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Country Strategy and Program 2005-2009: Cambodia

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Executive Summary

Cambodia is at a crossroads in its development as it moves from a postconflict situation towards a more normal development paradigm. More than two decades of international isolation and conflict that ended in 1991 devastated much of the country's physical, social, and human capital, forcing Cambodia to start from scratch in rebuilding its infrastructure and institutions. Although important economic and social gains have been made over the past decade, the development agenda remains daunting. Poverty remains widespread and intense-with 35%–40% of the population remaining below the poverty line-and inequality appears to be increasing. Recent relatively robust growth has not led to a significant reduction in poverty, and achieving many of Cambodia’s Millennium Development Goals (MDGs) will be difficult. The challenge of reducing poverty will become more daunting with the expected sharp downturn in the economy caused by the phasing out of the Multi-Fiber Agreement at the end of 2004.

With the peaceful formation of a coalition government on 15 July 2004, the Government has moved quickly to seize the reform agenda by launching a Rectangular Strategy For Growth, Employment, Equity, and Efficiency, which is intended to guide implementation of its economic agenda during the remainder of its term in office. The Government has signaled its commitment to addressing deeply entrenched governance issues that have long hindered development and social progress and has also initiated a number of measures to address some of the structural constraints to growth.

The Rectangular Strategy, which sets out the Government’s reform agenda as a series of interlocking rectangles, has governance at its core. The other rectangles focus on the desired environment to implement the strategy, and on promoting economic growth through agriculture, infrastructure, private sector growth and employment, and human resource development. The Government is now in the process of developing action plans to implement the strategy, which will become the basis for the budget, the medium-term expenditure framework, and the public investment program.

Given the extremely low domestic revenue base, external assistance has and will continue to be the dominant source of finance for the public investment program. Within this context, the Government has prioritized strengthening its aid management capacity and effectiveness and improving donor aid coordination. Cambodia is preparing to implement the Rome Declaration on Harmonization. At the request of the Government, the existing Government–donor technical working groups (TWGs) have been restructured to enhance government ownership and provide the basis for more effective management of official development assistance (ODA) in 17 priority sectors and thematic areas. It is in the context of the Government’s reform process on the one hand and the emerging global challenges on the other, that this country strategy and program (CSP) is framed.

ADB’s overarching goal in Cambodia is sustainable poverty reduction. In line with the priorities and strategies identified in the Government’s Rectangular Strategy, the CSP will focus on three strategic pillars:

1. broad-based economic growth through investments in physical infrastructure, development of the financial sector, support for greater regional integration, sustainable development of small and medium-sized enterprises, and investments in agriculture and irrigation
2. inclusive social development through basic education, empowering vulnerable groups such as women and ethnic minorities, control of communicable diseases, provision of rural water supply and sanitation facilities, and community-based sustainable management and conservation of natural resources in the Tonle Sap basin
3. good governance, through improvements in public financial management to enhance the development effectiveness of public expenditures, and decentralization and deconcentration initiatives to strengthen local participation in government, and improve public service delivery

Ensuring the development process is more broad-based and inclusive has also led to the inclusion of geographic (Tonle Sap basin) and subregional (Greater Mekong Subregion) focuses to support one of the poorest and most environmentally-sensitive regions of Cambodia, and to benefit from the broader opportunities provided by ADB’s Greater Mekong Subregion program. Four crosscutting themes—governance, private sector development, gender, and the environment—are also proposed to support the poverty reduction objectives of the Rectangular Strategy.

Sector interventions within these three interlinked and mutually reinforcing strategic pillars are be based on: the identification of priorities based on consultations with all stakeholders; ADB’s comparative advantage; a realistic assessment of Government’s commitment to reform; and the likely extent of interventions by other development partners in particular areas. They also take account of the constraints to poverty reduction in Cambodia. ADB is a pioneer of sectorwide approaches (SWAps) in Cambodia and will bring its experience to bear in selectively applying SWAps or program-based approaches (PBAs) in the future assistance program to improve the focus of external assistance, bring down transaction costs, and ensure policy coherence among different development partners' interventions. Where SWAps or PBAs are not viable, ADB will continue to seek cofinancing for individual interventions to increase resource mobilization at the most preferential terms.

The CSP was developed based on wide-ranging consultations with the Government, donors, civil society, and the private sector. In particular, ADB, the World Bank, and the Department for International Development of the United Kingdom (DFID) prepared their Cambodia country strategies in unprecedented close cooperation and coordination. By working together, the partners hope to improve their common understanding of the development challenges in Cambodia and to implement a coordinated response. This process has led to a common assessment of development trends and issues, the Government’s development strategy, and risks to the implementation of that strategy (Chapters I–II and part of Chapter VI of the CSP). It was agreed that the text of the strategy documents of the three institutions would be the same in these areas. ADB, DFID, and the World Bank have also agreed on a framework of general agency responsibilities for focal areas and outcomes. The partnership is not exclusive, being part of an effort to increase cooperation with other development partners at both strategic and operational levels (for example, the United Nations (UN) agencies have recently joined the strategy process of the three institutions, and has used the joint assessments for its United Nations Development Assistance Framework process. This has led to better coordinated interventions, avoiding duplication of investments and conflicting policy advice. ADB will also strengthen civil society involvement in its Cambodia operations.

In terms of monitoring development impacts, ADB will actively support the TWGs, which have developed action plans and monitoring indicators for joint monitoring over the next year. These were endorsed at a recently concluded consultative group meeting. Monitoring of the CSP will be strengthened by a results matrix, which will be updated and refined in subsequent country strategy and program updates.

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