MANILA, PHILIPPINES - Cambodia is currently implementing a series of reforms designed to modernize and deepen its financial system in order to support growth, reduce poverty and make the country more resilient in the face of external shocks.
In support of that goal, the Asian Development Bank's Board of Directors today approved a $10 million loan for subprogram 3 of the second Financial Sector Reform Program. It covers costs linked to implementing reforms, and also provides the government with budgetary support to help ease the effects of the global economic downturn. The latest reforms are part of the ongoing ADB second sector program support - which began in 2007 - to assist Cambodia to further develop its financial system.
Cambodia posted real economic growth of more than 9% between 2001 and 2008, and cut overall poverty. However, external shocks, such as the global financial crisis of 2008, which has pressured garment exports, tourism and foreign investment, threaten to undermine that progress. An effective financial system that can readily mobilize finance, channel it into productive areas, including to rural areas through microfinance, and manage risks, can help mitigate the impact of external turmoil and keep growth and poverty reduction on track.
"Cambodia has taken many positive steps to develop its financial sector since the instability of the 1970's and 1980's, but still faces policy gaps, capacity constraints and other challenges," said Samiuela Tukuafu, Senior Financial Sector Specialist in ADB's Southeast Asia Department. "The ongoing program builds on earlier actions to improve the legal and regulatory environment, to boost sector capacity, to improve disclosure standards and financial transparency, and to build up infrastructure."
These measures are designed to sustain the momentum of structural reforms while strengthening capacities for effective surveillance against the backdrop of knock-on effects of the global economic crisis. They include strengthening of bank supervision capacities, the upgrading of the payments and settlement system, establishment of a financial intelligence unit by National Bank of Cambodia to support efforts to combat money laundering, installation of an integrated IT system to link the core operations of the central bank, further steps to improve the microfinance sector, and the development of a commercial disputes resolution mechanism.
ADB's loan from its concessional Asian Development Fund has a 24-year term, including a grace period of eight years, with an interest rate of 1% per year during the grace period and 1.5% for the rest of the term. The National Bank of Cambodia is the executing agency for the current program phase which runs from January 2009 to December 2009.
With the achievement of all reform milestones in the third subprogram, a fourth round of measures will be implemented starting in January next year, with the full sector program due for completion in December 2010.