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Cambodia - Growth and Sector Reforms

Cambodia - Growth and Sector Reforms

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01/28/2014

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124. Overall Development Strategy Involves Risks. Cambodia has pursued an effective
development strategy of an open economy, linked to global and subregional markets and
private sector-led growth. There has been a consequent increase in incomes and a reduction in
poverty. However, the strategy involves external risks of a too-narrow economic base and
reliance on foreign markets and investment; and internal risks from poor quality services, low
standards of public sector management, difficulties in natural resource management, and
reduced returns through corruption and weak rule of law. Continued improvements in
addressing the external and internal risks will still take time and considerable support.

125. Early, Sustained, and Responsive Involvement Pays Off. Through its early and
sustained involvement, and by delivering responsive projects and programs that generated clear
and meaningful national and subregional results, ADB has built up a substantial level of trust
and appreciation with the Government. This puts it in a good position to effect some changes in
the program, some of which are already under way.

126. Realistic Designs Matter. Cambodia’s multiple transitions have required a complex set
of reforms, mounted on several fronts all at once. One of the keys to ADB’s success has been
its ability to help the Government plan and sequence a series of reforms at the sector level over
a decade or more. ADB experience also shows this required solid diagnostic work, practical
grounding in sector investment realities, a good understanding of and working relationship with
key line ministries and sector agencies, and an ability to tailor advice and recommendations to
the Cambodian setting.

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127. Coherence and Selectivity Take Work. Synergies among operations, even in the same
geographic area, do not evolve naturally and need to be generated. Line agencies, local
governments, and partners may be reluctant to see ADB focus its operations, if this means that
funding and partnering opportunities in any particular area are diminished. The cost of
spreading limited resources over too many interventions, however, is reduced focus on
interventions of core ADB competence, lower efficiency as more resources are used for project
administration, and a heavy aid management burden. A concerted effort is required to focus
ADB’s assistance where the direct and catalytic payoffs are the greatest.

128. Good Practices for Sector Reform. As an early and lead funding source in many
sectors, ADB was correct in supporting a wide-ranging reform and capacity-building effort. Such
efforts have met with most success when there was high level political support and a clear
demand for advice and capacity building; when assistance went beyond augmenting skills to
improving institutions; and when the tasks were designed, sequenced, and staffed
appropriately. Not all efforts to improve policy and build capacity were a success, particularly
where TA operations were overly ambitious and unfocused. In addition, in some sectors, the
time needed to engineer fundamental changes in key institutions, including the time required to
mobilize political support for reform, was underestimated.

129. Advancing Agriculture and Rural Development. ARD is at the center of Cambodia’s
poverty reduction effort. Progress has been made, but rising inequality and current capacity
limitations of traditional sources of growth (i.e., boosting rice yield) threaten to undermine the
country’s poverty reduction efforts. ADB’s past experience suggests that it is possible to identify,
design, and implement ARD projects with a strong positive impact on economic growth and
poverty reduction through interventions across a broad geographic area using simple
implementation arrangements. Although institutionally ADB intends 80% of its operations to be
in its core areas by 2012, it also acknowledges that support for agriculture is an underlying
component of an inclusive growth strategy, mainly through rural infrastructure development,
natural resource management, and regional cooperation and integration, such as agricultural
trade and investment in the GMS. Continued support should be provided to ARD in Cambodia.
Consistent with the recommendations of Strategy 2020, this would be mainly through improved
rural infrastructure for improved rural transport and improved rural water supply systems for
improved rural livelihoods, as well as through a reengagement with microfinance through the
interventions in the financial sector. Past engagement in the large-scale irrigation operations
have not fared well and future operations in small-scale irrigation operations suited for
Cambodia need to be partnered with specialized institutions, which have the capacity to follow
through on software side on sustainability considerations.

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