KINGDOM OF CAMBODIA
THE
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FIRST DRAFT
MINISTRY OF ECONOMY AND FINANCE
Phnom Penh
January 2004
LIST OF ACRONYMS
AIA
ASEAN Investment Area
AICO
ASEAN Industrial Economic Cooperation
AFTA
ASEAN Free Trade Area
BFAD
Budget and Financial Affairs Department
CA
Civil Administration
CAR
Council for Administrative Reform,
CCJAP
Criminal Justice Assistance Project
CDC
Council for the Development of Cambodia
CED
Customs and Excise Department
CEPT
Common
Effective Preferential Tariff Agreement
CLJR
Council for Legal and Judicial Reform
CMDG
Cambodian
Millennium Development Goal
COA
Chart of Accounts
CPI
Consumer Price Index
DOT
Department of Taxation
DS
Defense and Security
EFA
Education for All
EFPPMU
Economic and Financial Policy Planning and Monitoring Unit
EFU
Economic and Financial Update
ESP
Education Strategic Plan
ESSP
Education Sector Support Program
EU
European Union
GAP
Governance Action Plan
GER
Gross Enrolment Rate
GDP
Gross Domestic Product
GSCSD
General Secretariat of the Council for Social Development
GSP
Generalized System of Preferences
GTZ
Gessellschaft fur Technishche Zusammernarbeitt (German Agency for
Technical Cooperation)
FDI
Foreign Direct Investment
FTB
Foreign Trade Bank of Cambodia
HRMIS Human Resource
Management Information System
HSSP
Health Sector Support Project
IFAPER
Integrated Fiduciary Assessment and Public Expenditure Review
ILO
International Labor Organization
JICA
Japan International Cooperation Agency
MAFF
Ministry of Agriculture, Forestry and Fisheries
MDG
Millennium Development Goal
MEF
Ministry of Economy and Finance
MOEYS
Ministry of Education, Youth and Sports
MOH
Ministry of Health
MOJ
Ministry of Justice
MOP
Ministry of Planning
MOWRAM
Ministry of Water Resources and Meteorology
MRD
Ministry of Rural Development
MTBF
Medium Term Budget Framework
MTEF
Medium Term Expenditure Framework
MTFP
Medium Term Fiscal Plan
MTWF
Medium Term Wage
Fund
MOWVA
Ministry of Women's and Veteran's Affairs
MPA
Minimum Package of Activities
NAA
National Audit Authority
NBC
National Bank of Cambodia
NER
Net Enrolment Rate
NGO
Non-Governmental Organization
NPAR
National Program
for Administrative Reform
NPRS
National Poverty Reduction Strategy
ODA
Overseas Development Assistance
PAP
Priority Action Program
PIP
Public Investment Program
PMATU
Poverty Monitoring and Analysis Technical Unit
PMG
Priority Mission Group
PSI
Pre-Shipment Inspection
PTR
Pupil: Teacher Ratio
RGC
Royal Government of Cambodia
SEDP
Socio-Economic Development Plan
SNEC
Supreme National Economic Council
TCAP
Technical Coordination Assistance Program
TVET
Technical, Vocational Education and Training
WTO
World Trade Organization
TABLE OF CONTENTS
1. INTRODUCTION
8
1.1.
The Conceptual Philosophy of the MTEF
8
1.2.
Key Elements of a Well-Functioning MTEF
9
1.3.
The Process of MTEF Preparation
11
2. OPERATIONALIZING AN MTEF: A ROADMAP
13
2.1.
Top Down Elements
13
2.1.1.
A System of Establishing Society's Priorities
13
2.1.2.
Explicit Fiscal Targets
13
2.1.3.
Hard but sustainable aggregate and sectoral expenditure ceilings
14
2.2.
Bottom Up Elements
14
2.2.1.
Medium-term estimates of the cost of government policies
and programs:
baseline
14
2.2.2.
Medium-term estimates of the cost of government policies/
programs: new or above the baseline
14
2.3.
Constraints to Implementing the MTEF
15
PART I: MACROECONOMIC DEVELOPMENT AND REFORMS
3. MACROECONOMIC PERFORMANCE: ISSUES AND POLICIES
17
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TABLE OF CONTENTS
PART I: MACROECONOMIC DEVELOPMENT AND REFORMS 3.
MACROECONOMIC PERFORMANCE: ISSUES AND POLICIES
17 3.2. Growth and Performance 21 3.3. Inflation 24 3.4. Trade, Exchange rates and Investment 25 3.5. Balance of Payments 29 3.6.
Performance in 2003
29
3.7. Future Economic Challenges
31 3.7.1.
