Integrated Fiduciary Assessment and Public Expenditure Review: Executive Summary

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Integrated Fiduciary Assessment and Public
Expenditure ReviewExecutive Summary

• IFAPER Dissemination Workshop
• The World Bank/Asian Development Bank
• October 20, 2003

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Main Messages

• Strengthening resource mobilization
• Reducing fiduciary risk to public funds
• Rationalizing public expenditure policy and
  management
• Accelerating pay and employment reform in the
  civil service

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Improving Resource Mobilization to
Ensure Aggregate Fiscal Sustainability

• Cambodia has made good progress, as revenue/GDP
  ratio has increased from 8.3 in 1998 to 11.7 in
  2001
• Continued improvement, on the order of what has
  already been accomplished, is necessary to retain
  public debt sustainability and to finance higher
  levels of public spending
• Government plans to raise revenues to 14 to 15
  percent of GDP by 2007 will require tax
  administration reform that addresses key
  structural constraints

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Reducing Fiduciary Risk to Public Funds

• It has become increasingly apparent that
  weaknesses in the public expenditure and
  financial management system (PEFM) not only have
  high costs in terms of allocative and operational
  efficiency but also create unacceptably high
  levels of fiduciary risk to public funds
• Weaknesses include cash management, budget
  execution, and deficient accounting and reporting
  systems

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Reducing Fiduciary Risk to Public Funds

• The system suffers from a weak control (e.g.,
  internal and external audit) environment
• Compared to other low income countries the PEFM
  system is below average, indicating the need for
  substantial upgrading
• The Government can address these concerns by
  focusing on improving budget execution, cash
  management, and the control environment
• Some progress has been made with the support of
  TCAPbuilding on and accelerating this reform is
  necessary

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Rationalizing Public Expenditure Policy and
Management

• Since 1998, the Government has significantly
  improved the alignment of resources with its
  developmental objectives by increasing
  allocations for priority sectors, notably
  education and health
• However, to implement the SEDP-II/NPRS and meet
  the localized MDGs reallocation of resources away
  from non-priority sectors and programs toward
  higher priorities will be necessary
• In order to reach the stated poverty reduction
  goals, it is necessary to improve the
  effectiveness of spending by linking it more
  closely to priority outcomes

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Rationalizing Public Expenditure Policy and
Management

• Expenditures are targeted to the poor in
  education, but less so in health and agriculture
• Difficulties linking policy and expenditure have
  resulted in significant sectoral differences in
  the effectiveness of expenditures in improving
  social welfare outcomes
• Weaknesses in formal and informal accountability
  mechanisms have a negative impact on the
  efficiency and effectiveness of public sector
  spending
• Improving the management of external assistance
  to ensure greater alignment with Government
  priorities is also critical

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Strengthening Procurement

• There is a need for a new procurement law or
  strengthened procurement sub-decree
• Institutional changes needed to improve
  procurement are
• A comprehensive procurement training program to
  be introduced
• One agency to have sole responsibility for
  procurement monitoring and training
• Line agencies to be fully responsible for all
  their own procurement
• The Country Procurement Assessment Report was
  submitted to the Government in June 2003 and will
  be finalized shortly.

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Pay and Employment Reform in the Cambodian
Civil Service

• Given the serious problems afflicting the civil
  servicelow pay, low skills, and thus low
  capacityan accelerated and sequenced civil
  service reform will need to be initiated in the
  short term and carried out over the medium term
  if the Governments vision of poverty reduction
  is to become reality
• The World Banks CPIA ranks Cambodia below
  average among fellow low income countries on
  issues pertaining to public sector management and
  institutions, indicating significant room for
  improvement

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Pay and Employment Reform in the Cambodian
Civil Service

• The most pressing issue facing the Cambodian
  civil service is undoubtedly the low level of pay
  for most civil servants, in relation not only to
  wage levels outside the service, but also to the
  cost of living
• There is also room to improve civil service
  deployment to and within the priority sectors

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Conclusion

• The challenges to Cambodia over the medium and
  long terms are great, and the reform agenda is
  daunting
• However, Cambodia has undertaken a number of
  important reforms over the past several years,
  and reformers confronting the challenges ahead
  have a foundation on which to build

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Conclusion

• In order to carry this program forward the IFAPER
  finds that it will be necessary to speed up the
  pace and extend the scope of reform in four key
  areas
• strengthened resource mobilization
• comprehensive public expenditure and financial
  management reform
• further rationalization of public expenditure
  policy
• comprehensive and accelerated civil service reform

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Next Steps

• Preparation of the Economic Action Agenda
• Preparation of strategy and annual action plan
  with development partners (including capacity
  building strategy and performance monitoring
  framework)
• Coordinated development partner support/TA for
  the Governments reform agenda

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Thank you

• The World Bank/Asian Development Bank IFAPER
  team, as well as our partners from the IMF, DFID,
  and SIDA, would like to very warmly thank the
  Royal Government of Cambodia for its support and
  close cooperation in this work, especially the
  MEF counterpart team, and looks forward to
  continuing to work together and to supporting the
  Government in its reform program