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Source: Model results
(*)
Deciles by per capita total equivalent consumption. 0.5 has of
land is given to all households engaged in farming and with an
operated land size of less or equal to 0.5 has. The impact on
income is then calculated as ½ of the village average net income
per hectare from cultivation activities This simulation indicates that, everything else constant a land distribution of 0.5 has to farmers that currently operate less than 0.5 has of land, rises households’ income by an average amount equivalent to 2 per cent of total household expenditures. The highest impact is observed in those female headed household in the first decile (6.2 per cent). Table 4.14 shows the impact on those households that actually received land. The average impact is equivalent to 16.4 per cent of household expenditures, and is bigger for rural areas (16.8 per cent). 4.14 Effect on per capita consumption in those households that received land
Source: Model results What have we learned There are several avenues by which poverty can be reduced (that is, the income of the lowest decile increased) in Cambodia. This chapter provided an assessment of the likely impact of some of them. The assumptions involved in each scenario are, to say the least, strong, but still results provide a sense of the direction of the likely impact. Among all the simulations done, the improvement in two key elements of rice production technology (paddy-to-rice yield and post-harvested losses) in addition to the lowering of transaction costs is expected to provide a strong improvement in the livelihoods of poor Cambodians, and can be identified clearly as a pro-poor strategy . Tariff reform (that is setting all tariffs to 7 per cent) would have a direct effect on consumption of about the same magnitude as the previous simulation, but, there are going to be income effects that were not accounted for that may cushion the short term impact of such a reform. Finally, the scenario of land distribution to about 265 000 Cambodian small farmers produced a high impact on those households directly benefited by the reform. A Cambodia: medium term macroeconomic framework Background Cambodia’s macroeconomic framework presented here is consistent with the framework for the Third Review Under the PRGF approved by the IMF Board of Directors on 18 July 2001 (IMF 2001). However, its update is underway in the context of the Fourth Review under the PRGF. The updated framework would take into account recently revised national account series and the short term impact of the deterioration in the world economic outlook since September 2001. It would also reflect the government’s medium term fiscal stance and reform agenda on military demobilization and administrative reform, and the expected normalization of relations with bilateral creditors. The baseline scenario is based on the government’s outward looking development strategy, combining public and private investment aimed at improving infrastructure for service delivery and broadening the export base of agricultural and manufacturing products. The main assumptions underlying the baseline are: i) maintenance of a stable political and security situation; ii) sustained implementation of financial policies aimed at a establishing a sound macroeconomic environment; and iii) timely implementation of a structural reform agenda aimed at fostering resource efficiency. Key quantitative assumptions are specified in table A.1. Growth and inflation Economic growth is assumed to remain sustained at an annual rate of 6 per cent through 2003 and increase to 6.5 per cent thereafter, when the implementation of crucial structural reforms, especially in the fiscal and banking areas, is well advanced. Inflation is expected to remain below 5 per cent, owing to appropriately restrained fiscal and monetary policies. Fiscal sustainability Medium term fiscal sustainability critically hinges upon raising revenue in relation to GDP and reallocating expenditure from military and security spending toward social expenditure. Under the baseline scenario, revenue would increase from 11.8 to 14.0 per cent of GDP by 2006, a level still much lower than countries with comparable income. Revenue collection efforts in the period ahead are expected to focus mainly on a broadening of the tax base, and improved tax administration, while reduced trade-related taxes in context of trade liberalization would be offset by increased excises. In parallel, in-depth administrative reform and military demobilization together with enhanced expenditure management are expected to play a crucial role toward maintaining sustainable fiscal balances and reorienting expenditure toward the social sectors. The external environment Trade — Exports Total exports are expected to decline slightly from 44 per cent of GDP in 2000 to about 38 per cent of GDP in 2006. Re-exports, accounting for 21 per cent of total export in 2000, are assumed to decline gradually in relation to GDP throughout the medium term. The share of traditional exports (for example, forestry products, rubber and rice) in total exports is assumed to increase gradually in the medium term, as exports of forestry products are expected to recover as a result of the ongoing forestry reform. Nontraditional exports are anticipated to grow rapidly, mostly on account of garments. Unrecorded exports are believed to be large; however, the only estimates for unrecorded exports considered in the baseline scenario are those for unrecorded