of new arrears and steadily agency was installed under the computerized
declining stock. accounting system of the new chart of account (COA)
in 2007.
Accumulated expenditure 110%
First phase of streamlined expenditure process
implemented in January 2007.
23 Ministries have established internal audit
3. Budget holders increasingly able to commit
departments and 11 are operational
expenditure in line with budgets and cash flow
72.5 % of payments to creditors and staff were
forecast.
made through banking system compared to the
target of 75 %.
92 % of tax revenue was collected through banking
system to compare to the target of 45 %.
13 PFMRP will be carried out based on a sequenced platform approach:

- Platform 1: Making the Budget more credible in terms of timely and predictable delivery of
funds;
- Platform 2: Implementing effective financial accountability;
- Platform 3: Achieving a fully affordable policy agenda through policy-budget linkage;
- Platform 4: Achieving effective program performance accountability.

Discussions on identifying proxy are underway
4. Service delivery units (schools, health centers)
(MoEYS, MoH, DP and MEF).
receive an increasing proportion of funds targeted at
Agreement has not been reached. A working group
their levels (and of goods and services meant to be
will have to be established between MEF and line
procured for them).
ministries (LM).
Procurement rules and policy have improved
5. Public procurement based on clear rules that are through an amendment of sub-decree No. 60, sub-
consistently enforced. No major delays in processing decree No. 105 and Prakas No.045 on Procurement
and payment. Decentralization.
Procurement Manual was issued in January 2007.
Salaries 98.5 % (target 98 %).
6. Composition of expenditure by type (staff costs,
Goods/Services 102.6 % (target 95 %).
non-staff costs etc) close to approved budget.
Capital 80.5 % (target 85 %).
Tax revenue increased 26.7 % compared to the
7. Better yield achieved from tax base through target 20.6%. Direct tax 41.3% and Indirect taxes
improved collection efficiency and planned use of 38.4. %.
non-tax sources. Non-tax revenue increased 7.8 % compares to the
target of 2.4 %.
The budget strategic plan (BSP) preparation has
been improved and a technical workshop was held
8. Single and orderly budget process (and integrated with LM.
in budget plans). Budget Law 2008 was approved by Council of
Ministers.
MEF continues to reduce number of inactive
9. All significant areas of both public revenue and
Government bank accounts, currently at 187.
expenditure captured in both the budget and accounts
Database system is being developed to improved
of the Government.
capturing/monitoring of external financing.
Working group works closely with CAR to
establish a mechanism for a systematic flow of
information and clearer roles and processes for
MEF and LM in improving human resource
10. Budget has direct influence over nominal staff roll
management.
(establishment).
Civil Service Secretariat consolidated a requested
for new recruitment from LM and sent to CAR for
final decision and copy to MEF for budget 2008
preparation.
11. Clearer/more accurate overview of public finances TOFE submission is not always within 2 weeks.
regularly available (TOFE) based on improvements of No review was made by the internal audit.
existing system pending introduction of FMIS.
Supplementary expenditure credit is based on
12. System in place to ensure that proposals for post- priority and urgency and the provision has always
budget supplementary expenditure credits are always been caped within contingency fund.
accompanied by an MEF report on realistic options
for financing the expenditure involved.
13. Institutionalized mid-year budget review feeding Mid-year review was conducted in July 2007 and
into 2nd half year budget implementation and budget review results were used for the implementation of the
preparation for next year. second half of the year.
14. Annual forecasts of all in-flows and out-flows Quarterly revenue and expenditure plan becomes
prepared and regularly updated (based on accurate routine work.
revenue forecasts and good budget implementation The cash management unit has been functioning.
plans).
Financial System Law adopted April 4,2008
15. To improve fiscal decentralization in a robust, Law on Administration and Management of
controlled and measured way. Capital, Provinces, Municipalities, Districts and
Khans adopted April 1, 2008.
Source: MEF, Complied from PFMRP 2007 Annual Progress Report and MEF Data
7.2. Overall PFMRP Revisited and Process for Platform 2
The RGC introduced the Public Finance Management (PFM) system, which has
its own unique set of characteristics14, to facilitate reforms effectively and efficiently.
14 Those characteristics include:

Due to an experience learn form the platform 1 confirms that it is a valid way to guide to
the system. Although to commence the stage 2 of the reform, an extra characteristic
need to add for supporting the system - organizational structures, staff management and
motivation in relation to the PFM are focused on delivering the other PFM characteristic
in an efficient and integrate way. Lesson learned distributes more about linkage between
PFM reform with other reform programs, including decentralization and
deconcentration, civil service reform, public service pay reform, and sector-based reform
programs.
On going the platform 2 of reform program, a participation of line ministries
and other budget entities is vital to achieving platform 2 reforms. But participation as in
platform 1 is not enough therefore the coordination mechanism have been organized as
detailed in Box.7.2.
Box.7.2. Coordination Mechanisms for Platform 2
Source: MEF, PFMRP Platform 2 in May 2008
Building on improved budget credibility toward achieving better financial

accountability is a method of continuing the stage 1 and starting stage 2 of the PFMRP.
Therefore work plans of the stage 2 have been developed by reflection of three elements
such as going on should focus completing tasks remaining from stage 1, identifying stage
2 objectives and piloting works need to be performed for further stages of the reform
program.
Progress on platform 1 is continuing in parallel with the launch of platform 2,
brainstorming has been done to determine stage 2 target achievements. Progress was
made on pilot projects in stage 1 and this work will continue in stage 2 even though
some of the activities are not expected to be carried out until subsequent platforms.
- Budget formulation characteristics;

- Budget execution characteristics;
- Monitoring and review characteristics.

Targets can be divided into three main categories (see Table.7.2 for details.):
platform 1 objectives, platform 2 objectives and, later platform objectives. Detailed
activities have been laid out for each objective in the Consolidated Action Plan 2 (CAP
2).
Table 7. 2. PFM Objectives and Key Indicators

Platform 1 Objectives
PFM Objective Key Performance Indicators

11. Further improvement of revenue policy and Revenue policy used to guide budget measurement and
administration. collection process.
12. Further improvement of debt management Legal, systems and reporting framework for debt
management implemented.
13. Further improvement of cash and bank account Implementation of treasury single account mechanisms.
management
14. Further improvement of public procurement Implementation of enhanced legal deconcentrated
framework and strengthened oversight capacity.
Platform 2 Objectives
PFM Objective Key Output Required

21. Improved lines of accountability by clarifying MEF, line ministry PFM roles and responsibilities
roles, functions and responsibilities between levels defined, regulatory framework established, capacity
of government and within spending institutions developed and operationalized.
22. Improved instruments for encouraging Practical and enforceable set of both sanctions and
responsible financial management and enforcing incentives for managing public funds effectively
accountability established and compliance review mechanisms
developed.
23. Further improve the implementation of new Classification implemented that is consistent with
budget classification and new chart of account GFS/COFOG standards.
Basis accounting progressively incorporates elements of
modified accrual accounting.
24. Improve budget implementation and financial An ICT-based budget and financial management
management systems: framework and capacity introduced that improves
- Improved efficiency of current systems reporting, transaction processing, efficiency, integrity,
- Implementation of the FMIS comprehensiveness, provides the basis for effective
control and for strengthened resource management.
25. Improve accounting, financial reporting and Establishment of accounting and management systems
transparency capable of informing effective resource management,
but also acting as a basis for enforcing accountability for
how public resources are used.
26. Improved auditing/inspection and response The introduction of a style of auditing that can identify
to/use of audit findings and advise managers of the need to address areas of
- Internal audit planning financial management weakness, but also bring to the
- Internal audit methodologies including use of surface fraudulent or inappropriate action and failures in
ICT and reporting control systems.
- Internal audit capacity
27. Strengthen and develop fiscal decentralization Momentum and initial steps towards greater
policy and strategy decentralization of service delivery.
28. Implementation of stage two of the capacity Greater confidence in managing within the improved
development plan PFM systems being put in place, base on appropriate
skill and work force motivated to acquire those skills.
Later Platform Objectives
PFM Objective Key Performance Indicators

31. Improving and expending the implementation Program budget implementation methodology and
of program budgeting capacity strengthened at both MEF and line ministries.
32. Further improving comprehensiveness and Progressive implementation of a multi-year fully
integration of the budget integrated budget framework.
Source: MEF, PFMRP Platform 2 in May 2008

Putting all of the new initiatives into practice will be challenging, and additional
work is needed to complete platform 1. To ensure reforms are effectively enforced, the
Government needs to focus more on building the capacity of Government agencies to
carry out the new approaches, laws, regulations and procedures.

Chapter 8
Trade Reform
Cambodia’s accession into WTO has dominated Cambodia’s trade reform
agenda. The Government has used various instruments to strengthen trade facilitation
and economic integration in order to benefit from its WTO membership and trade
liberalization. This chapter summarizes activities related to economic integration,
progress in enacting laws related to the WTO and Government’s efforts to facilitate
trade and improve the investment climate.
8.1. Economic Integration
A new ASEAN Charter15 was signed by the leaders of the 10 ASEAN member
states in Singapore at the ASEAN Summit on November 20, 2007. Various purposes
were stipulated in the charter for member states of ASEAN, along with that two related
purposes are creation of a single market and production, and ASEAN community
building. After that event, the Cambodia’s National Assembly (NA) adopted the charter
in February 2008 and it was ratified by the king on March 31, 2008. As well as H.E
Deputy Prime Minister HOR Namhong, Minister of Foreign Affairs and International
Cooperation signed the ratification documents on April 02, 2008 and then forwarded
them to the Secretary-General of ASEAN for deposit16.
After approving the ASEAN Economic Community (AEC) Blueprint17, which
serves as the roadmap for transforming ASEAN into a single market and production
base, ASEAN developed an AEC Scorecard mechanism to track the implementation of
commitments in the Blueprint18. The Scorecard is designed to provide a comprehensive
picture of how ASEAN is progressing towards establishing the AEC by 2015.
The RGC has adopted several laws to fulfill its commitments for accession to the
WTO, in spite of those carried out behind the schedule. In the first semester of 2008
prior to the national election, two laws were promulgated, added to the program.
Therefore currently 29 adopted laws by the NA out of 46 regulations for the WTO
conforming.
In responding with the requirement of the agriculture sector and intellectual
property protection, Law on Seed Management and Plant Breeder Rights was adopted on April
08, 2008 and promulgated on May 13, 2008. The law aimed at ensuring the management,
motivation, and the development of seed with sustainable in order to benefit social,
economic and environment. Together with the law states that providing right protection
15 The charter represents as a common vision and commitment to the development of ASEAN
community as a region of lasting peace, stability, sustained economic growth, shared prosperity and social
progress.
16 http://www.mfaic.gov.kh/e-visa/newsrelease.aspx
17 The 13th ASEAN Summit, “One ASEAN at the Heart of Dynamic Asia” Singapore, 20 November 2007
18 The Joint Statement of the 40th ASEAN Economic Ministers’ (AEM) Meeting helped in August 2008,
Singapore

of new seed is under the territorial of Ministry of Industry, Mines and Energy (MIME),
and managing various seed is under the territorial of Ministry of Agriculture, Fisheries
and Forests (MAFF).
To enhance the fly of the civil aviations, Law on Civil Aviation was adopted on
December 05, 2007 and promulgated on January 19, 2008. The purpose of this law is to
maintain order and safety in operation, to manage airline service develop civil airport, to
manage air transportation enterprise, and to promote the development in the civil air
transportation with safety, relievable, and economical.
Overall, the Government continues to run behind its schedule for meeting
WTO-related commitments. Several legal texts are in various stages of design. Some are
being reviewed by experts while others are still under discussion at the CoM, according
to interview with key informants and literature review from WTO work program in
August 2008. For instance, after the discussion in the inter-ministerial meeting of the
CoM, the name of Draft Law on Tourism Management in Cambodia was changed to
Draft Law on Tourism. The draft will be discussed in the plenary meeting of the new
legislature. Additionally, technical assistance and human resource training will be
required to complete a few of the new regulations (see Table 8.1 for more details).
Take in to account of the trade facilitation is a key mechanism to speed up the
process of the trade reform context. Many programs have been planned in the trade
facilitation area; hence the process of tasks is reported in the next section.
Table 8.1. Status of Remaining WTO-related Laws
Draft law at MoC. Comments from MoJ and JICA have been
1. Law on Establishing the Commercial
included. Final revised draft is expected to be submitted to the
Court
CoM in 2008.
Draft code at CoM. It has been reviewed by the Council of

2. Criminal Code Jurists meeting and will be forwarded for discussion to the
inter-ministerial meeting.
Draft law at MoC, the final draft is completed and will be
3. Law on Geographical Indications
submitted to the CoM in 2008.
4. Laws on Layout Design of Integrated
Draft law is being reviewed by MIME.
Circuit
5. Law on Protection of Undisclosed

Draft law at MoC, it is in the final stage of preparation.
Information and Trade Secret
The draft has been sent to CoM. MoJ said that the draft contains
6. Law on Financial Leasing some provisions that contradict existing laws. NBC and MoJ are
now working to resolve the issues.
Draft law at CoM, awaiting approval. The draft had been

7. Law on Clean Water and Hygiene discussed in the inter-ministerial meeting. The draft will be
discussed in plenary meeting.
After discussed this draft law at NA, this draft law was sent to
CoM in order to re-adjust the chapter 3. Now this draft was
8. Law on Telecommunication
ready discussed in the inter-ministerial meeting and sent to the
Prime Minister in order to receive some comments.

