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| • Home • Introduction to MOC • Functional Structure • Trade Statistics • Trade Directories • Economic Integration • Cambodia's Exporters • MOC Links • MOC Contacts • Legal • Pro-Poor Trade Sector Strategy • Integrated Framework (IF) • Speeches • IPR • Cambodia's Imports • Licensing & Registration • Activities • Seminar |
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Since late 1998, when peace was secured and a coalition government formed, Cambodia has initiated fundamental reforms in many crucial areas and significant progress has been made in promoting economic recovery, and reducing inflation to low levels. However, much remains to be done to rebuild a society and economy shattered by almost three decades of civil strife and to address the country’s areas of vulnerability. Sustained development, and the alleviation of pervasive poverty, will critically hinge upon continued implementation of broad based actions aimed at strengthening governance, deepening fiscal and bank restructuring, and establishing a sound legal framework. Political and financial instability together with sizable capital inflows in the 1990s led to the dollarization of the economy with the US dollar becoming the de facto legal tender. While Cambodia has largely benefited from widespread dollarization of transactions and financial assets, this situation may not be desirable in the long run, as the lack of a more flexible exchange market could obstruct further regional integration and affect the country’s competitiveness. However, any reversing of dollarization is a long term process and would require continued stabilization and completion of key structural reforms, especially financial sector reform. Moreover, it would need to rely on market based policies rather than administrative measures. This section highlights the key features of Cambodia’s macroeconomic environment and the government’s strategy for alleviating poverty in the long run; it also reviews the country’s existing exchange rate arrangement and discusses some policy implications of dollarization in Cambodia. The second section summarizes key macroeconomic developments and outlines the medium term macroeconomic framework underlying the government’s poverty alleviation strategy, as spelled out in the Interim Poverty Reduction Strategy Paper (IPRSP) (EBD 2000). The third section describes the emergence of dollarization in Cambodia in the last decade and reviews the main benefits and costs associated with continued dollarization. The fourth section describes the evolution of the national currency and highlights some policy implications of dollarization. The fifth section identifies the core technical assistance requirements for achieving the government’s stabilization and financial reform objectives. Cambodia’s
key macroeconomic developments and prospects In the early 1990s, Cambodia first attempted to reconstruct an economy that had been ruined by almost three decades of civil strife. This effort was supported by a United Nations (UN) sponsored peace agreement and large inflows of international assistance. Strides were made toward stabilizing the economy in 1994-95 under the recovery program supported by the first Enhanced Structural Adjustment Facility (ESAF). However, economic performance deteriorated gradually in 1996-98, as a result of political instability. At that time, growth slowed down and inflation picked up to double digits, with central bank financing of the budget resuming in 1998 (see chart 1.1). Reflecting this period of macroeconomic instability and the large inflow of foreign aid, the ratio of foreign currency deposits to broad money began to rise steadily. It was not until late 1998, that the political environment stabilized under a coalition government committed to press ahead with an ambitious reform agenda. Since late 1999, the government’s efforts to restore macroeconomic stability, accelerate economic reconstruction, improve governance, and reduce poverty have been supported by a three-year Poverty Reduction and Growth Facility (PRGF) (1999-2002) in an amount of $81 million. As a result, crucial measures have been initiated to address weaknesses in budgetary management, tax and customs administration, banking system management, economic statistics, the legal framework, and natural resource management. These reforms are also being supported by a comprehensive Technical Cooperation Action Plan (TCAP) sponsored by various multilateral agencies and donors, and by financial support and technical assistance by other development partners, including the World Bank (WB) and the Asian Development Bank (ADB). Macroeconomic performance has strengthened significantly since 1999 (chart 1.1 and table 1.2). Economic growth has reached 5–6 per cent annually, despite adverse severe flooding in 2000. Buoyant garment exports, a recovery in tourism, and a continued increase in agricultural output have been the chief elements spurring economic growth. Inflation has been subdued, reflecting fiscal and monetary restraint, improved food supply, and cheaper imports largely stemming from the depreciation of neighboring countries’ currencies vis à vis the US dollar. 1.1 Cambodia: Selected Economic Indicators, 1995-2001
a Annual per cent change. b 12 months per cent change 1.2 Cambodia: medium-term macroeconomic framework, 1995–2006
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