Your Excellencies Members of the Royal Government,
National and International Guests,
Ladies and Gentlemen,
1. Today, I am honored and pleased to participate in this important event “Annual Review on the Public financial Management Reform Program”. I would like to join His Excellency Senior Minister Keat Chhon in conveying to all the distinguished participants a warm welcome and profound gratitude for attending this important meeting.
2. At the outset I would like to complement the Ministry of Economy and Finance, particularly His Excellency Senior MinisterKeat Chhon the Chairman of the Economic and Public Finance Policy Committee and Dr. Aun Porn Moniroth the Chairman of the Public Financial Management Reform Steering Committee, for leading and managing the implementation of the public financial management reform program, from the preparation stage to monitoring during the last 3 years, in close cooperation with other line ministries and relevant development partners. We are proud of the many accomplishments of the Program. Taking this opportunity, I would like to thank bilateral and multilateral development partners for active contribution and generous support to the government in all the reform areas aimed at reducing poverty and promoting the development of Cambodia, especially the public financial management reform program.
3. The achievement of peace, united territory, political stability, social order and macroeconomic stability have enabled the Royal Government to formulate and carry out long term development strategies and policies in order to build a stronger social and economic foundation especially the construction of physical, social and legal infrastructure that had been totally destroyed by war and social chaos through structural reform, institutional capacity building and human resource development. In parallel with the rehabilitation of physical and social infrastructure, the Royal Government has pushed for reform of all sectors, especially governance reform which is the core of “Rectangular Strategy”. For improving governance, our priorities are to raise capacity and efficiency of the public sector by fighting corruption, strengthening public administration, carrying out reform of public financial management and legal and judicial systems and implementation of decentralization and de-concentration policy.
4. The Royal Government has been adopting in stages long-term policies and strategies for national development in the last 3 mandates of the government. The first stage, from 1979 to 1993, was a period of rescue and rehabilitation of both social and physical infrastructure while preventing, by use of force, the return of the genocide regime. The second stage from 1994 to 1998, was a period of seeking peace, political and social stability as well as continuing reconstruction of social and economic infrastructure amidst an environment of war and peace. Stage 3 the current period, commenced in 1999. In this period, Cambodia has achieved full peace with territorial, political and institutional unification under the “Win-Win” policy, which was laid out by me. The third stage is a period of strengthening and expanding social and economic structures, institutional capacity building and human resource development as well as deepening reforms in all sectors. This has been a complex period with multifaceted challenges which need long time to solve.
5. In the third stage I have laid out “Rectangular Strategy” for Growth, Employment, Equity and Efficiency, which is an important instrument to sustain the implementation of “political platform of the Royal Government of the third legislature of the National Assembly”. The “Rectangular Strategy” is aimed at developing Cambodia into a country with sustained high economic growth accompanied by continuing reforms of all sectors. The “Rectangular Strategy” is the result of refining priorities by mainly focusing on economic policy agenda and poverty reduction through detail preparation, selection and highlighting of the government’s economic policy agenda into prioritized package in all key sectors, which is systematic, consistent, interlinked, complimentary, and manageable.
6. Based on these prioritized policies, the Ministry of Economy and Finance prepared a comprehensive “Public Financial Management Reform” program, which was officially launched by me on December 05, 2004 with full ownership and responsibility including a long-term vision until 2015, platform-based programs and real action plans for each platform. The special characteristics of the program that make it different from previous reform programs is that this reform program is divided into platform-oriented as His Excellency Senior Minister Keat Chhon mentioned in the report. Moreover, the program has been well-structured and realistic. Each action plan comprises gradual, comprehensive, sequenced and efficient measures to develop institutional capacity and human resources, clear indicators to measure results, an incentive scheme for capable officials undertaking implementation of reform and equipped with necessary facilities and appropriate technology and techniques. Indeed, public financial management reform program cannot be separated from other interconnected reform programs, especially public administration reform, financial development strategy, and private sector development that entails four key components: (1) investment climate improvement (2) private participation in infrastructure development (3) trade facilitation through the creation of the single window at Customs and Exercise Department and (4) small and medium enterprises development.