Narrow-based growth
31 3.7.2. Rapid Population Growth
32 3.7.3. China's Accession to the WTO
33 3.7.4. Policy Response to the Development Challenges
34 3.8.
Overall Growth Outlook for 2004-2008
37
3.9.
External Sector Outlook
38
3.10.
Alternative Macroeconomic Scenarios
39
3.11.
Monetary Developments
40 4.
GOVERNANCE REFORM
43 4.1. Forestry Reform
43 4.2. Legal and
Judicial Reform
47 4.3.
Administrative Reform
48 4.3.1.
Staff Progression, Performance Monitoring and Transfer
50 4.3.2.
Control and Disciplinary Mechanisms, Including Controls on Absenteeism
51 4.3.3. The
Human Resource Management Information System (HRMIS)
51 4.4. Anti-Corruption
51 4.5.
Decentralization and Local Governance
52 4.6. Gender Developments
54 5.
STRUCTURAL REFORMS
57 5.1. Private
Sector Development
57 5.2.1.
Financial Sector Development Plan, 2001-2010
60 5.2.2.
Banking Reform
62 5.2.4. Rural Credit
67 6. RESOURCE
MOBILIZATION FOR PUBLIC EXPENDITURE
70 6.1. Supporting Revenue Policy and Administration
70 6.1.1. The Objectives of Fiscal Reforms in 1999-2003
70
6.1.2.
Revenue Mobilization
71
6.1.2.1.
Tax Reforms
72 6.1.2.2.
Structural Tax Policy Measures
74 6.1.2.3.Tax
Administration
75 6.1.2.4. Tax Reform Program in 2003-2004
75 6.1.2.5.
Customs Reforms
77
6.1.2.6.
Tariff Restructuring
78
6.1.2.7.Customs Reforms Measures
79
6.2.
Non-tax revenue
84 6.3. Projected Revenue for 2004-2008
84 6.4. The Budget Deficit and Its Financing
86 7. EXPENDITURE PROJECTION AND POLICIES
88 7.1.
Budget Execution in 2002-2003: Achievements and Challenges
88 7.2.
Medium-term Budget Framework
92 7.3. Current Expenditure and Its Strategic Priorities
92 7.4. Interest Payment
96 7.5. Medium Term Wage Bill Framework
96 7.6. Public Investment
100 7.7. Debt Amortization
101 7.8. Risks
101 7.9. Strengthening Public Expenditure Management
101 7.10.
Expenditure Rationalization
101
7.11.
Strengthening Economic and Financial Management
101
7.11.1.
National Treasury Reform
102 7.11.2. Budget Management
103 7.11.3. Integrated Fiduciary Assessment and Public
Expenditure Review
104 PART
II SECTORAL PRIORITIES
8.
MTEF FOR THE EDUCATION SECTOR
107 8.1. Key policies, strategies and targets
108 8.2. Partnership arrangements, processes and factors
111 8.3. Progress Review
111 8.3.1. Primary education: poverty impact and main strategies
112 8.3.2. Secondary education: poverty impact and main
strategies
113 8.7.3. Changes in education budget allocations and shares
1999-2003
113 8.7.4. Budget and PAP release rates 2002
115 8.7.5. Trends in donor and NGO support 1999-2003
116 8.4. Financing Framework for the Medium Term
117 8.4.1. Education budget and financing scenarios
118 8.4.2. Assessing Policy Consistency in Budget Planning
121 8.5.
Education Reform Monitoring and Indicators
123
8.5.1.
Impact Analysis by Access to Education
123 8.5.2.
Impact Analysis by Gender and Ethnic Minority
124
8.5.3.
Impact Analysis in Education in Remote Areas
126
8.5.4.
Education Decentralization: Quality Issues
128
8.5.5.
Selected Performance Indicators and Targets
128 9.
MTEF FOR THE HEALTH SECTOR
129 9. 1.Key Policies, Strategies and Targets
130 9.2.Partnership Arrangements,
Process and Factors
135 9.3.Progress Review
136 9.3.1.Improving Accessibility to Health
Services Among the Poor
137
9.3.2. Change in
Health Budget Allocations and Share 1999-2003
137
9.3.3
Budget and PAP Release Rates 2003
139 9.4.
Trends in Donor and NGO Support 1999-2003
142 9.5.
Financing Framework for the Medium Term
142 9.5.1. Areas of Concern
145 9.5.2. Priorities
for 2004 – 2005
145 9.6.
Health Sector Reform Monitoring and Indicators
146
10.
AGRICULTURE AND RURAL DEVELOPMENT
149 10.1. Sector
Overview
149
10.2. Major
Sectoral Issues
151
10.3. Key Policies, Strategies and Targets &n |