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Cambodia - Growth and Sector Reforms

Cambodia - Growth and Sector Reforms

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130. Development Context. Cambodia is suffering from the current global uncertainties. Growth
is narrowly based and the rate of growth has fallen. Domestic savings are still low, hampering
mobilization of resources for investment. Competitiveness has emerged as a major concern, as has
employment generation for the 250,000 young job seekers who enter the labor force each year.
Rural poverty rates remain high, and the rural-urban income and opportunity gap is widening. In
Cambodia, poverty cannot be addressed without growth in rural areas and sustainable management
of natural resources; ARD remains a priority. Private sector-led development remains the
Government’s chosen strategy; the degree of progress will hinge on the speed and depth with which
"second-generation" market-oriented institutional reforms (para. 24) are implemented and actually
result in a more competitive, predictable, and supportive business setting.


131. The following pages provide some recommendations for consideration in relation to ADB’s
future strategy and program for Cambodia. These draw on, and interpret, the key findings and
lessons from this CAPE in light of the medium-term challenges facing the Cambodian economy.

132. Promote private sector-led growth and income generation through improved
infrastructure services in both urban and rural areas.
Specific strategic areas and optional
actions for ADB to consider in following up this recommendation include the following: (i) ADB
can improve the quality of infrastructure service delivery and reducing logistics costs in transport
and energy, thereby creating an enabling environment for the private sector. This requires, on
the public sector side, institutional and policy reforms, particularly in the maintenance and
service delivery areas, including cost recovery mechanisms and a capacity for negotiations and
regulation of private sector provision. For the next generation of strategic infrastructure, PSOD
can seek to extend its operations for the private sector in Cambodia and play an active role in
country programming activities. (ii) ADB can work with the Government and other development
partners to scale up assistance for rural infrastructure development to foster agricultural
commercialization and diversification into higher value-added production in rural areas.

133. Focus on fewer subsectors and possibly on sectors with good track records and
good prospects for supporting development priorities in future operations.
This can be
pursued through the following: (i) Sector selectivity and subsector focus can be facilitated
through greater coordination with development partners around specific sector strategies and
workplans. (ii) Given the high proportion of rural population and relatively satisfactory
performance of subsector assistance, ADB needs to continue such assistance in areas of
success such as rural infrastructure and water supply. (iii) In the sectors and subsectors in
which ADB can play a significant role (e.g., transport, rural infrastructure, and finance), it can
support sector policy reform, building capacity of core institutions, broadening scope for private
sector participation (through PPPs and other modes). (iv) In the other key sectors and
subsectors which have not been performing well, (e.g., water resources management, targeted
rural development), it can reconsider the current approach bringing in institutional reforms,
better coordination, and cofinancing arrangements with other development partners that can
administer the programs. (v) ADB also needs to reverse the falling average size of individual
operations to improve program effectiveness, efficiency, and impact for both project and
program lending.

134. Improve ADB investment efficiency and internal and subregional synergies from
its interventions through better planning, coordination, and institutional capacity
This could be pursued through (i) reviewing focus on the Tonle Sap by taking stock of
successes and failures and building synergies with "internal regional development;" (ii) as
subregional synergies have been a strong facet of ADB’s assistance, with a quarter of the
program having GMS-related projects, further fostering subregional synergies, particularly
through "software" development for trade facilitation, business environment, natural resource
management, and other “software”-oriented initiatives; and (iii) ensuring greater and explicit
complementarity between the national and GMS programs with jointly defined outcomes and
clear agreement on coverage of activities through the support for adding value to domestic
products and providing links to economic corridors (para. 54).

135. Explore other financing modalities to supplement ADF resources, including PSOD
investments, to meet the evolving development needs.
Aspects and actions for ADB to
consider include the following: (i) programmatic approaches based on the SWAp (e.g., in
education and health) have paid off and merit continued support and replication in the future


operation, taking account of the contributions from other agencies; (ii) through improvements in
portfolio performance, ADF funding levels for the program could be raised in the medium term;
(iii) the scope for private sector operations is steadily increasing (para. 47), and catalytic PSOD
investments can play a more important and integrated role in ADB’s forward program of support;
and (iv) advantage could be taken on an exceptional basis for public sector OCR borrowing for
specific foreign exchange generating self-financing projects, while assessing the preconditions
for expanded OCR borrowing as average incomes grow in the future.

136. Foster good governance standards in the sectors of ADB's support. Governance is
improving but at an uneven pace. Governance is perceived as the main binding constraint to
inclusive growth, PSD, and poverty reduction (para. 11). The following are suggested as specific
actions for ADB to consider: (i) core governance activities in project management, PFM, and
D&D should be reinforced, building synergies with ADB's GACAP II where ADB is building its
capacity; and (ii) with the governance agenda at the national level being very broad with many
different stakeholders, assistance activities can be selected based on updated diagnostics, a
road map for ADB assistance that traces the chain of results from ADB support to well-defined
national targets and results, engagement in a multipartner reform effort with constructive high-
level policy dialogue, and clear identification of the focus areas and agencies to be supported.

137. Improve ADB service delivery through much strengthened policy dialogue,
partnership, and delegation.
This can be pursued through the following: (i) Gradual delegation of
project supervision responsibilities to CARM has paid off in terms of improved portfolio performance
(para. 70). It needs to be pursued with appropriate increase in staff resources. Policy dialogue and
partner coordination have become much more central to the assistance process than just a few
years ago. As one of the largest funding sources, and with unique capacities and relationships in
key sectors such as transport and ARD, ADB has much to add to this process. (ii) ADB needs to
ascertain a clear role for CARM in policy dialogue and partner coordination for sector reforms
including program operations. (iii) ADB needs to identify additional decision-making responsibilities
for CARM, including coordinating synergies between the national and the GMS program.

Appendix 1


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