7. Another important point is that all bilateral and multilateral development partners have provided all forms of support, including financial or technical support for this rare opportunity to the Ministry of Economy and Finance through “Sector Wide Approach – SWAp”. Therefore, the “Public Financial Management Reform” represents a successful role model of the implementation of the following agendas:
· Harmonization – all development partners must reach a consensus before negotiating with the Royal Government;
· Alignment – all development partners provide funds according to the needs of Cambodia, which are stated in theNational Strategic Development Plan and the Rectangular Strategy;
· Result – this aims at accomplishing the above plan and strategy with the recognition that cooperation must be based on results and the spirit of mutual accountability. Whatever the results, satisfactory or unsatisfactory, the Royal Government and development partners must share responsibility for them.
In this regard, I would like to reiterate my satisfaction and support for the Declaration by the Royal Government and Development Partners on Enhancing Aid Effectiveness which was signed by the Royal Government and 14 formal development partners on October 05, 2006 at this Government Palace.
8. Subsequent to the introduction of the “Rectangular Strategy”, which is a reform program for all sectors/areas, especially following the launch of “Public Financial Management Reform” more than 3 years ago, there have been a number of major achievements. In particular, in spite of some major challenges within the regional and global economic situation as well as natural disasters in the country, Cambodian economy was still able to achieve double-digit growth rate for many consecutive years, averaging 11.1% per annum during 2004 – 2007. As a result, the average per capita income rose from 394 US dollars in 2004 to 594 US dollars in 2007. During the same period, Cambodia’s international reserve has more than doubled, jumping from 809 million US dollars in 2004 to 1.6 billion US dollars in 2007 and 1.9 billion US dollars in early 2008.
9. Specifically, as pointed out in the report of His Excellency Senior Minister Keat Chhon, after completing the first Platform of the implementation of the Public Financial Management Reform, the Royal Government’s revenue jumped from 2,625 billion riels in 2005 to 4,019 billion riels in 2007. On average, annual government revenue increased by 23%. Tax and non-tax revenues increased by 27.6% and 19.3% respectively. Moreover, the government’s expenditure rose from 3,513 billion riels in 2005 to 4,586 billion riels in 2007. On average, the annual government expenditure increased by 20%. This outcome gives me, as the only Commander in Chief, the ability to implement the Royal Government’s policies, especially to increase expenditures on public investments including the construction and maintenance of major national infrastructure such as transport networks, irrigation systems, schools, health centers and so on. The arrears in expenditures have been completely eliminated, and cash reserve in the National Treasury has increased by 250 times over 2003 to reach a level of 1,000 billion riels. The FDI has increased significantly while the exchange rate has been generally stable.
10. Due to the proper and successful implementation of the macro-economic policies, which is the first step of public financial management reform, the Royal Government has been able to maintain a low inflation rate during a period of double-digit economic growth. However, recently inflation rate has risen noticeably even though the Royal Government has made all necessary efforts to stabilize the situation. In 2007, the average inflation stood at 5.8%, but in December 2007, inflation jumped to 10.8% and the trend continued till March 2008. Compared to 2006, food price and transport cost indices increased by 20.9% and 13.5% respectively. Rising price of oil, food, other goods and weakening US dollar are the main causes of inflation in Cambodia. Rising prices in Cambodia during this period is mainly caused by external factors. For e.g. the oil price on international market increased substantially from 22 US dollar per barrel in 2003 to 135 US dollar per barrel at the end of May 2008. These external factors drive the prices of domestic goods up.