Draft law was discussed in the inter-ministerial meeting, where
its name was changed from Law on Tourism Management in
9. Law on Tourism
Cambodia. It will be discussed at the plenary meeting and then
sent to the NA.
Draft law at MTPW. Final draft was finished in August 2008. It

10. Maritime Code will be reviewed at an internal meeting of MTPW, then sent to
CoM.
ADB provided consultant to re-draft this law in order to make it

supplemented to civil code. Drafting is underway. Preliminary
11. Law on Commercial Contract
draft is being reviewed by the experts. Two meetings have been
held with MoC staffs to collect comments.
The draft has been completed by MoC. It awaits final review by

12. Law on Commercial Agency
the ministry. New review will include chapter on franchising.
The final draft is in place. MoC is planning to hold a workshop
13. Law on Competition
to obtain input from stakeholders.
Preparation stage at MoC, awaiting technical assistance.
14. Law on Safeguard Measures Nothing can be done until domestic human resources are
trained.
Technical assistance is needed to prepare Cambodia's Rules of
15. Law on Rules of Origin Origin so that it conforms to the WTO Agreement on Rules of
Origin.
16. Law on Anti-dumping Measures and on
Unidentifiable
Countervailing Measures
17. Royal Decree on Cooperative Unidentifiable

Source: Based on consultation with various government officials and WTO work program, August 2008
8.2. Trade Facilitation
A Sub-Steering Committee on Trade Development and Trade-Related

Investment (SSC-TD&TRI) has been tasked with reducing complex and lengthy
institutional processes associated with imports and exports, identifying and abolishing
duplication of tasks among ministries/institutions, strengthening a single-window
mechanism at international gates, and reforming laws and regulations that needlessly
harm business.
The fourth point among 12 point action plan, introduce an overall risk
management strategy to consolidate and rationalize all examination requirements of
different control agencies, is primary implementing in the Custom Excise Department
(CED) while an expanding of this approach to other agencies are considered. A Risk
Management and Audit Office was recently established in the CED that will focus on
inspection and clearance of imports and exports trade. The CED also has developed risk
indicators, selectivity criteria and a system to profile traders, which have been uploaded
to ASYCUDA.
ASYCUDA was officially launched on May 05, 2008 at the autonomous port of
Sihanoukville. A utilization of the system is acknowledged as an opening of a new
scanning machine. Expand on the implementation process of the system reported that
traders taking time to familiarize themselves with data entry requirements, and average
time to declare items at customs has dropped from an average of an hour to 20

minutes19. The CED expects to introduce the system in other offices over the next two
years.
While the process of ASYCUDA has enhanced, its will help Cambodia meets its
goal to be part of the ASEAN Single Window by 2012. Efficiency of processing times
could be improved if the MoC were to adopt an automated key permit and license. The
automation system and electronic process will allow the submission of applications and
registered users through its. Despite matter still the concern of the international single
window since other institutions, where need to involve in the system, have not
automated yet, obviously base on manual paper, the Trade Facilitation and
Competitiveness Project (TFCP) reported in June 2008.
One stop service is being implemented in three Special Economic Zones (SEZs):
Manhattan, Tai Seng, and Phnom Penh (PPSEZ). An administrative office opened its
doors September 01, 2008 at PPSEZ to simplify application procedures for potential
investors. Likewise investment laws state that proposals take at least 28 days to process,
but the new one stop office will cut that time to three days, said Chea Vuthy 20 ,
administration chairman of the zone and the deputy secretary-general of the Cambodia
SEZ Board.
Along with Cambodia moved up 22 places to rank 122nd in the “Trading
Across Borders (TBA)” category in the International Finance Corporation’s 2009 Doing
Business survey, which ranks countries according to their ease of doing business. The
improved ranking reflects reductions in the documentation, cost per container and time
needed to export and import items. Likewise the TBA uses 11 documents for
export/import while time needs for export and import were decreased follow by 37 to
22 days, and from 46 to 30 days.
Table 8.2. Trading Across Borders
2008 2009
37 days 22 days
Time and Cost to Export
US$ 722/container US$ 732/container
46 days 30 days
Time and Cost to Import
US$ 852/container US$ 872/container
Source: http://www.doingbusiness.org/CustomQuery/ViewCustomReport.aspx
19 Trade Facilitation and Competiveness Project (TFCP) Restructuring Aide Memoire June 20, 2008
20 The Phnom Penh Post September 02, 2008.

Chapter 9
Public Administrative Reform
National public administrative reform is considered the heart of the Government
Rectangular Strategy. The RCG has been undertaking two different approaches in its
administrative reform agenda. At the central level, the reform focuses on improving civil
servant remuneration, human resources capacity and human resources management. At
the sub-national level, the reform focuses on decentralization and deconcentration which
is to promote democracy and good governance.
9.1. Central Administration Reform
The Merit-Based Performance Incentives (MBPI) program was revised at a

meeting of CAR, MEF, ministries, and DPs. Sub-Decree No 29 on MBPI was subsequently
approved on April 02, 2008, which abrogates sub-decrees No 98 & 38, and stipulates
that:
• MBPI will be deployed in support of strategic priorities requiring high levels
of skills;
• MBPI shall be consistent with existing systems;
• MBPI is not indicative of eventual salary policy;
• MBPI conditions shall be limited to the program they support and not affect
the unity, stability, and sustainability of the administration.
The MBPI21 applies to civil servants, who were selected to participate in projects
that relate to their ministries/institutions, as a supplement to their salary and is financed
by DPs. As well as the MBPI includes all Priority Mission Groups (PMG) and civil
servants whose job titles fall below the ranking of deputy department director. The pay
incentive is deposited directly into the individual bank accounts of participating civil
servants.
Although the current implementation of the MBPI in other ministries is not
widely yet, thus an extending of its process should be made agreements with
ministries/institutions implementing strategic program in other sectors. For instance, the
system is being extended progressively to all DP-financed strategic reforms with a view
21 The statement in the Sub-Decree No 29:

- Rank of Director General: 1,800,000 CR
- Rank of Deputy Director General: 1,480,000 CR
- Rank of Department Director: 1,280,000 CR
- Rank of Deputy Department Director: 1,080,000 CR
- Rank of Administrative Official: 1,000,000 CR
- Rank of Office Chief: 932,000 CR
- Rank of Deputy Office Chief: 836,000 CR
- Rank of Kramakar Official: 772,000 CR
- Rank of Secretary: 452,000 CR

to eliminating current distortionary salary supplement schemes, harmonizing RGC and
partner approaches to incentives, and beginning to address the broader needs for civil
service reform22.
According to the talking points 23 brought up at the 12th Government-Donor
Coordination Committee (GDCC) meeting on March 04, 2008, progress is also needed
on completing Human Resource Management (HRM) and Human Resource
Development (HRD) policy since the draft concept papers on the subjects were
circulated over a year ago.
In line with an aspect of the reform, a Royal Decree on Special Operating Agencies
(SOA) was promulgated on March 28, 2008. The SOA’s task is a public service delivery
instrument unit consistent with other services implementation. The goals of the SOA
include improving the quality and reach of public service delivery, strengthening the
professional ethic officials, and developing service delivery capacity.
Following the successful launch of pilot Window Office (OWO) services in two
districts—Siem Reap and Battambang. The RGC plans to establish OWO in 24 districts
around the country by early 2009 with support from the WB24. To future another piloted
of the district ombudsman’s office25, which aims to strengthen local Government, have
been successful, the WB reported in April 2008.
In sum, progress has been made on central administrative reform as a result of
Government efforts to improve motivation, develop policies to strengthen human
resources management practices, and enhance service delivery.
9.2. Sub-National Administrative Reform
It is widely acknowledged that Decentralization26 and Deconcentration27 (D&D)

help promote democratization at the sub-national level. During the implementation of
decentralization reform at the commune level for two mandates, the reform have
boosted local development and improved the efficiency of services for citizen. But
further efforts are needed to build the capacity of commune council members since their
knowledge have limited as focus group discussion with commune councils in Kampong
Cham province found in June 2008.
Put another way, while considerable progress has been made in decentralization
efforts at the commune level, capacity building of commune council members must
become a higher priority in the Government’s work plan.
22 WB, Cambodia Country Assistance Strategy Progress Report, April 2008, page 17
23 H.E. Ngo Hongly, Secretary-General Council for Administrative Reform
24 Interview the Government official at MoI in September, 2008
25 The office receives complaints from citizen about the local authorities
26 The Government grants commune councils with the function, authority, and resources it needs to
respond to local needs. The councils must be accountable to citizens.

27 The Government/ministries/institutions delegate functions, authority and resources in order to respond
local needs. The council must be accountable to citizens in those matters.

The Law on Administration and Management of Capital, Provinces, Municipalities,
Districts and Khans was adopted on April 01, 2008 to strengthen the D&D process and
sub-national administrative reform. The organic law sets out principles for the unified
administration28 of the capital, provinces, municipalities, districts and khans to promote
and sustain the democratic development through D&D. At the same time, the law states
that the sub-national councils 29 , each having a five-year mandate, will be established
though indirect election that its covers by the Law on Election of Councils for Capital,
Provinces, Municipalities, Districts and Khans, which was adopted on April 02, 2008.
A National Committee on Democratic Development is to be created at the sub-
national level, and has its own sub-national committees to assist the tasks refer to the
statement in the organic law. Furthermore, under the national committee preparatory
work plan, the national program on democratic development will be designed for 10
years, from 2010 to 2020.
Since the sub-national financial management regime parallel with D&D
reform, an adopted of Law on Public Financial System on April 04, 2008 and was
promulgated on May 13, 2008. A scope of the law is recognized as a fundamental law to
manage national and sub-national public finances in Cambodia. Supplementary, a whole
management of public financial system, a preparation of budget law, as well an
implementation processes of the public financial in the ministries/institutions and sub-
national administration is the basic principle of the public financial system law.
Overall lesson learned form other countries, the three essential ingredients of
successful D&D reform are: legal framework; decentralizing taxation; and, decentralizing
human resources 30.
28 Councils’ at the sub-national level must prepare to have their own management, functions and
resources—financial, human, and assets. Each council has ability to facilitate services delivery and
development in its own jurisdiction.
29 Capital Council, Province Council, Province Council, District Council, and Khan Council
30 Statement of H.E SAR KHENG, Deputy Prime Minister, and Minister of Interior in the
National Workshop on the Formulation of 2009 NCDD/AWPB, 09-10 September 2008

Chapter 10
Legal and Judicial Reform
The RGC has carried out legal and judicial reforms to create the legal
frameworks necessary to complete phase I of the Rectangular Strategy and such reforms
are continuing as the Government moves to phase II of the strategy. Reforms have
modernized the country’s legal structures and judiciary system. This chapter outlines
notable achievements and summarizes some of the issues that remain.
10.1. Achievements and Progress of Legal Reform
A vigorous legal framework is an essential component of state legal reforms. To

that aim, Cambodia has drafted numerous pieces of legislation with cooperation from
relevant institutions and DPs. During the third legislature of the NA, 140 legal texts had
been adopted as of June 2008, including three critical legal codes31. As well to further
instruction of the basic codes, JICA and French Cooperation (FC) have been helping to
provide training on the codes to judges and other judicial officials.
Table 10.1. Adopted Legal Texts in Third Legislature by the NA

Mandate Pieces of Legislation Adopted
First 90
Second 86
Third 140
Source: EIC, Cambodia Economic Watch, October 2006 and List of

Adopted Law from CoM, as up to June 2008
Thorough reviews and relevant technical tasks have been completed on eight
fundamental laws. Since 2004, five draft laws have been in progress and in various
institutions such as CoM, Supreme Council of Magistracy (SCM), and Ministry of Justice
(MoJ). After it is reviewed by a technical team from the Council of Jurists (CoJ), the draft
Criminal Code will be put on the agenda of the inter-ministerial meeting. The adoption of
this code will hasten the completion of the Draft Law on Anti-Corruption. Meanwhile, the
Draft Law on the Organization and Functioning of the Courts is still being discussed by the FC
in MoJ’s internal meetings. The CoJ is considering the Draft Law on the Statute of Judges and
Prosecutors and its passage will be part of the new mandate of the inter-ministerial
meeting. Northing has been notified on Draft Law on the Amendment of the Organization and
Functioning of the SCM.
31 Civil Procedure Code, Civil Code, and Criminal Procedure Code

Table 10.2. Progress on the Remaining Fundamental Draft Laws
• Draft Criminal Code is at CoM. This draft has been discussed in the CoJ meeting, and will be put forward
for discussion at the inter-ministerial meeting.
• Draft Law on organization and functioning of the court is at MoJ. The draft was discussed during internal
meeting with FC before being forwarded to the CoM.
• Draft Law on the Statute of Judges and Prosecutors is at CoM and is being considered by the CoJ. It will
be forwarded to the inter-ministerial meeting.
• Draft Law on Amendment of the Organization and Functioning of the SCM was discussed by the
Supreme Council of Magistracy (SMC).
• Draft Law on Anti-Corruption is being reviewed by the CoM.
Source: Interviewed with various government officials, August 2008
In the meantime, the French government and FC have initiated support and TA
for the preparation of two other important drafts—the Administrative Code and
Administrative Procedure Code 32 . The process of drafting both codes is known as a
medium/long-term perception since its need a smoothly enforcement of legal
framework as well judicial system first. Nevertheless these tasks were indicated as a
medium term in the strategic plan of the reform.
Progress on creating a necessary legal framework for the WTO has continued,
albeit with some notable delays, and several pieces of legislation have been adopted to
fulfill commitments. A Committee for Facilitation Inter-Ministries on Practice Obligation and
Cambodia Commitment in WTO was established via sub-decree No 20 dated on March 07,
2008. It’s the duty of the Committee for Facilitation Inter-Ministries to follow up and to
guide relevant institutions through action plans and report back to the CoM at least
every six months. In addition, the committee will set up a group composed of inter-
ministries to negotiate and resolve disputes related to the WTO framework.
For legislation to be effective, an implementing framework must be established
with input from judges, prosecutors, and judicial officials.
10.2. Judicial and Alternative Dispute Resolution (ADR)
In the interest of creating a neutral, independent and competent judiciary, the

