ADB Reviews Poverty Reduction Strategy in Cambodia

News Release | 1 October 2007

MANILA, PHILIPPINES - The Asian Development Bank's (ADB) five-year strategy to help reduce poverty in Cambodia remains relevant but needs improvements to enhance its effectiveness, according to a midterm program review.

"Persistent high levels of rural poverty have implications for the program's strategic thrust," said Arjun Goswami, country director of ADB's Cambodia Resident Mission.

Poverty has declined steadily since the end of the civil war, with the percentage of Cambodians living below the poverty line falling to 35% in 2004 from 47% in 1994. However, the gap between rich and poor has increased. The severity of poverty is most felt in rural areas, and one reason for that is economic growth has been based on garments exports, tourism, and construction, which are primarily in urban sectors.

The Cambodia Country Strategy and Program 2005-2009 seeks to reduce poverty through broad-based private sector-led growth, inclusive social development and stronger governance for sustainable development. ADB has provided $104.3 million loans under the program for 2005-2006 and grants amounting to around $3.5 million annually for that two-year period and has tentatively programmed further support for the 2007-2009 period of $204.3 million.

According to the midterm review, there needs to be a sharper focus on agriculture and rural development to respond to priorities set by the Government of Cambodia. The priorities are led by broad-based economic growth through investments in 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.

"ADB's assistance for the remainder of the Country Strategy and Program should increasingly have an agricultural and rural focus, including rural development projects, fostering rural infrastructure, enhancing access to credit, and decentralized registration of businesses in rural areas," said Mr. Goswami.

The Country Strategy and Program also needs to put emphasis on private sector-led growth, and in accordance with this, ADB's participation in the private sector will be intensified to translate public policy advances into sustainable investment in the economy.

The Country Strategy and Program also highlights the need to intensify risk management. There are three categories of risk in Cambodia. The first is the risk that public funds will not be optimized. Another is that weak institutions could lead to a failure to achieve economic diversification. The third is institutional weaknesses, which heightens the risk of corruption in sectors critical to broad-based economic growth. Assistance is therefore needed to develop and strengthen public financial management including the internal audit capacity for rural development line ministries.

In the areas of transport, energy and health, ADB decided to move away from national assistance and focus on supporting analytical work for new areas in these sectors and subregional projects to effectively reach out to the rural poor.

ADB also needs to continue providing assistance for second generation reform in the financial sector, small and medium sized enterprises and education to accommodate an expanding economy.

Cambodia continues to rely on external financing for all major public sector development projects. Since 2005, the government, together with development partners, has been working on strengthening its capacity and effectiveness in managing aid through an action plan, which has strengthened coordination and partnerships between donors and the government. ADB has made efforts to put in place partnership agreements during the midterm review period.

While it has met with some success, the overall ADB portfolio performance in Cambodia has been below expectation during the review period, as the number of projects at risk has increased and the disbursement level remains below projections. To address the overall decline in portfolio performance, intensive project administration follow-up will be undertaken through a joint country portfolio performance review, sector policy reforms and recommendations on cost sharing of eligible expenditures.