log and timber products, and rubber products. Following a sharp increase since 1998 in the range of 50-80 per cent annually, garment exports are projected to grow by 5-7 per cent annually, reflecting the global economic slowdown and tougher competition from neighboring countries. Forestry product exports declined drastically in 2000, largely owing to government’s efforts to strengthen monitoring of illegal logging activities. For the medium term it is assumed that log and sawn timber exports will converge to a sustainable level of production. Rubber exports and rice surplus exports are projected to remain marginal. Trade — Imports Retained imports (that is, excluding imports for re-export) account for about 83 per cent of total imports in 2000; they are expected to decrease from 45 per cent of GDP in 2000 to 39 per cent in 2006, reflecting, inter alia, the declining oil price path. The composition of retained imports would change gradually, with increased imports of investment goods in line with projected foreign direct investment flows. Services and transfers Under the baseline scenario a conservative growth of tourism receipts has been assumed, due to bottlenecks to tourism expansion (for example, airport and hotel capacity constraints). Accordingly, tourism receipts are assumed to grow by 5 per cent from 2004 onward after some dramatic increases of 10-20 per cent per annum in 2002-03. Net private transfers are assumed to remain broadly stable in the medium term, while continued large inflows of official transfers would be still required. External balances The current account deficit (excluding official transfers) is expected to decline gradually from about 10 per cent of GDP in 2000 to 8 per cent in 2006. External financing requirements are assumed to be covered through a mix of concessional multilateral and bilateral loans together with rescheduling of existing debt on favorable terms. FDI would also cover a significant portion of Cambodia’s financing requirement, assuming that efforts to attract foreign investment are successful. Based on traditional debt indicators as of end 2000 (debt service ratio of 5 per cent of exports of goods (excluding re-exports) and services, debt stock of 66 per cent of GDP). Cambodia does not meet the qualifying criteria for debt relief arrangements under the Heavily Indebted Poor Countries (HIPC). However, taking into account Cambodia’s limited payment capacity, the medium term scenario assumes the completion of rescheduling agreements for outstanding debt on concessional terms within the context of the Paris Club. Gross official reserves would increase gradually from the equivalent of 2.8 months of imports of goods and services in 2000 to 3.6 months in 2006. The sensitivity of the baseline scenario selected changes in key trade assumptions is highlighted below. Three alternative trade related scenarios have been considered. However, the downside risks stemming from the deterioration of security and political situation and policy implementation slippages that could thwart the medium term outlook are not addressed in this exercise. Alternative scenario I: higher growth rate of garment exports One percentage point increase over the baseline would lead to an improvement of the current account deficit by 0.5 percentage points to 7.6 per cent of GDP in 2006. Another possible way of improving the garment sector’s contribution toward strengthening the external balance would be to increase the domestic content of garment production through developing domestic inputs to garment factories. Since the import content of the garment industry is currently estimated at 65 per cent, a 5 per cent reduction in the import content would reduce the current account deficit by 1.5 percentage points, to 6.6 per cent of GDP in 2006. Alternative scenario II: higher growth rate of traditional exports Traditional exports accounted for only 6.1 per cent of total exports in 2000. Accordingly, a rapid growth of traditional exports would not affect drastically the balance of payments medium term prospects. For example, a doubling of the annual growth of rubber exports would only improve the current account deficit by 0.7 per cent of GDP in 2006. Alternative scenario III: faster increase in tourism receipts Addressing the airport and hotel capacity constraints would allow for significant increases in tourism receipts over the medium term. Assuming a 20 per cent growth of tourist arrivals over 2001–06, tourism receipts would reach about $500 million by 2006, thus improving the current account deficit (excluding grants) compared with baseline by about 3.7 percentage points of GDP. Summary The above scenarios are summarized below: A.1 Current account deficit (excluding official transfers)
a As presented in the Third Review Under the Poverty Reduction and Growth Facility (PRGF) (IMF 2001) b Assuming a one percent point increase in the growth rates of garment exports over the baseline scenario. c Assuming a 5 per cent reduction over the medium term in the import content of garment exports, compared to the baseline scenario. d Assuming a doubling of the growth rate of rubber exports compared to the baseline. e Assuming a faster increase in tourism receipts compared to the baseline scenarios (that is, a 20 per cent annual growth of tourist arrivals over 2001–06 as against 10–20 per cent up to 2003, and 5 per cent thereafter in the baseline scenario) Source: IMF staff estimates B.1 Excise taxes imposed in Cambodia (2000 and 2001)
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