RGC is endeavoring to draft a code of ethics code for legal professionals. The SCM
approved an Ethic Code for Judges and Prosecutor on February 05, 2007. A statute for clerks
also is being prepared and a Training School for Clerks was established in 2007.
Responding to the capacity building of legal human resources, training
institutions for the professionals were formed like Royal Academy for Judicial
32 Statement of H.E. SAM Sokphal in the Legal and Judicial Reform TWG Meeting, June 11, 2008

Professions (RAJP) and Professional Training Center for Lawyers (PTCL). Furthermore,
priority activities of the reforms have been included an establishment of Royal School of
Notary and Bailiff33 as a future target. Although to achieve these goals, it bases on a
readiness of legal framework, and other relevant mechanisms which leads to faster the
process. To notify that draft law on notary was finished in December 2007, the Council
for Legal and Judicial Reform (CLJR)34 reported in March 2008.
A pilot court is practicing in Kandal province that focuses on handling cases and
technical matters of the courts. At the same time, the scheme is being organized a senior
team work and technical team work to broaden pilot court in Phnom Penh, Kampong
Cham, and Banteay Meanchey provinces.
Take into account of specialized commercial court is being prepared and
reviewed draft Law on Establishing the Commercial Court after commented from the first and
second round tables at the MoC. An elaborate court structure has been stipulated in the
draft which will be sent to a new mandate of CoM. Additional regulations are still
required related to the court’s functioning, and procedure.
Besides judicial solution, ADR is recognized as quickly mechanism in dealing
with cases. There are three steps in the ADR process ─ negotiation, conciliation and
arbitration. ADR was one of seven strategic objectives35 included in a legal and judicial
reform agenda that was approved in 2003. According to the dissemination workshop
addressed that this priority activity for medium term supposes to reach around 50
percent since an adoption of Law on Commercial Arbitration in 2006. Commercial law is
now one of the subjects studied in the RAJP program. A draft Sub-decree on Organizing and
Functioning of the National Arbitration Center has not yet been approved and the RGC is still
seeking DP to help establish a national arbitration center.
Unlike a plan for strengthen ADR methodology, long term goal, achieves about
70 percent. An efficiency outcome has confirmed by a pilot of Center for Justice Service
at District (CJSD), and labor deputes solution by labor arbitration.
The CJSD has been piloted study in four districts at Kampong Speu and
Kampong Chhnang provinces, and will be expanded to 22 districts in Siem Reap,
Battambang, Mondulkiri, and Ratanakiri provinces by 2009. The program is being
implemented by MoI and MoJ, with assistance from the Spanish government through
the UNDP.
33 An institution for execution of judgment

34 Workshop of the Dissemination on “Exchange Consultation Programme on Implement Action Plans of
Legal and Judicial Reform with Civil Agencies, March 26, 2008”
35 The goal implies seven strategic objectives:
1. Improvement the protection if personal right and freedoms

2. Modernization of the legislative framework
3. Provide better access to legal and judicial information
4. Enhance quality of legal process and related services
5. Strengthen judicial service
6. Introduce alternative dispute resolution methods
7. Strengthen legal and judicial sector institutions to fulfill their mandate

Meanwhile, arbitration is being used to settle labor disputes among employees
and employers, particularly in factories. The Arbitration Council is supported by the ILO
through the Arbitration Council Foundation.
In short, the ADR for commercial cases should be accelerated by another
alternative resolution, mediation, since a national arbitration center yet set up. And a
perception of businessmen value time saving, thus the mediation will act as a significant
means to deal with business deputes especially private sector.

Chapter 11
Land and Natural Resource Reform
Land and natural resources such as fisheries and forestry are the sources of the
livelihood for the majority of Cambodians in rural population. Improving access to land
and natural resources are clearly one of the main pillars for the government reform
program and development strategy that have direct impacts on poverty reduction. This
section examines recent land, fisheries and forestry reforms.
11.1. Land Reform
Various mechanisms have been developed for to resolve land disputes such as
the Land Dispute Committees, a Cadastral System and the National Authority for Land
Dispute Resolution (NLDA). Moreover, land titling is also helping to reduce the number
of disputes over land. As of December 2007, the land systematic registration result in
1,061,414 land parcels and 794,639 land titles have been distributed by RGC36.
Meanwhile, a total of 4,770.22 hectares has been registered as state private land
under the Land Allocation for Social and Economic Development (LASED) pilot
project, according to a statement by the chairman of TWG for Land at the 12th meeting
of the GDCC. This land, which is located in three communes in two provinces37, will be
distributed to poor and landless families as part of the Social Land Concession (SLC)
program. Along with this site, as of January 2008, seven other communes also have been
registered as state private land for use under the SLC up to January 2008. To further the
program and preparing the urban area, another 13.5 hectares in Kbal Chay Sangkat,
Sihanouville was supported by the project for the purpose of SLC. And it has been
planed to distribute to 259 poor and landless families.
Recent Government decisions have also been made about Economic Land
Concessions (ELC) that affect how the country’s agriculture and natural resources are
managed. ELCs can be granted at both the national and provincial levels; yet it has been
granted in a non-transparent manner, the laws and regulations very often were not
followed. These results in vast areas of land are being kept by non-producers for
speculation while poor people who need to farm for their livelihoods have no access to
land. For instance, the concern of the DP raised that to push the land reform, a
cancelled or reduced the ELC should increasingly be used the purpose of SLC since the
growing number of poor and landless families38.
36 Statement by H.E. Chhann Saphan, Secretary of State of MLMUC and Chairman of TWG for Land in
the 12th meeting of GDCC on March 04, 2008
37 - Sombok commune 3294.36 hectares and Changkrang 612.21 hectares, Kratie district, Kratie
province
- Choam Kravien commune, Memot district, Kampong Cham province
38 The statement of Mr. F.X. Ernest Loignon, Chargé d’affaires, Embassy of Canada, the 12th meeting of
GDCC on March 04, 2008

Community Land is another issue of concern especially the indigenous
community who often live in the area that is rich in natural resources and under strong
pressure for development in the area. A pilot project on the Statute of Indigenous
Community has been performed by the inter-ministerial working group in three villages
in two provinces—two in Ratanakiri and one in Mondulkiri. Thus the progress in
registration of indigenous communal land has been very slow. Furthermore, the draft
Policy on Registration and Use Rights of Indigenous Communal Land was submitted to
the CoM since May 2007 and a draft sub-decree on the Registration of Indigenous
People’s Community Land has been discussed within the General Secretariat of Council
for Land Policy.
Work continues on various new legal texts related to land reform such as sub-
decrees, regulations, and policies. The challenge is enforcing the existing legal provisions
and implementing new policies. The RCG should strengthen enforcement of existing
laws and do more to implement existing legislations.
11.2. Forestry Reform
Cambodia is endowed with forests, which could also be used to transform the
lives of the country’s poor. Poverty rates among Cambodians who rely on forests for
their livelihoods tend to exceed the national average, which means securing local access
to forestry resources would help boost the income levels of these rural poor people.
Pressure is mounting for the Government to reform the commercial forestry
concession process, which is deemed by many to have failed over the past decade. A
considerable number of forest concessions were reduced making more forest area
available for the management under different scheme such as community forest. In this
sense, in order to develop rural livelihoods of the people, an ongoing monitoring and
evaluation is necessary to promote the implementation of forest communities.
The TWG F&E adopted a four-year Forestry and Environment Action Plan
2006-2010 consistent with the goals of the NSDP. In addition, the Forestry
Administration is developing a National Forest Program which should improve the
planning, implementing and monitoring of forestry-related activities and provide a
framework for prioritized action and investment.
In spite of these efforts, illegal logging and encroachment of forested land
continues in various parts of the country. The government has taken measures to
combat illegal grabbing of forest land through national and sub-committees for
Prevention, Control and Suppression of Forest Land Encroachment for Private
Entitlement in collaboration with the NLDA.
Policy reform for the new mandate, statement in the phase II of the Rectangular
Strategy, the government encourage the private sector in planting economically viable
private forest with proper and clear technical guideline, especially on degraded forest
land.

A new adopted of Natural Protected Area Law, adopted on December 27, 2007, is
the purpose of managing biodiversity conservation and to sustain the utilization of
natural resources in the areas.
In sum, the Government should consider strict measures to eradicate illegal
encroachment and to ensure forestry communities have input in how forests are
managed.
11.3 Fisheries Reform
Fisheries are crucial to the country’s development, supporting the livelihoods

and food security of millions of Cambodians. Ensuring access rights of local
communities is one the target in the fisheries reform program. According to the annual
report in 2007 and target for 2008 of the Fishery Administration (FA), 509 fishing and
fish shelter communities, both marine and fresh water, have been established of which
447 are fishing communities and 62 are fish shelter communities. As well the user rights
of the communities on public fishing areas are broadly opened through Sub-Decree on
Community Fisheries.
To further strengthen in the sector, action against illegal encroachment of
flooded forests and illegal fishing gears has being serious considerate in the phase II of
Rectangular Strategy. Additionally, due to the value of the fish truly reflect the family and
state economies; the RGC makes an effort to establish a fishing market mechanism.
In the area of policy reform, a Royal Decree on establishment of community
fisheries was signed in May 2005 and a Sub-Decree on community fisheries management
was approved in June 2006. These legal texts provide a legal basis for the establishment
of the community fisheries. A new Fishery Law took effect in May 2006, which outlines
the roles and mandate of the new FA for sector development. A proclamation on the
Functioning on the Fishery Administration has been discussed and currently is awaiting
approval from the MAFF. With the improved structure compare to in proceeding
Department of Fisheries, the new structure is expect to become a more effective service
provider, especially at the commune council level where the demand for more effective
fisheries management is greatest.
The formulation of a Cambodian Code of Conduct for Responsible Fisheries is
another noticeable improvement. It expected to provide framework that benefit more
for the development of rural communities. Moreover, Guidelines on Community
Fisheries have been finalized and should be implemented soon. The guidelines set out a
legal framework for ensuring that fisheries are managed more transparently and
equitably.
Therefore, there has been considerable progress in the policy reform, but access
rights to fisheries resources still lack clarity and the incentives that would ensure the
fisheries are managed in a sustainable manner are lacking.

Bibliographic References
Council for Legal and Judicial Reform (CLJR) 2003, Legal and Judicial Reform, June
2003
Data and Information from Various Ministries
Fishery Administration (FA) 2007, “Annual Report 2007 and Target for 2008”
IFC (2008), http://www.doingbusiness.org/Custom Query/ViewCustomReport.aspx
IMF (2007), “Cambodia 2007 Article IV Consultation”
MEF (2008), “Public Financial Management Reform Program Platform 2, May 2008”
______ Public Financial Management Reform Program 2007 Annual and Progress Report
NBC (2008), “First Semester Report and Target for Second Semester 2008”
______“Quarter Bulletin No 24, Quarter 2, 2008”
______“Quarter Bulletin No 25, Quarter 3, 2008”
RGC (2008), “Rectangular Strategy” for Growth, Employment, Equity and Efficiency Phase II,
September 2008
World Bank (2008), Cambodia Country Assistance Strategy Progress Report, April 2008
______”Trade Facilitation and Competitiveness Project Restructuring Aide Memoire”

Appendix KEY ECONOMIC
I INDICATORS
EIC - Cambodia Economic Watch - October 2008 63

Table A6.1 : Main Economic Indicators
1960 1990 2000 2005 2006 2007 2008p 2009p
Nominal GDP (million US$) 577 1,404 3,649 6,293 7,275 8,638 11,023 12,445
Real GDP (% increase) 4.8% 4.5% 8.8% 13.3% 10.8% 10.2% 7.0% 6.0%
GDP per Capita (US$) 83 136 288 455 514 598 751 834
GDP per Capita (% increase) - 9.5% 2.4% 15.5% 12.9% 16.4% 25.6% 11.1%
Riel/Dollar Parity (year average) 35 537 3,859 4,092 4,103 4,056 4,000 4,000
Inflation in Riel (year average) 4.0% 141.0% -0.7% 5.8% 4.7% 5.9% 21.0% 7.0%
Inflation in Dollar (year average) 4.0% 0.4% -1.8% 3.8% 4.4% 7.1% 22.7% 7.0%
Budget Revenue (% GDP) 19.7% 3.1% 10.2% 10.2% 9.8% 11.5% 10.8% 11.1%
Budget Expenditure (% GDP) 29.2% 15.9% 15.1% 12.4% 13.8% 14.4% 14.6% 14.7%
Current Public Deficit (% GDP) -3.8% -11.9% 1.3% 2.0% 1.0% 2.6% 1.3% 1.0%
Overall Public Deficit (% GDP) -9.5% -12.8% -4.8% -2.2% -4.0% -2.9% -3.8% -3.6%
Export of Goods (% GDP) 6.0% 3.4% 38.3% 46.2% 50.8% 47.3% 43.8% 43.1%
Import of Goods (% GDP) 18.4% 24.4% 53.0% 62.4% 65.3% 62.8% 60.4% 58.1%
Trade Balance (% GDP) -12.4% -21.0% -14.8% -16.2% -14.5% -15.5% -16.7% -15.0%
Current Account Balance (% GDP) -13.4% -22.7% -11.4% -9.4% -7.2% -7.8% -8.8% -7.1%
Net Foreign Reserves (million US$) 57 0 411 834 1,097 1,374 1,617 1,877
Money - M1 (% GDP) 12.5% 5.3% 3.5% 4.9% 5.4% 5.7% 6.6% 7.6%
Money - M2 (% GDP) 23.6% 1.8% 9.4% 14.4% 17.9% 26.8% 34.2% 41.2%
Population (million) 6.9 10.3 12.7 13.8 14.2 14.4 14.7 14.9
Labor Force (% Population) 31.6% 47.0% 52.8% 57.2% 57.6% 58.2% 58.8% 59.3%
Source: EIC, compiled from government and international organization primary data.

