ADB Supports Cambodia's Push to Diversify Economy

News Release | 5 December 2008

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is providing a loan and grant financing for a program that supports the Cambodian government's drive to expand the private sector and diversify its economic base beyond garments, tourism, and construction.

ADB is extending a 24-year, $20-million loan to be sourced from its concessional Asian Development Fund to finance reforms designed to improve the business climate and trade facilitation for the private sector. It is also providing a $2 million grant to build up the capacity of the country's sanitary and phytosanitary management systems.

The loan is for the first subprogram of the Promoting Economic Diversification Program - a cluster of three subprograms that will help roll out a series of government policy reforms and measures to create a more stable macroeconomic environment, to lower the cost of doing business for private firms, to expand trade, and to improve food safety standards. The Program also helps implement ADB's Greater Mekong Subregion technical work on trade facilitation at the national level.

The recent global commodity price and financial shocks have slowed Cambodia's economic growth rate in 2008 and lower growth is projected for 2009. These shocks highlight the country's vulnerability due to its narrow economic base.

"The challenge for Cambodia is to sustain a high economic growth rate, accelerate the creation of productive jobs and to continue its poverty reduction efforts - difficult tasks with half of the population under 20 years old and more than 85% employed in the informal sector," said Kelly Bird, Senior Economist with ADB's Southeast Asia Department.

The Program supports the government's own efforts to diversify the economy. Based on ADB estimates, reforms planned under the full Program could add 2.4% to Cambodia's gross domestic product, boost employment levels by 4.3% for males and 6.3% for females, and cut the incidence of poverty by a further 2.7%.

One innovative feature of the overall Program is the inclusion of policy 'triggers' or milestones that pave the way for technical assistance projects designed to support private sector competitiveness. One example is the grant for the improvement of sanitary and phytosanitary management which was approved after the government met a series of policy milestones under subprogram 1. Another one in the pipeline is a matching grant technology project targeting small enterprises under subprogram 2.