Executive Summary

                                                                                            Update on 26 Dec 2002

Purpose and Organization of the Document

     The Second Socioeconomic Development Plan 2001-2005 (SEDPII) articulates the national economic growth and poverty reduction strategy of the Royal Government of Cambodia.  The Government role in the implementation of the strategy is that of a facilitator that uses the power and resources under its control to influence the development process, so as to achieve desired socioeconomic outcomes. 

     The SEDPII provides a situational analysis of the present level of development and prioritizes measures designed to obtain a higher economic growth path and faster private sector development, which is a prerequisite for poverty reduction.  The Plan also presents quantitative targets and shows how the progress, and impact of Government policy and program priorities will be monitored and evaluated. 

     The SEDPII comprises two volumes.  The Main Volume sets out the development vision of the Government, the objectives and the results to be obtained, the strategies and national policy and program priorities.  Volume II contains important background papers and sectoral analyses as well as a summary of the first Cambodia Participatory Poverty Assessment (PPA).  The findings presented in Volume II were used to inform and guide the formulation and content of the national economic growth and poverty reduction strategy articulated in Volume I.  As such Volume I can be read and used as a stand - alone document. 

Participatory Planning Process

     The participatory nature of the SEDPII planning process is reflected in the completion of the PPA together with the direct consultations that Government held with important stakeholder groups, as well as the series of SEDPII workshops that facilitated policy dialogue, at national and sub-national levels.  A detailed report on the consultative and participatory SEDPII preparation process is available on request from the Ministry of Planning. 

Development Vision

     The development vision of the Royal Government of Cambodia is to have a socially cohesive, educationally advanced and culturally vibrant Cambodia without poverty, illiteracy and disease.  Realizing the vision will require continued adherence to the values of social justice, human welfare and empowerment and the formulation and implementation of policies to reduce poverty by promoting sustainable economic growth and better governance. 

      The “Triangle Strategy” of the Government, which was adopted after the July 1998 election, is designed to achieve this Vision.  Restoring peace and stability, and maintaining security for the nation and people, which formed the first side of the “Triangle” was accomplished during the last two years.  Cambodia's integration into the region and normalization of relationships with the international community, the second side of the “Triangle” was also achieved.  Cambodia regained its seat at the United Nations and became the 10th member of the Association of South East Asian Nations (ASEAN) and the process of joining the World Trade Organization (WTO) is well advanced.

     The third side of the Government's strategic triangle is to promote economic and social development through the implementation of an extensive reform program.  Significant progress has been made in the implementation of these reforms, and economic growth has been strong in the last two years despite the impact of the 2000 floods.  However, much remains to be done. 

Strategic Priorities To Achieve Vision

     In the context of the Triangle Strategy, and building on the Interim Poverty Reduction Strategy Paper approved by the Council of Ministers on 27 October 2000, the SEDPII presents the development objectives, strategies and policies of the Government.  The strategies are: (1) to foster broad-based sustainable economic growth with equity, with the private sector playing the leading role; (2) to promote social and cultural development by improving the access of the poor to education, health, water and sanitation, power, credit, markets, information and appropriate technology; and (3) to promote sustainable management and use of natural resources and the environment (4) to improve the governance environment through effective implementation of the Governance Action Plan (GAP). 

     The strategic message of the Plan is that economic growth is a prerequisite for poverty reduction and that the key to economic growth is private sector development, and the pace at which the private sector can develop depends largely on sustained improvements in the governance environment. 

     The timely implementation of the GAP, and its specific strategies for civil service reform, decentralization, military demobilization, legal and judiciary reform, gender equity, public financial management, anti-corruption and natural resource management, is therefore a key priority for the Government. 

      The Government is committed to maintaining a stable macroeconomic environment, as sustained economic growth with poverty reduction cannot be achieved in an environment of macroeconomic instability or of serious fiscal and external accounts imbalance.  The medium term macroeconomic framework focuses on obtaining an average annual rate of 6-7 percent economic growth, keeping inflation below 4 percent, containing the external account deficit to a level consistent with confessionals financing and foreign direct investment flows and increasing gross official reserves to about 3.5 months of import coverage. 

     Faster growth is essential in order to improve social indicators and allow higher private consumption of welfare increasing items and to provide the tax base to finance public expenditure.  Adherence to the ongoing reform program is crucial to higher economic growth, diversification from garments to other types of basic manufacturing and development of Cambodia’s tourism potential is of no less importance, as this would encourage increased activities in other services as well as industry and agriculture. 

     The strategic focus is on implementing those measures that have the dual benefits of both promoting growth and reducing poverty.  This will include initiatives to enhance state effectiveness, develop physical infrastructure particularly in underserved rural areas, increase investment in human resources particularly women and children.  Success in promoting growth and reducing poverty will require close cooperation within and outside the Government, so that timely actions at the macroeconomic level and across and within sectors are implemented in the way intended. 

     Continuing fiscal reform is critical in order to build on recent increases in revenue capacity and to accelerate the shift from defense and security expenditures to the socials sectors.  The implementation of the military demobilization program is a key element of the reform program, as savings from downsizing the army are essential for redirecting spending toward the social sectors.  Public administration reform is also an important component of the fiscal strategy and its civil service reform component is vital to achieving planned sector wide reform in health and education.  Key priorities for the Government include promoting financial transparency and addressing corruption issues particularly in health and education disbursements. 

     Decentralization offers a range of possibilities including the opportunity for broader political debate about development strategies and new ways of holding government accountable to its actions.  The extent to which the development potential of decentralization will be realized depends crucially on success in other related governance, particularly budgeting and in health, education, transport, and gender issue areas. 

     Accelerating growth in the rural economy would result in the largest reduction in poverty because its incidence is highest there and inequalities are lowest, an important consideration given that economic growth will benefit some more than others. Agricultural improvement is key to broad based economic growth and poverty reduction and there is little doubt that there is much potential for improvement. 

     In addition the development process must deal with the unexpected, in particular the harm done to the fragile welfare of the poor and the health of the economy as a result of natural disasters.  Strengthening national disasters preparedness, relief, mitigation and rehabilitation preparation are important poverty reduction priorities of the Government. 

     As is providing targeted special programs for those who are unable to effectively participate in the growth process as well as enhancing ongoing preventative measures to combat the HIV/AIDS epidemic.  Establishing Cambodia as a popular ecological and cultural tourism destination will also contribute to the success of ongoing efforts to control HIV/AIDS and provide an additional boost to economic growth. 

     Further development of rural infrastructure will help rural and remote communities, which include the poor and the poorest, facilitate market access for those without it and put essential services within reach of the most needy.  Making better use of human capabilities, improving the income earning potential of the poor, widening their range of choice, improving the quality of their lives and reducing their social exclusion make improving the access of the poor to education and health crucial priorities.  Women’s education is a crucial determinant in birth spacing and reproductive health and in determining the educational level and employment of their daughters 

     In short, macroeconomic stability, implementation of the GAP, continuing trade liberalization and expansion of economic and social infrastructure will facilitate private sector expansion and thereby fuel higher economic growth, rising incomes and employment, which will pave the way for durable poverty reduction.  For those unable to benefit from direct participation in the economic growth process special support programs will be implemented.

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