Table A6.2 : Budget Operations (Billion riels)
1960 1990 2000 2005 2006 2007 2008p 2009p
Domestic Revenue 4 23 1,442 2,626 2,918 4,015 4,766 5,524
Current Revenue 4 23 1,412 2,474 2,882 4,006 4,757 5,515
Tax Revenue 3 13 1,059 1,911 2,271 3,396 4,077 4,785
Direct Taxes 1 1 136 222 331 480 602 726
Indirect Taxes 2 4 533 1,116 1,295 1,895 2,335 2,790
VAT 1 2 398 730 870 1,143 1,430 1,707
Excise duties 0 0 113 380 418 731 878 1,052
Others 1 2 22 6 7 21 27 31
Int'l Trade Taxes 1 9 391 573 645 1,020 1,140 1,269
Imports 1 9 373 551 617 879 993 1,122
Exports 0 0 16 19 24 141 139 139
Others 0 0 2 3 4 0 8 8
Non tax revenue 1 10 353 563 611 610 680 730
Fishery & Forestry 0 0 51 10 9 13 9 9
Civil Aviation 0 0 25 30 30 51 67 78
Royalties 0 0 12 2 2 2 2 2
PTT 0 0 92 123 83 77 118 134
Other non tax revenue 1 10 174 398 487 467 483 506
Capital Revenue 0 0 29 152 36 9 9 9
Expenditures 6 120 2,120 3,182 4,112 5,041 6,449 7,314
Capital Expenditures 1 7 897 1,215 1,520 1,950 2,252 2,307
Through Nat'l Treasury 1 7 303 315 379 440 718 668
Direct Foreign financed 0 0 594 900 1,141 1,510 1,534 1,639
Current Expenditures 5 113 1,223 1,967 2,592 3,091 4,197 5,007
Defense and Security 2 89 438 451 520 681 1,018 1,169
Salaries 1 9 301 306 327 390 514 590
Other 1 80 137 145 193 291 504 578
Civil Administration 3 25 785 1,516 2,072 2,410 3,179 3,838
Salaries 2 12 211 405 495 853 1,107 1,350
Other 1 13 574 1,111 1,577 1,556 2,072 2,488
Current deficit -1 -90 190 507 290 915 560 508
Overall deficit -2 -97 -678 -556 -1,194 -1,026 -1,684 -1,790
Financing 2 97 678 556 1,194 1,026 1,684 1,790
Foreign financing 1 77 707 984 1,584 1,615 1,684 1,790
Grants 1 70 384 538 790 730 749 778
Loans (net) 0 7 323 446 794 885 935 1,012
Domestic financed 1 20 -28 -428 -390 -589 0 0
Banks 0 20 -115 -199 -333 -1,114 0 0
Others 0 0 86 -229 -57 525 0 0
Source: Ministry of Economy and Finance.

Table A6.3 : Balance of Payment (Million US$)
1960 1990 2000 2005 2006 2007 2008p 2009p
Exports of Goods 35 47 1,397 2,910 3,694 4,089 4,823 5,358
Imports of Goods 106 342 1,936 3,928 4,749 5,424 6,660 7,230
- - -
Trade Balance -71 -295 -539 -1,056 -1,872
1,018 1,335 1,837
Agriculture 26 19 251 350 401 532 799 983
Textiles & Garments -11 -18 495 1,173 1,409 1,534 1,767 1,860
- -
Oil & Gas -4 -50 -323 -842 -1,123 -2,106
1,306 2,119
- - -
Other Goods -82 -246 -961 -1,742 -2,609
1,698 2,094 2,284
Balance of Services -2 -27 101 471 504 644 915 1,085
Transportation -1 -8 -99 -233 -271 -301 -407 -493
Travel (Tourism) 1 3 271 743 841 1,012 1,342 1,578
Others -2 -21 -71 -38 -65 -67 -21 -1
Balance of Incomes -4 0.4 -123 -254 -290 -360 -430 -487
Current Transfers and Capital Account 42 9 461 535 764 797 809 821
Private Transfers 0 3 144 209 315 381 383 385
Government Transfers 42 6 317 326 449 416 426 436
Current Accounts -35 -312 -100 -265 -77 -253 -543 -453
Financial Accounts 35 312 184 335 322 669 774 808
Official Loans 0 130 75 144 141 120 129 144
Foreign Direct Investment 0 0 148 381 408 866 724 550
Others (net) 35 182 -40 -190 -226 -317 -80 -52
Overall Balance 0 0 83 70 245 415 231 355
Source: NBC for 2000-2007, EIC model projection for 2008-2010

Table A6.4 : Monetary Survey (Billion riels)
1960 1990 2000 2005 2006 2007 2008p 2009p
Net Foreign Assets 4 3 2,589 5,475 7,224 11,036 12,837 15,335
Foreign Assets 4 18 3,047 6,142 7,650 12,192 14,026 16,576
Foreign Liabilities 0 -15 -458 -667 -426 -1,156 -1,189 -1,241
Net Domestic Assets 3 58 -759 -450 -282 576 5,181 8,927
Domestic Credit 3 59 904 1,972 2,676 4,570 10,245 14,644
Net Claims on Government 1 41 3 -421 -953 -1,816 -1,993 -1,973
Claims on Government 1 42 272 327 287 297 315 335
Deposits of Government 0 -1 -269 -748 -1,240 -2,113 -2,308 -2,308
State Enterprises 0 13 3 0 2 1 1 1
Private Sector 2 5 898 2,394 3,628 6,385 12,237 16,616
Other Items (net) 0 -1 -1,663 -2,423 -2,959 -3,994 -5,064 -5,717
Total Liquidity 7 61 1,831 5,025 6,942 11,311 18,018 24,262
Narrow Money 5 61 540 1,323 1,658 2,052 3,032 3,914
Currency outside Banks 3 46 495 1,282 1,600 1,990 2,928 3,772
Demand Deposits 3 15 45 41 58 62 104 141
Quasi-Money 2 0 1,291 3,702 5,285 9,259 14,986 20,348
Times and Savings Deposits 2 0 46 113 89 121 178 233
Foreign Currency Deposits 0 0 1,245 3,589 5,196 9,138 14,808 20,115
Source: NBC for 2000-2007, EIC model projection for 2008-2010

Table A6.5 : Investment and Saving (million US$)
1960 1990 2000 2005 2006 2007 2008p 2009p
Total Investment 80 94 668 1,189 1,407 1,713 2,030 2,252
Public investment 37 13 233 297 370 481 563 577
Domestic financed 6 13 72 75 85 108 152 139
Foreign financed 31 0 160 222 285 372 412 438
Private investment 43 81 436 892 1,037 1,232 1,467 1,676
Domestic financed 43 49 287 511 629 757 916 1,125
Foreign financed 0 32 148 381 408 475 550 550
Total Domestic financed 48 62 360 586 715 866 1,068 1,264
Total Foreign financed 31 32 309 603 693 847 962 988
Total Saving 80 94 668 1,189 1,407 1,713 2,030 2,252
National saving 2 -225 251 597 881 1,043 1,061 1,363
Government -22 -167 49 124 71 226 140 127
Non Government 24 -58 202 473 810 818 921 1,236
Foreign saving 77 318 417 591 527 670 969 889
Grants 42 6 317 326 449 416 426 436
Non Grants 35 312 100 265 77 253 543 453

Table A6.6 : GDP by Industry Origin at Current Prices (million US$)
1960 1990 2000 2005 2006 2007 2008p 2009p
Agriculture 302 764 1,329 1,963 2,231 2,602 3,451 3,891
Paddy 126 163 328 547 561 740 1,086 1,230
Other Crops 80 156 258 439 540 601 814 959
Livestock 26 102 204 293 336 377 492 562
Fishery 22 327 393 462 527 600 733 790
Rubber & Forestry 47 17 146 222 267 285 326 349
Industry 89 170 780 1,542 1,861 2,117 2,455 2,649
Garment 16 18 336 772 943 1,044 1,166 1,266
Food, Beverage & Tobacco 19 70 116 149 162 187 235 264
Other Manufacturing 16 48 114 169 202 230 294 336
Electricity, Gas & Water 5 6 15 30 40 48 64 76
Construction & Mining 33 28 198 422 514 609 696 708
Services 186 470 1,541 2,788 3,183 3,919 5,118 5,905
Transport & Communication 15 64 241 465 515 597 752 853
Trade 485 584 577 906 1,016 1,363 1,783 2,073
Hotel & Restaurants 16 3 135 273 318 375 502 584
Other Private Services -408 -212 490 1,030 1,208 1,419 1,872 2,168
Public Administration 77 31 98 113 126 165 208 228
Total GDP 577 1,404 3,649 6,293 7,275 8,638 11,023 12,445
Note: There have been a number of data revisions that impact to the series back to previous year.

Table A6.7 : GDP by Industry Origin at Constant 2000 Prices (million US$)
1960 1990 2000 2005 2006 2007 2008p 2009p
Agriculture 833 948 1,329 1,692 1,784 1,874 1,977 2,081
Paddy 179 197 328 470 490 527 560 591
Other Crops 289 133 258 384 409 446 491 538
Livestock 64 206 204 259 280 290 310 329
Fishery 219 285 393 442 459 462 466 470
Rubber & Forestry 82 127 146 137 146 149 151 152
Industry 549 221 780 1,516 1,794 1,944 2,069 2,153
Garment 104 5 336 834 1,004 1,104 1,201 1,283
Services 1,529 712 1,541 2,497 2,740 3,144 3,404 3,665
Trade 480 561 577 794 850 1,059 1,136 1,227
Other Private Services 142 -25 490 982 1,128 1,266 1,393 1,507
Total GDP 2,910 1,881 3,650 5,704 6,318 6,962 7,449 7,899

Table A6.8 : GDP by Expenditure Categories at Current Price (million US$)
1960 1990 2000 2005 2006 2007 2008p 2009p
Private Consumption 220 1,419 3,284 5,332 5,966 6,803 8,681 9,801
Government Expenditure 342 203 191 365 384 495 894 858
Gross Domestic Formation 88 103 640 1,162 1,495 2,049 2,389 2,591
Gross Fixed Capital Formation 80 94 668 1,189 1,407 1,713 2,030 2,252
Public 37 13 233 297 370 481 563 577
Private 43 81 436 892 1,037 1,232 1,467 1,676
Changes in Stocks 8 10 -29 -27 88 336 359 338
Exports of Goods & NFS 37 49 1,826 4,028 4,990 5,637 6,843 7,687
Goods FOB 35 47 1,397 2,910 3,694 4,089 4,823 5,358
Domestic exports 35 -6 1,279 2,773 3,554 3,948 4,681 5,214
Re-exports 0 53 118 137 139 141 143 145
NFS 2 2 428 1,118 1,296 1,548 2,019 2,329
Imports of Goods & NFS 110 371 2,291 4,594 5,560 6,345 7,783 8,492
Goods FOB 106 342 1,963 3,947 4,768 5,442 6,678 7,247
Retained imports 106 289 1,845 3,810 4,629 5,301 6,535 7,103
Re-exports 0 53 118 137 139 141 143 145
NFS 4 29 328 647 792 903 1,105 1,244
Total GDP 577 1,404 3,649 6,293 7,275 8,638 11,023 12,445

Table A6.9 : GDP by Expenditure Categories at Constant 2000 Prices (Million US$)
1960 1990 2000 2005 2006 2007 2008p 2009p
Private Consumption 1,176 1,820 3,284 4,942 5,317 5,668 6,257 6,619
Government Expenditure 1,580 263 191 327 333 398 559 493
Gross Domestic Formation 508 137 640 1,075 1,320 1,642 1,603 1,634
Gross Fixed Capital Formation 461 125 668 1,103 1,260 1,417 1,413 1,466
Public 210 33 233 271 332 388 401 385
Private 251 92 436 832 928 1,029 1,012 1,081
Changes in Stocks 48 13 -29 -27 61 224 190 168
Exports of Goods & NFS 202 54 1,826 3,886 4,626 4,882 5,080 5,359
Goods FOB 190 52 1,397 2,784 3,395 3,510 3,510 3,656
Domestic exports 190 -7 1,279 2,652 3,267 3,389 3,406 3,558
Re-exports 0 58 118 131 128 121 104 99
NFS 12 2 428 1,102 1,231 1,372 1,569 1,702
Imports of Goods & NFS 556 394 2,291 4,527 5,278 5,627 6,049 6,206
Goods FOB 536 363 1,963 3,889 4,526 4,826 5,190 5,296
Retained imports 536 307 1,845 3,754 4,394 4,701 5,079 5,191
Re-exports 0 56 118 135 132 125 111 106
NFS 21 30 328 638 752 801 859 909
Total GDP 2,910 1,881 3,650 5,704 6,318 6,962 7,449 7,899

Table A6.10 : Employment by Sector (000's)
1960 1990 2000 2005 2006 2007p 2008p 2009p
Agriculture 1,922 2,962 3,625 4,061 4,145 4,215 4,275 4,331
Paddy 1,522 1,997 2,559 2,878 2,939 2,991 3,036 3,078
Other Crops 234 401 436 504 516 527 536 545
Livestock 65 327 343 391 400 408 414 420
Fishery 74 193 240 249 248 247 245 243
Rubber & Forestry 26 44 47 39 41 42 44 45
Industry 99 218 473 692 771 816 859 890
Garment 14 37 200 323 368 398 414 445
Services 299 752 984 1,126 1,169 1,200 1,191 1,205
Trade 138 270 324 363 374 375 339 339
Other Private Services 54 133 162 262 286 307 325 341
Total 2,320 3,932 5,082 5,879 6,085 6,231 6,325 6,425

