ADB to Help Cambodia Improve Public Financial Management for Rural Development

MANILA, PHILIPPINES - The Asian Development Bank is (ADB) providing $10.81 million to support efforts by Cambodia to improve its public financial management to ensure that much-needed government funds reach the rural poor.

The program consists of a $6.71 million grant for the first of two subprograms that will strengthen public financial management (PFM) reforms in the three ministries supporting rural development – the Ministry of Rural Development, the Ministry of Agriculture, Forestry and Fisheries, and the Ministry of Water Resources and Meteorology.

Another $4.1 million grant will fund an institutional and capacity development project under the program.

The two grants will focus on improving the capacity of the three ministries in PFM sub-systems relating to budget formulation, execution, procurement, and reporting; and internal audit for better service delivery to rural communities.

The two grants support Cambodia’s Public Financial Management Reform Program, which was launched in December 2004 by the Ministry of Economy and Finance to address weaknesses in the public financial management system.

While the benefits of recent growth have been widely spread across Cambodia, the rural poverty rate has not declined as expected. It was estimated at 39% in 2004 compared to the national rate of 34%. With an estimated 80% of the population living outside the main urban centers, this translates to more than 4 million people living below the poverty line in rural areas.

Poverty reduction is severely hampered by the limited effectiveness of public spending due to the weak link between policy and the budget. “The ministries that support rural development in Cambodia are currently the weakest and most underfunded of all the ministries. As a result, service delivery in rural areas is slow and the rural poor do not have many economic opportunities,” said Prasanna Kumar Jena, Governance Specialist of ADB’s Southeast Asia Department.

A strong public financial management system will help the government implement its National Strategic Development Plan, which aims to reduce poverty, particularly through policy and financial support to the agricultural sector – which employs an estimated 70% of the rural population and accounts for a third of gross domestic product.

The capacity development needs of the government’s National Audit Authority will also be taken into account by the program to improve the overall governance framework of Cambodia’s public sector.