Appendix KEY STRUCTURAL
II REFORMS

Box A2.1: Cambodia Key Reforms in Trade Openness Policy and Investment (2001–2008)
2001:
• Since early 2001 Cambodia benefited from the EU’s Everything But Arms (EBA) initiative,
which grants duty-free and quota-free access for all exports (except arms) originating from
Cambodia. With Cambodia's entry into the Association of Southeast Asian Nations (ASEAN),
the European Union (EU) granted Cambodia the Regional Cumulation and Derogation Benefit
Status, offered under the EU Preferential Rules of Origin. The derogation was prolonged until
the end of 2006. The EU is ranked as Cambodia’s second most important destination for
exports, after the United States (US) and Cambodia’s third most important trade partner, after
the US and Thailand. Since Cambodia does not have a well-developed textile sector, it has
not always met the standard of the Rules of Origin (ROOS) requirements and this has made
some of its garment exports to EU markets subject to 12 % average rate of duty.
• The Royal Government of Cambodia (RGC) reduced maximum tariff rates from 120 percent
to 35 percent and reduced the number of tariff bands from 12 to four. Structure of the four
tariff bands are 0%, 7%, 15% and 35%, of which about 95% of the tariff lines are under three
bands: 7%, 15% and 35%.
• Average un-weighted tariff rates lowered to 16.5% from 17.3% in 2000 and 18.4% in 1997.
The rate had been lowered to 14.7% by 2005.
• The RGC imposed an absolute ban on exports of logs and an export quota on rice. Five items
are subject to export licensing requirement: (i) processed wood products, (ii) garments, (iii)
weapons, (iv) all vehicles and machinery for military purposes and, (v) pharmaceuticals and
medical materials. Most non-trade barriers were eliminated in 2001.
2002:
• Following the presentation of its Pro-poor Trade Strategy at the July 2001 third Consultative
Group (CG) meeting in Tokyo, the RGC and donors agreed to prepare the Diagnostic Trade
Integration Study (DTIS-IF). It was released in January, and was led by the World Bank
(WB) and a team of national and international consultants. Most non-trade barriers were
eliminated. Cambodia, one of the first three pilot countries under the revamped Integrated
Framework for Trade-related Technical Assistance, was considered very successful and the
concept has now been replicated in 20 other Least Developed Countries (LDCs).
2003:
• Cambodia was approved to become 147 th World Trade Organization (WTO) member at
Cancun 5 Th WTO Ministerial Conference (September 10-14, 2003) following a successful
five rounds of working party negotiations with its multilateral and bilateral market partners.
Cambodia achieved full membership of the WTO on October 13, 2004.
• Cambodia became a signatory of the ASEAN-China Free Trade Area’s Early Harvest scheme,
in July. Under the scheme Cambodia received a Special Preferential Tariff (SPT) treatment
for 297 products at 0% tariff rates for Chinese markets, effective from January 1, 2004. Under
ASEAN and LDC status, Cambodia also received SPT treatment from a number of other
countries including the EU member states, Japan, Korea, Canada, Thailand, etc.
2005:
• On January 1, the Bilateral Textiles Agreement with the US government, signed in 1999,
expired. On May 27, the US Department of Commerce introduced a safeguard to limit the
increase of its Chinese textile imports to 7.5% a year. The move was followed on June 10, by
the signing of a European Union Memorandum of Understanding with China to limit Chinese
textile imports to between eight and 12.5%. This safeguard will expire by the end of 2008.
• The Tariff Relief Assistance for a Development Economy (TRADE) bill was introduced in
both the US Senate and the House of Representatives. The bill would grant Cambodia, and 14
other developing countries, duty-free access to the US markets. Modeled on the Africa
Growth and Opportunity Act (AGOA), it provides special access of textile and clothing

exports from lesser-developed countries in Sub-Saharan Africa to the US markets.
• During July, representatives of the RGC and Garment Manufacturer Association (GMAC)
lobbied the US government to pass the TRADE bill that had already been introduced in both
the US Senate and the House of Representatives. If the TRADE bill were passed, it would
obviously help the Cambodian garment industry achieve a more sustainable future.
• China granted Cambodia an additional 83 products duty-free access to its markets. In total,
Cambodia has received SPT treatment for 380 products at 0% tariff rate for Chinese markets.
2006:
• In July, the Commerce Minister went to the US to call for duty-free access to US markets for
15 LDCs in Asia. It is seen as crucial for the health of Cambodia's garment industry, to
enable it to compete with other exporters such as China and Vietnam. Since 2005, a bill
entitled the TRADE Act 2005 has been before the US Congress to extend duty-free access to
the 15 LDCs. It would eliminate 17-to-20-percent of tariffs currently imposed on Cambodian
garment exports to the US. The US has already approved this policy for Africa.
• On July 14, 2006, Cambodia reached an agreement and signed a Trade and Investment
Framework Agreement (TIFA) with the US.
• On August 2, Vietnam offered SPT treatment to 40 Cambodian agricultural products, giving
them duty-free access to its markets. Tobacco and rice were excluded from the list and are
subject to quota restrictions. Vietnam and Cambodia plan to establish seven Special
Economic Zones (SEZs) along their border and open eight more international border
checkpoints and nine national border checkpoints in order to expand trade.
• On December 5-7, the Prime Ministers of Cambodia, Vietnam and Laos met in Dalat to
discuss the development of an economic triangular area incorporating the three countries'
mutual border provinces. The Prime Minister of Cambodia indicated during the meeting that
the plan will include the Cambodian provinces of Ratanakkiri, Mondolkiri and Stung Treng
and these provinces will become a major economic engine by 2015, focusing on mining, agro-
industry and ecotourism.
2007
• June 14, 2007 – Cambodia and Japan signed an agreement for "liberalization, promotion and
protection of investment". Cambodia guarantees a free market, privatization and facilitation of
procedural work for prospective Japanese investors. This is in addition to what is stipulated in
the investment law, which ensures no discrimination, nationalization or price intervention
from the government, but requires domestic shares in foreign–owned companies.
• On January 16, the Office of the Council of Ministers (OCM) submitted the second protocol
of the Greater Mekong Sub-region (GMS) on Facilitation of Cross Border Transport of Goods
and People to the National Assembly for approval.
• On February 12, the first Joint-Council meeting was held between US trade representatives
and RGC officials, led by the Commerce Minister, in Siem Reap. This meeting was the
follow-up of TIFA which was signed in July 2006. The meeting aimed to strengthen
relationships and give participants a deeper understanding of Cambodia’s economic and
political structures, as well as the challenges faced by its trade sector. During the meeting,
there were exchanges of views on the legal framework, standard and capacity building,
intellectual property, Sanitary and Phytosanitary (SPS), Generalized System of Preference
(GSP), etc.
• Preparation of the Updated Diagnostic Trade Integration Study (Updated DTIS) or Enhanced
Integrated Framework (IF) has been underway, lead by the Ministry of Commerce (MoC) and
United Nations Development Programs (UNDP). The report is expected to be released by
mid-2007.
• June 2007, Russia offers a preferential treatment of Cambodian garment (except wool) exports to its
markets duty free and quota free with subject to a 25% rule of origin conditions. EU requires 45% of
rule of origin for Cambodian exports penetrating its markets for duty and quota free status.
• July 2007, Sr. Minister of Commerce and GMAC embarked on their 4th lobby trip on TRADE Act to

Washington DC. Their earlier trips were in 2004-2006. This lobby had not been so successful
because there is a momentum to introduce a larger Bill that will provide all LDCs duty free and quota
free access to US markets. This is in view of the US commitments to the Doha Round Negotiations of
the WTO. This bill is being spearheaded by Congressman Jim Mcdermit who is the father of the
AGOA Bill.
• Law on Insolvency was adopted by the NA on October 16, 2007 and promulgated on December 08,
2007.
• Under the ASEAN Harmonized Tariff Nomenclature (AHTN) of ASEAN Free Trade Area,
Cambodia tariff lines will be reduced further from a little over 11,000 lines to around 8,500 lines
effective from September 1, 2007. The implementation would help reduce the Cambodia’s average
un-weighted tariff rate from 14.90 percent to 14.38 percent.
• October 12, 2007 – Cambodia approved agreement law between Cambodia and Pakistan on
promotion and protection of investment.
• As of 2007 the following countries granted SPT treatments to Cambodia
- US – More than 6,000 Items
- 27 EU countries – Everything But Arms (EBA) initiative
- Japan – (April 2007) duty and quota free status on 98% of Japanese tariff list provided
to Cambodia’s exports to its markets.
- China – 380 Items
- Korea (Republic) – 78 Items
- ASEAN under the AISP – Thailand (340 items), Brunei (8 items), Indonesia (70
items), Malaysia (180 items), Philippines (62 items).
• US Congress on October 19, 2007 considered Draft Law on Duty-Free Garment Access.
Cambodia, currently the fifth-largest exporter of garments to the US, has lobbied US lawmakers to
reduce tariffs on clothing produced here, fearing that unfettered competition from countries such as
China could reduce Cambodia's US market share. When US import quotas on garments expired in
2005, the US placed controls on specific imports of clothing from China, but these safeguards are due
to expire at the end of 2008. While offering unlimited duty-free access to other least developed
countries, the bill would allow Cambodia and Bangladesh to increase the volume of duty-free imports
by 15 percent a year if they respect labor rights. GMAC acknowledged that “I think the bill will put
us in a better position to compete with Vietnam and China".
2008
• Agreement between Cambodia and Japan on "Liberalization, Promotion and Protection of
Investment" which signed in June 2007 was adopted by the NA on January 16, 2008 and was
promulgated on February 28, 2008.
• ASEAN Charter was adopted by the NA on February 26, 2008 and was promulgated on
March 31, 2008. The instrument of ratification signed by H.E Deputy Prime Minister HOR
Namhong, Minister of Foreign Affairs and International Cooperation, on April 02 2008, has been
forwarded to the Secretary-General of ASEAN for deposit. The charter represents as a common
vision and commitment to the development of ASEAN community as a region of lasting peace,
stability, sustained economic growth, shared prosperity and social progress.
Sources: Various Government Reports, IF Report.

Box A2.2: Cambodia Key Policy Reforms in Private Sector Development (2001-2008)
2002:
• The MoC set its mission statement as “The Year of Decentralization and Deregulation”, aiming to
reduce paperwork procedures in dealing with export activities. It introduced a computerized system,
in coordination with the US Customs Department, for monitoring garment exports.
• Law on Marks, Trade Names and Acts of Unfair Competition passed by the National Assembly.
2003:
• In January, the Law on Copy Rights and Related Rights passed by the National Assembly.
• In February, the Amended Law on Investment passed by the National Assembly to make investment
climate more conducive to growth.
• Law on the Amendment of the Law on Taxation passed by the National Assembly.
• Law on Patents, Utilities Model, Certificates and Industrial Design passed by the National Assembly.
2004:
• The government and donors, led by the World Bank, identified a 12-point action plan to tackle
impediments in the private sector. These were mapped out in the World Bank Investment Climate
Assessment Report released in August. The 12-point implementation plan is to improve
competitiveness of Cambodian investment climate and trade facilitation.
• The government established a Steering Committee of Private Sector Development, consisting of eight
ministries/agencies, to lead and oversee the change process in private sector development reform.
• Another three Sub-steering Committees of Private Sector Development also established by the
government: (i) Sub-steering Committee on Investment Climate and Private Participation in
Infrastructure (PPI) led by Sr. Minister of Economy and Finance, (ii) Sub-steering Committee on
Trade Facilitation led by Sr. Minister of Commerce, and (iii) Sub-steering Committee on SME led by
Minister of Industry, Mines and Energy. Each sub-committee is in charge of its relevant reform
agenda.
• A Trade Facilitation Reform Team established to work under the guidance and leadership of the Sub-
steering Committee of Trade Facilitation, chaired by Sr. Minister of Commerce.
• MoC reduced the Commercial Registration fees from US$630 to US$177 (Prakas #162 MoC/ M
2004, effective from September 01). It also reduced the time for the Commercial Registration to two
and an half days (MoC’s announcement letter #1971 MoC/ M 2004, effective from September 01)
and the minimum capital requirement for enterprise establishment from CR 20 million (US$5,000) to
CR 4 million (US$1,000).
• On May 12, the number of steps in the procedure and processing application for Certificate of Origin
(C/O), Visa on Commercial Invoice and Export License at MoC reduced from 11 to eight. Processing
time for issuance of application for C/O, Visa on Commercial Invoice, and Export License reduced
from 16 business hours (March 2002) to 12 business hours from May 12, 2004.
2005:
• The Council for the Development of Cambodia (CDC) cancelled the “deposit requirement” to secure
project implementation by investors, and foreign companies have been entitled to a 100% ownership
of their businesses except the ownership of land.
• Investment Proposal Review Sub-committee established in provinces to allow approval of investment
projects of less than US$2 million. Committees comprise: i) Provincial Governor, Chairman of the
Investment Sub-committee, ii) First Deputy Governor, Vice-Chairman, iii) Second Deputy Governor,
Vice-Chairman, and 13 other members from different municipal departments.
• Costs and times reduced for Commercial Registration at the MoC. Also reduced times and procedures
for application of C/O, Visa of Certified Invoice and Export Licenses. Certificate of Processing (C/P)
no longer required by the Ministry of Industry, Mines and Energy (MIME).
• The requirement of C/O for pre-shipment is no longer necessary. C/O can be submitted to post-
shipment in order to speed up export of goods.

• Separate on-site inspections by Customs and CamControl changed to joint simultaneous on-site
inspections from September 1, where only one joint inspection document is used.
• RGC offered to establish a permanent, joint Customs-CamControl Focal Point/Office in garment
factories with over 2,000 employees, to facilitate and speed up the inspection and clearance process.
• Improvements led to a reduction of time spent on import transactions with all government agencies
from 30 days in 2003 to 10.5 days in July 2005 and export transactions reduced from 20 days in 2003
to 6.6 days in July 2005. Average per transaction costs for processing exports meanwhile declined
from US$942 in 2003 to US$612 in July 2005 and average import costs fell from US$2,477 in 2003
to US$673 in July 2005. Informal fees also declined from 5% per total consignment value in 2003 to
2% in July 2005 - survey done by EMC in August 2005, commissioned by the WB-funded Trade
Facilitation and Competitiveness Project (TFCP).
• On May 17, Law on Commercial Enterprise passed by the National Assembly.
• Law on Negotiable Instruments and Payment Transactions passed by the National Assembly.
• On July 15, Law on Concession passed by OCM and submitted to the National Assembly for
approval.
• On September 27, the RGC issued Sub-decree #111 on implementation of amendment law of the
Law on Investment of the Kingdom of Cambodia.
• Prime Minister signed Sub-decree on the Establishment and Management of SEZs. Promulgation of
Sub-decree effective from 29 December 2005.
• 14 SEZs approved for 10 provinces and One-Stop-Service approach is employed in the zone.
• The RGC adopted the Small and Medium Enterprise (SME) Development Framework in 2005 as its
strategy for SME development through to 2010
2006:
• The government adopted and issued Sub-decree #21, Risk Management Strategy, Guidelines for
Implementation. The Prime Minister signed a single-package document containing Sub-decree on
March 1, 2006.
• In March, Law of Commercial Arbitration passed by the National Assembly.
• Law on Management of Factories and Handicrafts passed by the National Assembly.
• Sub-decree on Risk Management approved by the Prime Minister.
• Civil Protection Code approved by the Government.
• The RGC issued Sub-decree #84 on Creation of Anti-Corruption Entity.
• Provincial Chamber of Commerce Offices opened in Phnom Penh, Battambang, Siem Reap,
Sihanoukville, Kampong Cham, Kampot, Takeo, Kampong Speu, Posat, Banteay Meanchey and
Kandal. No plan to open offices in all 24 provinces, as not enough trading/business activities.
• The RGC signed a ASYCUDA-World project document package with UNCTAD on April 18, 2006
to automate its Customs and Excise Department (CED). ASYCUDA (Automated SYstem for
CUstom DAta) is the most up-to-date version of the UNCTAD-designed Information Technology
package for Customs automation and modernization. ASYCUDA funded under the World Bank’s
Trade TFCP.
2007:
• Export Management Fee reduced from 1% to 0.9% of total export value.
• Law on Secured Transaction was adopted on April 06, 2007 and promulgated on May 24, 2007. This
law aims to promote economic activity through a unified set of rules on securing obligations with
collaterals.
• April 25, 2007, the National Assembly adopted the Law on Cambodian Standard and was
promulgated by Royal Kram NS/RKM/0607 date June 24, 2007. The law would create quality
standards for Cambodian-made products, as well as standards for foreign companies importing goods
into Cambodia. The law will permit the Commerce Ministry's Camcontrol department to inspect the
quality standard of all goods entering the country's market. The Cambodia Standards Institute will be
an arm of the Ministry of Industry, Mines, and Energy, which has already implemented standards for

drinking water produced for Cambodia's domestic market.
• 22 June 2007, Law on Customs was adopted by the National Assembly and promulgated on July 20,
2007
• The Law on Concession was adopted by the National Assembly on September 10, 2007 and
promulgated on October 19, 207. Law details the process by which the government can grant private
concessions for state-owned infrastructure fixtures.
• August 29, 2007, the Sub-Decree on the Mortgage and Transfer of the Rights over a Long-Term
Lease or an Economic Land Concession approved by the Prime. The purpose of this Sub-Decree is
to determine principles and terms and conditions for granting rights to investors to put up as security
and transfer of rights over a long-term lease or an economic land concession during the period of time
not exceeding the period prescribed in the long-term lease agreement or the economic land
concession agreement.
• Civil Code was adopted by the NA on October 05, 2007 and promulgated on December 08, 2007.
• Inter-Ministerial Prakas #679 (MEF) on Administrative Fees for Commercial Registration (August
07, 2007). Administrative fees for commercial registration shall be allowed to be charged.
Administrative fees for commercial registration deregistration and issuance of certificates shall be
determined as follows: (1) Commercial Company: 420,000 Riel for commercial registration,
200,000 Riel for deregistration and 60,000 Riel for certificate; (2) Sole Proprietorship or trader
subject to tax on profit: 120,000 Riel for commercial registration, 60,000 Riel for deregistration and
20,000 Riel for certificate. Payment and receipt of revenue from the administrative fees for
commercial registration shall be implemented through the revenue office at the MoC. Prakas #514
SHV.ThH, dated July 17, 2000, on Determination of Fees for Application Form for Commercial
Registration, Deregistration or Issuance of Certificates of the MEF and Prakas # 162 MoC/M2004,
dated August 23, 2004, on Determination of Fees for Application Form for Commercial Registration
shall be repealed.
• Ministry of Commerce (Prakas #249 dated November 30, 2007) on Decentralization of Company
Registration at the municipality and provincial towns. Decentralize authority to municipal and
provincial representative offices of the Ministry of Commerce to register “Company Registry”
activities. Upon receipt of all proper required documents, the municipal and provincial representative
offices of the Ministry of Commerce can issue provisional certificate for opening-up the company
(provisional company registry certificate) with 30 days validity. An original certificate to be
approved by the central management of the Ministry of Commerce will be sent to the requesters
through the municipal and provincial representative offices of the Ministry of Commerce.
2008:
• On March 27, 2008, Cambodian government introduced a two-month rice export ban due to concern
of local market price volatilities. The Government on May 26, 2008 announced a partial lifting of a
two-month-old ban on rice exports, but will continue to limit the amount of rice sold abroad. A 1.6
million tons export quota will be kept, and exports of more than 100 tons must be passed through
government administration of the Ministry of Commerce (MOC). This will be in effect until
December 31, 2008. Only two exporters, the state-run Green Trade and the Cambodian National Rice
Millers Association, have been licensed to export shipments of more than 100 tons. Export shipment
with less than 100 tons is not required for administrative permit from the MOC. While Cambodian
farmers produced some 6.4 million tons of paddy rice in 2007, domestic consumption is only 4.0
million tons, leaving a sizable surplus for export. The government, through, the Rural Development
Bank has provided US$14 million (in the first half of 2008) with 5% annual interest rate (15% market
rate) to the Cambodian National Rice Millers Association for use in purchasing rice from farmers
during their harvesting seasons. In the meantime, during the first half of 2008, the National Rice
Miller Association sold 1,000 tons of rice with lower than the market price rate to urban towns/cities
where price validities erupted. This is part of the government intervention in light of soaring rice
prices in March-April 2008. The Association is planning to release another 7,000 tons or 10,000 tons
in the next three of four months (until October 2008, and subject to market demands).
• In May 2008, ASYCUDA has been officially launched at Sihanoukville autonomous port.
• September 2008, One Stop Service, administrative office, was implemented in Phnom Penh SEZ. The
service aims to simplify application procedure for potential investors in the zone.
• The Sub-Decree on Organization and Functioning of Cambodian Standard Institution was adopted on

June 04, 2008.
• Recent World Bank Group Doing Business survey (DB-2009) showed Cambodia moving up 15
places in the Doing Business Report 2009. In 2007, Cambodia ranked 150 out of 181 economies
worldwide; this year Cambodia improved 15 notches to 135 out of 181 economies surveyed.
Cambodia’s strong improvements are a result of two reforms. The first was passage of the Law on
Secured Transactions in 2007 which makes it possible for a business to use its moveable and
intangible assets as security for a loan. Assets include equipment, vehicles, inventory, accounts
receivable, and agricultural commodities. The second was the passage of the Law on Bankruptcy in
2007, Cambodia’s first law regulating the closure of private businesses. Cambodia’s environment on
trading across borders has also been improved by reducing the time required to exports and imports
and its procedures.
Source: Various Government Reports.

Box A2.3: Cambodia Key Reforms in Public Financial Management and Banking (2001-2008)
2001:
• Introduced visa sticker to avoid tax loss from visa revenues, stamp system on cigarettes,
expanded VAT on real regime (self-assessment system) to additional 150 firms (following the
2000 expansion by 500 companies) and introduced a 10% excise tax on entertainment
services.
• The minimum profit tax of 1% was eliminated on investment projects.
2002:
• Raised additional tax on petroleum products, two cents per liter for gasoline and four cents
per liter for diesel, excise tax on beer from 10% to 20% and expanded real tax regime (real
tax regime means taxation based on accounting statement) to cover additional five provinces
(it was previously applied to five provinces only) 1.
• In July, the Law on Corporate Accounting, Audit and the Accounting Profession was passed
and promulgated.
• Applied a 15% withholding tax on interest earned by bank depositors.
• Introduced Medium Term Expenditure Framework 2003-2005.
• Streamlined the system for controlling refunds and developed risk management techniques for
the verification and approval of VAT refund claims.
• Established a single operational structure for government bank accounts in the National Bank
of Cambodia under government control.
• Established a structure for a Chart of Accounts (COAs) at the national treasury.
• Introduced direct payment to the National Bank of Cambodia (NBC) for large taxpayers.
2003:
• Issued Treasury Bill for CR 50 billion.
• Law on the Amendment of the Law on Taxation was adopted by the National Assembly on
March 3. The main points of these amendments are as follows:
- Changed exemption period
- Introduced 40% special depreciation for the Qualify Investment Project (QIP), for investors
not electing to use exemption period
- Introduced new depreciation schedules (declining balance method)
- Introduced additional profit tax on dividend distribution
- Reduced withholding tax on payment to non-residents from 15% to 14%
- Reduced withholding tax on interest payment from bank to resident taxpayers from 15% to
6% and from 5% to 4%.
- Increased rate of salary tax for non-resident taxpayers from 15% to 20%
- Eliminated 1% of turnover of minimum tax and pre-payment of profit tax on QIP
- Strengthened collection enforcement
• Expanded the coverage of Medium Term Expenditure Framework (MTEF) to: i) Ministry of
Agriculture, Forestry and Fisheries (MAFF), ii) Ministry of Rural Development (MRD), iii)
Ministry of Public Works and Transport (MPWT). MTEF possibly to be expanded to Ministry
of Justice and Ministry of Women’s and Veterans’ Affairs.
• The Prime Minister’s circular, ordered the Ministry of Economy and Finance (MEF) not to
1 The real regime tax system was expanded in 2000 to five provinces: Sihanoukville, Koh Kong, Siem Reap,
Kompong Cham and Battambang. In 2002, the real regime system was expanded to another five provinces: Kandal,
Svay Rieng, Kampot, Kompong Speu and Kompong Chhnang.

sign new payment orders without sufficient cash in the national treasury.
• Established Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA) to
ensure promotion of the accountancy and auditing professions.
• Increased excise tax rate on beer from 20% to 30%. Increased excise tax on air transportation
and telecommunications from 2% to 10% and broadened both domestic and international tax
base, effective from 1 January.
2004:
• The MEF put stiffer pressure on Government’s private debtors and set January 31 as the
deadline to all vehicle owners to pay tax or have vehicles confiscated.
• The Government reduced import tax on luxury vehicles from 230% to 50% beginning January
1, with the expectation that reduction in tax would prompt and encourage people to pay it.
• Established a Budget Monitoring and Cash Management Commission (BMC) to: i) prepare
and monitor budget performance and its policies, ii) provide assistance and recommendation
to budget law preparation, iii) set up reviews on a six-month basis of budget execution, iv)
manage expenditure reflecting the National Treasury’s capacity, and v) improve and monitor
priority expenditure such as Priority Action Programmed (PAP).
• In September, reform of Public Financial Management (PFM) launched by an 11-donor team,
in which the WB is playing a crucial role. This sector-wide approach PFM reform is a multi-
year agenda, focusing on reducing fiducially risks of public expenditure and financial
management, and improving fiducially accountability. The reform, which is key to reducing
corruption, involves computerization of a number of key revenue departments, keeping track
on revenue collections and expenditures, and timely reporting of transactions to the National
Treasury. Also some 200 individual actions to be undertaken at departmental level over a
period of fifteen months.
• MEF issued a Prakas letter to all large and medium tax payers to pay their taxes through the
bank account of the NBC.
2005:
• Department of Non-Tax Revenue established, with duties to develop policy and strategy to: i)
manage non-tax revenue, ii) prepare standard letters on management of non-tax revenue, iii)
sum-up non-tax revenues and debts on monthly basis, iv) collect information on non-tax
revenues, v) manage revenue collection from post and telecommunications, vi) manage tax on
embassies, vii) passports viii) garment licences, xi) tourism, x) civil aviation. It also has
duties to manage other non-tax revenues other than State property and financial industries. It
is bound to effectively implement measures for getting non-tax revenues under its
competence, research sources of other non-tax revenue and participate in preparing the annual
budget plan.
• April 1, Prakas issued on Determination of Solvency of Insurance Companies. Insurance
license to be valid for a period of five years and companies to have adequate funds for
solvency - a minimum of a US$1.5 million. This amount includes a deposit of US$700,000 at
the NBC which may be cash or check with permission from MEF or 30% of next premium
revenue in the financial statement for the last year. Profits of insurance companies not
allowed to be distributed as dividends to their stakeholders unless it is agreed in writing that
the companies have met or may continue to meet solvency obligations in the near future.
• On April 22, instructional circular on VAT Refund Mechanism issued. It states that VAT
taxpayers meet the following conditions to request a VAT refund: (i) have monthly excess
VAT input tax credits (for companies having exports as their main business and investment
companies), or have excess VAT input tax credits for three consecutive months or more (for
other taxpayers), (ii) have proof of input tax payment, (iii) have proof of exports subject to
0% rate, and (iv) have reliable accounting records.
• On June 1, introduction of income tax for garment workers. Workers with over US$125
monthly income will be subject to 5% income tax, over US$250 be subject to 10% tax, over
US$2,125 be subject to 15% tax and over US$3,125 be subject to 20% income tax.

• Effective from June 1, Prakas issued to all taxpayers to make payments through NBC.
Payments of more than CR 4 million to be paid by cheque; payments of less than CR 4
million to be paid either by cheque or in cash at NBC.
• On June 3, creation of Unused Land Appraisal and Valuation Sub-commission. The duties of
the Sub-commission are to publicize law on tax collection for unused land, identify unused
land and estimate taxes to be paid to the government.
• On July 14, Prakas issued to introduce Accommodation Tax. Due to complaints from the
Tourism Association of Cambodia, this accommodation tax may not be applied until January
2007.
• On September 19, MEF issued Prakas #578, using the Joint Financial Management
Procedures. This is for projects sponsored by the WB and ADB and the procedure will also be
implemented for financing projects from other donors if agreed.
2006:
• On February 3, Governance Action Plan II (2005-2008) approved by OCM.
• On March 13, MEF Notice #007 introduced the implementation of special tax on telephone
services. All telephone companies in Cambodia operating services inside and outside the
country to pay specific 3% tax, commencing April 1.
• National Assembly approved the National Strategy Development Plan (NSDP) 2006-2010, in
which the main objectives are to reduce the poverty rate to 25% and to lower the
unemployment rate to less than 4%.
• Establishment of internal audit departments along the government line ministries.
• On April 26, OCM Prakas #665 issued to all ministries/institutions specifying that selection
of civil servants must be done through a competitive examination.
• On June 9, MEF Prakas issued for promulgating the document Code of Ethics for Internal
Auditors and Internal Auditing Professional Standards.
• On June 16, MEF circulated Prakas relating to the extension of tax exemption on profits, for
two more years, for investment enterprises of export-oriented garment, textile and shoe
manufacturing sectors. This only applies to investment enterprises which received CDC
approval for investment in Cambodia before March 14, 2005. On June 27, The World Bank
Board of Executive Directors approved the Public Financial Management and Accountability
Project. The project will support the Government’s Public Financial Management Reform
Program (PFMRP) in six specific areas: i) revenue management; ii) budget formulation; iii)
budget execution; iv) capacity development; v) a Merit Based Pay Initiative (MBPI) – which
will help reform the civil service; and vi) building the oversight capacity of Cambodia’s
National Audit Authority. The Government-led Public Financial Management Reform
program has been underway since 2004 and has already achieved results. Revenues have
increased by 20% from 2004 to 2005; the amount of customs revenue collected through the
banking system has increased from 0% in 2004 to 36% in 2005, and 86% of all Tax
Department revenue is now collected through the banking system; the stock of old
expenditure arrears has been reduced by over 40%; the procurement process has been
streamlined and tightened; five line ministries have established internal audit departments;
and, for the first time in Cambodia, a pilot program has been launched to pay civil servants
through commercial banks instead of by cash. The reform program is supported by 11 donors
— ADB, IMF, the WB, UNDP, Australia, European Commission, France, Germany, Japan,
Sweden and United Kingdom – four of whom are contributing about US$17 million to the
WB-managed multi-donor trust fund, set up to co-finance the implementation of this program.
• On March 3, Law on the Audit of the Kingdom of Cambodia was promulgated. It requires
respective ministries/institutions and public enterprises to create and strengthen Internal
Management System and Internal Audit.
• On November 27, Sub-decree #129 on Rules and Procedures of Reclassification of Public
Property of the State and State-owned Institutions – indicated that the leases on state
properties should not be allowed to exceed 15 years.

• Sub-decree requiring an establishment of internal audit department at all line ministries
issued. Five line ministries have established internal audit departments and two of them are
operational.
• By end of 2006, 40 % of tax and non tax revenue collected through banking system (both
customs and tax departments). In the same time, 29% of customs duties collected through
banking system by the end of 2006. Strategy developed for gradually increasing revenue
collected through the banking system based on geographical roll-out of requirement.
• A booklet format of Macro-Fiscal data is being developed.
• Prakas on fees on construction services implemented.
• PAP to be replaced by program budgeting PB in 2007. The new initiative to be piloted in
seven ministries, including the four PAP ministries.
• Good progress made in strengthening debt management. An assessment of the institutional
aspects of debt management is completed and progress made with selection of a new software
package for debt management and with staff capacity building. Documents on Standard
Operating Procedures, Procurement, and Financial Management produced, and staff training
conducted. A draft Debt Management Manual for Department of International Cooperation
for staff is completed.
• A pilot for direct payment of senior officers’ salaries into bank accounts is trialled in MEF
and MoH and will be extended to other ministries and two provinces.
• Government agreed to contribute to MBPI and incorporate it in the annual budget of MEF.
MBPI for government staff involved in the PFMRP introduced. Regular payments for the
agreed 263 participants commenced in November 2005 (backdated to July 2005). MBPI was
funded from the Multi Donor Trust Fund under the PFMRP.
2007:
• The Law on State Securities was passed by the National Assembly on November 30, 2006 and
promulgated on January 10, 2007. The purpose of this law is to provide a framework for
effectively printing/issuing and managing state securities in order to guarantee obligation of
settlement/payments in terms of the state’s financial requirements. The state securities may be
printed either in local currency or foreign currency.
• On February 26, RGC Sub-decree #14 applied to the Joint Procedures of Implementing
Cooperation Financing Project from the WB and ADB: i) Joint Standard Operating
Procedures, ii) Joint Financial Management Manual, iii) Joint Procurement Manual.
• The Government’s PFMRP is continuing to yield results. Following on from achievements in
2005 and 2006, a second wave of major reform measures was initiated in January 2007,
including: i) a far-reaching streamlining of budget execution procedures to speed
disbursements to spending agencies, ii) the introduction of program budgeting to better align
spending with priority National Strategic Development Plan objectives, and iii) adoption of a
new chart of accounts to improve expenditure reporting. All of these measures will improve
the efficiency of the PFM system as well as reduce the fiduciary risk inherent in the system
by reducing the threat of corruption.
• Macroeconomics-model developed and training provided. MEF is discussing with ADB for
further assistance to add on features that enable it to integrate the use of this model into the
budgetary cycle (macro-fiscal framework model). Meanwhile the Government Financial
Statistics classification is being developed and applied in the State Budget Implementation
Table (TOFE).
• The 2007 Budget Document, for the first time, contained details of donor-financed capital
spending by line ministries; payment of taxes through the commercial banks has been trialled
(Acleda Bank) and will be extended soon to the ANZ Royal Bank.
• 19 line ministries have established internal audit departments of which seven are operational.
• These are some progresses of Performance Indicators in the PFMRP: i) revenue out-turn
increasingly close to targeted level in approved budget; ii) no accumulation of new arrears

and steadily declining arrears stock; iii) budget holders increasingly able to commit
expenditure in line with budgets and cash flow forecasts; iv) 75%of payments to creditors and
staff made through the banking system in 2006; v) 45%of total government tax revenue
(excluded non tax revenues) collected through banks in 2006; vi) service delivery units
(schools, health centers) receive an increasing proportion of funds targeted at their levels; vii)
public procurement based on clear rules, consistently enforced and with no major delays in
processing and payment; viii) composition of expenditure by type (staff costs, non-staff costs,
etc.) close to approved budget; ix) better yield achieved from tax base through improved
collection efficiency and planned use of non-tax sources; x) single orderly budget process
producing good (and integrated) budget plans, Budget Document for 2007 integrates
recurrent, capital and donor-financed expenditure plus data for government-owned agencies;
xi) all significant areas of both public revenue and expenditure captured in both the budget
and accounts of the Government; xii) clearer/more accurate overview of public finances
(TOFE) regularly available based on improvements in the existing system pending
introduction of the FMIS. TOFE submitted to senior management within two weeks of end of
period. Quarterly review of TOFE by Internal Audit Department found to be accurate; xiii)
system in place to ensure that proposals for post-budget supplementary expenditure credits
are always accompanied by MEF report on realistic options for financing the expenditure
involved. No spending proposals go forward without identification of source of
funding/offsetting savings; xiv) institutionalized mid-year budget review feeding into second
half-year budget implementation/budget preparation for next year. Clear evidence that the
review was conducted, formalized and effective, and results implemented; xv) Annual
forecasts of all inflows and outflows prepared and regularly updated (based on accurate
revenue forecasts and good budget implementation plans). Cash released to spending agencies
within plus or minus 5% of their quarterly cash flow forecasts, to improve fiscal
decentralization in a robust, controlled and measured way.
• April 2007, Investment risk ratings, by Moody's and Standard & Poor's, put Cambodia’s first ever
sovereign debt rating: a B-plus (two notches lower than Vietnam).
• Government Prakas in March 7, 2007, Import tax payments in cash are no longer accepted at the port
of Phnom Penh and port of Sihanoukville for companies and individuals importing more than $1,000
worth of goods to Cambodia. Effective April 1 2007, tax paid on goods brought in through the two
ports must be paid by check to the National Bank of Cambodia or through an account set up at the
NBC.
• Based on the notice # 010 (MEF) June 6, 2006 on the Management of Tax Collection on Unused
Land. Pursuant to new article 30 of the Law on Financial Management 2007 promulgated by Royal
Kram #NS/RKM/1206/035 dated December 29, 2006 and Prakas # 452 SHV.Brk.PD dated June 6,
2007 on amendment to the prakas on Tax Collection on Unused Land, the MEF wishes to inform
owners of unused land at provinces-municipalities and Phnom Penh as following:
1. The unused land located in provinces/municipalities shall be subject to tax on unused land
2. This tax shall be paid in accordance with the tax rate of 2% on the tax base assessed by the
Land Appraisal Committee based on market prices at each municipality and areas to be
evaluated in accordance with price per m2 for each year.
3. Each owner of unused land shall be required to apply tax declaration of his land and should
he fail to do so would be subject to be fined by additional taxation equivalent to 10%, 25%,
and 40% of the amount of unpaid tax plus 2% interest rate for each month
• February 9, 2007, the Council of Ministers (RGC) approved the Financial Sector Development
Strategy (Financial Blue Print) 2006-2015, and official launched on June 2007 to further strengthen
the banking system in Cambodia.
• Law on Combating Money Laundering and Terrorist Financing was adopted by the National
Assembly on April 30, 2007 and promulgated on June 24, 2007.
• Law on the Issuance and Trading Non government Securities was passed by the National Assembly
on September 12, 2007 and promulgated on October 19, 2007. Law will set the ground rules for the

proposed Cambodian Securities Market and establish the body that will regulate it. Cambodia is
planning to introduce its bond markets (Securities Market) by 2009.
• Law on Finance for 2008 Management was promulgated on December 21, 2007.
• December 26, 2007 Sub-decree Nº 204 on the Division of State’s General Budget by Chapter of Law
on Finance for 2008 Management was approved.
• Number of ministries using program budgets: 7 ministries in 2007 and targeting 10 ministries by
2009 and as of August 2007, 23 Ministries have established internal audit department in which 13 are
operational.
2008:
• February 29, 2008, Draft Law on Public Financial System approved by CoM, and passed to
NA.
• The 2008 Budget Law contains regulations on borrowing, requiring the government to not to borrow
money at commercial interest, not guarantee project with commercial interest and not issue state
bonds. The government can only borrow SDR 200 million and MEF with approval from NBC is
eligible to print 100 billion riels worth of Treasury Bill.
• MEF Note #010 (March 19, 2008) Starting from May 2, 2008, “Payment procedures of taxes-duties
of medium taxpayers at provincial – municipal tax branches”. All enterprise companies which are
subject to medium taxpayer management regime of the real regime system taxpayers at the
provinces-municipalities shall be required to pay taxes directly to the NBC in their HQ or provinces-
municipalities branches.
• MEF Prakas #116 (February 15, 2008) on Customs Bonded Warehouse. The Customs Bonded
Warehouses are authorized to store goods and are subject to Customs Control for a specified period.
Imported goods or domestic goods for exports can be placed at Customs Bonded Warehouse. Goods
in the Customs Bonded Warehouse shall be suspended from application of duties or taxes for which
they are liable.
• Law on Public Financial System was adopted on April 04, 2008 by NA and promulgated on
May 13, 2008. The law has been recognized as fundamental law and its basic principle is a whole
management of public financial system, a preparation of budget law, as well an implementation
processes of the public financial in the ministries/institutions and sub-national administration.
• The National Bank of Cambodia (Central Bank) has increased “Reserve Requirements for
commercial banks operating in Cambodia from 8 percent to 16 percent of their deposits, effective in
July, 2008”.
• The National Bank of Cambodia (Central Bank) on September 19, 2008 issued a directive to
require all commercial banks operating in Cambodia to increase their minimum capital requirement
(or minimum “capital guarantee deposit”) from 50 billion riels to 150 billion riels with aim to tighten
and strengthen the Cambodian banking sector and also to limit number of commercial banks to be in
line with the economy and to keep it healthy (quality and well capitalized). Commercial Banks will
be allowed to maintain their current capital requirement of 50 billion riels if those commercial banks
have an “influential shareholders” that is a bank or financial institution with an “investment grade”
rating from a “reputable rating agency”. The country six specialized banks must also increase their
minimum capital requirements to 30 billion riels unless those specialized banks have an “influential
shareholders” that is a bank or financial institution with an “investment grade” rating from a
“reputable rating agency”. All commercial banks have to meet this new requirement by 2010.
Sources: Various government reports.

Box A2.4: Cambodia Key Reforms in Public Administrative, Civil Servant, (2001-2008)
2001:
• October 2001, the Government approved the remuneration policies which aim at rationalizing,
motivating and retaining qualified civil servants.
• The Government introduced Human Resource Management Information System.
• The Base Salary and the Allowances of Civil Servant was issued by Royal Decree on December
2001.
2002:
• As a part of pay reform, the new remuneration and classification system was introduced in 2002.
• Pay reforms increased average from US$19.5 per month in October 2001 to US$28.1 in May 2002.
2003:
• In February 2003, the Economic and Public Service Capacity Building Project (EPSCB) was
introduced as an initial response to identified needs in core functions that are common to all
ministries. The project targets three groups of public servants: the most senior executives, middle
manager and technical staff in such areas as policy analysis, financial management and personnel
management.
2004:
• Public Administrative Reform became one of the four core reforms in the “Rectangular Strategy” of
the Royal Government of Cambodia (RGC) in its 3rd mandate on July 2004.
• The Council of Administrative Reform (CAR) carried out six studies in order to rationalize the civil
service: (1) improving public service delivery, (2) benchmarking for labor market, (3) reviewing
operation, (4) enhancing remuneration to support performance, (5) enhancing employment to support
service delivery, and (6) strengthening the management of the civil service work force.
• National Program for Administrative Reform (NPAR) was drafted in August 2004. It is a competent
and transparent public administration able to deliver high quality services to the people of Cambodia.
• RGC increased index value of civil servant salary from 300 CR to 345 CR under sub-decree dated by
15 January 2005.
2005:
• NPAR phase I was completed. The key accomplishments include census and removal of irregulars,
computerized personnel management and fiscal balance simulation
• A number of training courses and seminar awareness were conducted aiming at capacity building. As
result the first promotion of management development program (MDP) and professional development
program (PDP) which are parts of the Economic and Public Sector Capacity Building Project
(EPSCB) were completed.
• In early 2005, index value of civil servant salary was increased from 300 CR up to 345 CR. In August
2005, the government also increased functional allowances for middle and senior administration and
priority sectors.
• Agreement reached between Treasury and CAR on use of private banking system to reduce cash
transactions in the payment of salary.
• As a pilot, CAR and Ministry of Economic and Finance (MEF) have agreed to establish the
PMG/MBPI (Merit-Based Pay Initiative) to cover an initial 300 centrally located civil servants
working on high priority Public Financial Management (PFM) reform activities.
2006:
• A strategy for phasing out salary supplementation practices has been prepared through a collaborative

process within the Technical Working Group (TWG) of Public Administrative Reform (PAR) based
on sub-decree No 98 of 2005. Its key achievements in 2006 are as followed: implementing of the
approved sectoral action plans, establishing Priority Mission Group (PMGs) and PMG/Merit based
pay initiatives (PMG/MBIs) in MEF, MOH and at least one other ministry. PMGs covering 170 civil
servants have been approved, with consultation ongoing on other possibilities, including in health
sector. About 160 central office staffs have been proposed of an MBPI and this proposal has been
discussed between HOM, the health partner and CAR.
• The medium term strategy and action plan to enhance remuneration and the policy and action plan of
redeployment were developed and implemented in order to improve pay and employment condition
in the civil service.
• Design and Implement HRM policy and action plan to improve merit and performance management
by introducing HRM guide and further developing HRM Information Systems (HRMIS) for the civil
service.
• Enhance service delivery through developing a one window offices (OWOs) policy, legal framework
and implementation plan. Five OWOs have been established across Cambodia.
2007:
• A meritocratic system has been introduced to encourage both wage reform and human capacity
building within government ministries and institutions. These reforms result in public servants’
remuneration increasing by 15 percent per year. The average salary of civil servants has now reached
approximately US$46 per month.
• The salary of civil servants will be increase by 25% since July 2007 and start from 2008, the salary of
civil servant, police and military personnel will be increased by 20% a year. Since January 2002 to
July 2007, civil servants’ remuneration raised to US$51.3 per month.
• RGC increased index value of civil servant salary from 500 CR to 600 CR under sub-decree Nº 198
dated by December 18, 2007.
2008:
• Draft Organic Laws, Law on Administration of Capital, Provinces, Municipalities, Districts and
Khans and Law on Election of Council for Capital, Provinces, Municipalities, Districts and
Khans, approved by the CoM on February 29, 2008. The both draft laws passed to NA and waiting
approval.
• Law on Administration of Capital, Provinces, Municipalities, Districts and Khans was adopted
on April 01, 2008 by NA, and promulgated on May 22, 2008. The purpose of this law is to
administrate the capital, provinces, municipalities, districts and khans through a unified
administration in order to promote and sustain the democratic development.
• Law on Election of Council for Capital, Provinces, Municipalities, Districts and Khans was
adopted on April 02, 2008 by NA, and promulgated on May 22, 2008. The law is cover an
establishment of sub-national councils—Capital Council, Province Council, Province Council,
District Council, and Khan Council through an indirect election and have its mandate five year.
• Sub-Decree Nº 29 on Merit Based Performance Incentive, dated on April 02, 2008 which abrogates
the sub-decree No 98 & 38.
• Royal Decree on Special Operation Agencies promulgated on March 28, 2008. The purpose of the
SOA preparation is to improve the quality and public service delivery reach the place, to strengthen
professional ethic of the officials, and to develop capacity in service delivery.
Source: Various Government Reports, EIC: Cambodia Economic Watch issue 1 to 8

Box A2.5: Cambodia Key Reforms in Natural Resource Management (2001-2008)
2001:
• Land Law was adopted by the National Assembly on July 20, 2001 and promulgated on August 30,
2001. It provided legal protection to establish the security of land tenure and also a fundamental basis
for the reduction of land disputes.
• During 2001, government has also issued a note about stopping illegal possession, and a set of
ministerial instruction (Prakas) regarding service fees for land registration.
• The draft of forestry law contains 18 chapters and 109 articles was approved by the Council of
Ministers on July 20, 2001 and officially submitted to the National Assembly dated 17 August, 2001.
• The Prakas No 5721 was issued to suspend all logging activities by the government of Cambodia in
December 13, 2001.
• The Community Fisheries Development Office was established by Prakas No 084 of MAFF in
January 21, 2001.
2002:
• To accompany implementation of the Land Law, and provide several guidance in the land sector, the
Council of Land Policy approved an Interim Land Policy Framework document in May 2002.
• Ministry of Land Management, Urban Planning and Construction (MLMUPC) had prepared several
sub-decrees to enable the effective implementation of the land law. Those sub-decrees were adopted
by the Government of Cambodia in 2002, included 1) Sub-decree on the Organization and function of
the Cadastral Commission, 2) Sub-decree on Systematic Registration, and 3) Sub-decree on Case-By-
Case Registration.
• Under supported by the World Bank, MLMUPC created Land Management and Administrative
Project which was made effective in June 2002.
• The National Policy for Forestry was issued by the Government on July 26, 2002.
• Forestry Law was adopted by the National Assembly on July 30, 2002 and promulgated on August
31, 2002.
2003:
• The Inland Fisheries Research and Development Institute (IFReDI) was inaugurated on February 18,
2003. The institute was established in order to provide scientific information through research and
development capacity for freshwater fisheries in Cambodia.
• Sub-decree on Social Land Concession was issued on March 07, 2003.
• Sub-decree on Forest Community Management was adopted on December 15, 2003.
• Council of Land Policy was established as focal point to facilitate the formulation of strategy and
policy in land management.
• Department of Forestry was renamed the Forest Authority by sub-decree No. 64 dated September 11,
2003 with a horizontal management structure nationwide to undertake policy reform of the forest
sector.
2004:
• RGC disclosed the location and legal status and process for termination of mining concessions,
Military Development Zones, economic land concession and other development arrangements
situated on forest land or in protected areas and inconsistent with law governing management of these
areas.
• Prime Minister’s Order No.01 on prevention, repression, and elimination of forest clearing, firing,
bulldozing, and grabbing was issued on June 09, 2004.

• The Council for Land Policy, in collaboration with development partners was developing Land
Allocation for Social and Economic Development (LASED).
• National committees and sub-national committees at the provincial level were established to
implement the Order No.01.
2005:
• Sub-decree No. 53 on establishment, classification, and Registration of Permanent Forest Estates

issued on April 01, 2005
• Decision No. 28 on establishment of Control and Evaluation Committee to Stop Encroachment on

Inundated Sea Forests, Land Leveling and Land Filling along Sea Side issued on August 14, 2005.
• Sub-decree on State Land Management, sub-decree on Economic Land Concession, and sub-decree
on Managing State Owned Land were passed by Council of Minister in late 2005.
• Royal Decree No. 0505/240 on the Establishment of Fishing Community was issued on May 29,
2005.
• Sub-Decree No. 80 on management of Fishing Community was issued on June 10, 2005.
• The Community Fisheries Sub-Decree was approved by the Council of Ministers on 20 May 2005
2006:
• A Royal Decree on the Community Fisheries Establishment was issued in May 2005 followed by an
issuance of a sub-decree on the Community Fisheries Management in June 2006
• Fishery Law was adopted by the National Assembly on March 30, 2006 and promulgated in May 21,
2006.
• A sub-decree on the transformation of the Department of Fishery (DoF) into Fishery Administration
was signed in August 2006.
• The National Community Forestry Program Strategic Paper was issued in May 2006, stipulating the
Government's Plan to offer formal recognition to the already existing Community Forestry sites of
274 and further creating an additional 200 to 400 formally recognized Community Forestry sites.
• Information on the Economic Land Concession was posted available to the public through MAFF
website and a technical secretariat was established by decision No 27 dated June 30, 2006.
• A Prime Minister's Order on the Prevention of Deforestation was issued in May 2006.
• A District State Land Working Group was established to help the provincial committee in State Land
Identification and Mapping.
• Regarding the issue of land grabbing, a Prime Minister's Order was issued on the Prevention of
Deforestation for Land Ownership in May 2006.
• A Land Dispute Agency was established with a Royal Decree dated February 26, 2006 with the
members from both the Government and the opposition party.
2007:
• Marine conservation, a Ten-Year Action Plan for Coral Reefs and Sea-Grass has recently been
adopted by Ministry of Agriculture, Fisheries and Forestry.
• Law on Water Resource Management was adopted on May 22, 2007 and promulgated on June 29,
2007.
• Agricultural Sector Strategic Development Plan, 2006-2010 is presented by MAFF.
• Prakas on Guideline of Fisheries Community was approved on July 13.
• Law on Natural Protected Area was adopted on December 27, 2007 with the purpose of managing
biodiversity conservation and to sustain the utilization of natural resources in the areas.
2008:

• Law on Seed Management and Plant Breeder Rights was adopted on April 08, 2008 by NA and
Promulgated on May 13, 2008. The law aimed at ensuring the management, motivation, and the
development of seed with sustainable in order to benefit social, economic and environment. Together
with the law states that providing right protection of new seed is under the territorial of MIME, and
managing various seed is under the territorial of MAFF.
Source: Various Government Reports, EIC: Cambodia Economic Watch issue 1 to 8

Cambodia Economic Watch October 2008

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CAMBODIA

ECONOMIC INSTITUTE of CAMBODIA

List of Abbreviations and Acronyms iii

Part I: Recent Economic Developments and Outlook 1

1. Cambodian Economic Growth 3

EIC - Cambodia Economic Watch - October 2008 i

6. Banking and Financial Sector Reform 35

ii EIC - Cambodia Economic Watch - October 2008

ADR Alternative Dispute Resolution

EIC - Cambodia Economic Watch - October 2008 iii

iv EIC - Cambodia Economic Watch - October 2008

Figure 3.1: Cambodia’s Consumer Price Index (December 2002=100)

EIC - Cambodia Economic Watch - October 2008 v

With the aim of providing a broad-based economic analysis to policy makers

Sok Hach, Director

vi EIC - Cambodia Economic Watch - October 2008

Cambodia’s two main economic growth-supporting industries, garments and

In the meantime, the number of foreign tourist arrivals in Cambodia is continuing

The anticipated launch of a Cambodia Stock Exchange Market and

Trade and Investment

EIC - Cambodia Economic Watch - October 2008 vii

The deficit is expected to be financed by foreign grants, loans and direct

Prices and Exchange Rate

Despite an active agricultural sector, and near capacity production of crops,

viii EIC - Cambodia Economic Watch - October 2008

Recent spikes in transportation costs, meanwhile, are mainly due to

Taxes on income, profit, and capital gain have increased significantly in

EIC - Cambodia Economic Watch - October 2008 ix

However, it is worth nothing that spending on civil administration wages

Based on previous trends and given higher-than-expected revenue, total

Overall, the budget deficit is expected to be about CR1,684 billion in 2008,

Progress of Structure Reform

x EIC - Cambodia Economic Watch - October 2008

In the area of Public Financial Management Reform, platform 1 of budget

ASYCUDA was officially launched in May 2008 at Sihanouville port. Average

In the area of administrative reform, a royal decree on “Special Operating Agencies”

EIC - Cambodia Economic Watch - October 2008 xi

Besides judicial solution, Alternative Dispute Resolution is recognized as quickly

In a statement in phase II of its Rectangular Strategy, the Government

xii EIC - Cambodia Economic Watch - October 2008

EIC - Cambodia Economic Watch – October 2008 1

2004 2005 2006 2007 2008p 2009p

Agriculture -1.0% 15.5% 5.5% 5.1% 5.5% 5.3%

Paddy -12.2% 43.7% 4.3% 7.5% 6.2% 5.6%

Industry 17.0% 12.9% 18.4% 8.4% 6.4% 4.1%

Garments 24.9% 9.2% 20.4% 10.0% 8.8% 6.8%

Services 13.2% 13.1% 10.1% 10.2% 8.4% 7.3%

Tourism 23.4% 22.3% 13.7% 10.3% 9.3% 8.6%

Non-tax GDP 9.4% 13.8% 11.0% 8.1% 7.0% 5.8%

Total GDP 10.3% 13.3% 10.8% 10.2% 7.0% 6.0%

Non-Agriculture 15.8% 12.3% 13.0% 12.2% 7.6% 6.3%

The Cambodia’s two main economic growth-supporting industries,

EIC - Cambodia Economic Watch – October 2008 3

As a result, paddy value-added should increase at a moderate pace of about

4 EIC - Cambodia Economic Watch – October 2008

2004 2005 2006 2007 2008p 2009p

Paddy -12.2% 43.7% 4.3% 7.5% 6.2% 5.6%

Other Crops 9.5% 12.2% 6.5% 9.0% 10.1% 9.6%

Livestock 3.9% 5.6% 8.2% 3.7% 6.6% 6.4%

Fishery -1.7% 5.6% 3.8% 0.8% 0.8% 0.8%

Rubber & Forestry -0.3% 3.5% 6.6% 1.8% 1.1% 1.2%

Total Agriculture -1.0% 15.5% 5.5% 5.1% 5.5% 5.3%

Sources: NIS for2004-2007, EIC projection for 2008 and 2009

Besides revenue they earn from crop cultivation, livestock is another