11. The Royal Government will continue to address the challenge of inflation and control the situation. The Royal Government has introduced many sequenced measures to tackle inflation, especially to prevent the price of basic goods such as food and fuel from rising too high while macro-economic stability is maintained. The government’s measures, that have been implemented costing 1,600 billion riels include:
· The provision of low-interest loan of 80 billion riels to private rice millers in Cambodia, a boost in the purchasing capacity of Green Trade Co., Ltd. to stockpile paddy aimed at increasing the strategic stock for sustaining supply up to next year’s harvest season by maintaining profitable prices for farmers or producers while providing affordable prices for purchasers particularly the urban population;
· The continuation of subsidy on oil import. In 2008, this subsidy may reach 1,200 billion riels. The subsidy has contributed to the low rise of domestic fuel price while oil price in the international market increased by two folds from May 2007 to May 2008;
· The subsidy provided to EDC in 2008 which will amount to 164 billion riels in 2008;
· Instructing all public institutions to minimize fuel and energy use;
· Lifting the ban on pig import;
· Subsidizing the sale of rice to the public;
· Increasing the workers’ wages which has been made possible by the government’s willingness to facilitate garment firms’ cash flow of approximately 80 billion riels per year until 2010;
· Increasing the salaries of public servants. This includes the 20% increase in salary for government officials and armed forces, 10% increase in functional allowances for teachers, and 100% increase in spouses and children’s allowances.
As I stated above, the Royal Government was able to introduce these measures due to the success of the first Platform of the public financial management reform program: revenue has increased significantly from year to year while expenditure has been prioritized which has enabled the National Treasury to maintain adequate cash reserves. In 2003, the monthly salary package, including hourly wage, amounted to only 51 billion riels. At that time, the National Treasury could not pay salaries on time and there was a lag of many weeks for effecting the payment. In April 2008, the monthly salary package including hourly wage increased to 91 billion riels, almost 2 times of 2003. However the National Treasury can now fulfill its financial obligations within the first week following the end of each month.
12. In the short term, the government will implement the measures outlined above. However, these measures will be reinforced with tightened public expenditure and monetary policy such as by increasing the reserve requirement from 8% to 16% to reduce money circulation, strengthening the supervision of credit rating of borrowers and setting a ceiling on maximum credit to the real estate sector. The Royal Government will continue to pay great attention to strengthening rice stocks. There is no reliable data on the amount of rice in the government‘s hand.
13. In the medium and long term, the government will introduce the following measures to check inflation:
· Investment in infrastructure such as roads, irrigation system, power transmission network which will help reduce economic costs and raise productivity. Under the existing budget law framework, this expenditure must be ensured along with the expenditure on education and health sectors.
· Review and collect stamp duty, unused land tax and capital gains tax which help to cool the real estate sector.
· Continue to tighten expenditure to maintain budget balance which is the foundation for macroeconomic stability and sustained economic growth.
· Maintain riel-dollar exchange rate stability and search for measures to de-dollarize while sustaining the purchasing power of 500,000 workers.
· Monitor and manage credit and money supply in the market.
14. Despite being in a difficult situation and facing above mentioned challenges, we can conclude that “Public Financial Management Reform” program is successful as shown by the indicators. The Ministry of Economy and Finance has assumed full ownership of the Program and acted as the main agent in the reform process. All multilateral and bilateral development partners have complemented this effort by implementing the “Sector Wide Approach” which is result-based and fostersmutual accountability. On behalf of the Royal Government of Cambodia I would like to agree with the final evaluation on the successful completion of the 1st Platform of the “Public Financial Management Reform” program and to formally launch the 2nd Platform of the reform program.
15. In order to move forward on to the 2nd Platform of reform which emphasizes promoting the financial accountability, I would like to see the one-and-half day discussion producing a fruitful outcome and indicators for all 35 ministries and institutions.
First, all the ministries and institutions must accept the ownership of the 2nd Platform of the Program and prepare their own action plans and indicators, that should be based on the draft of the action plan and joint indicators prepared by the Ministry of Economy and Finance.
Second, the Ministry of Economy and Finance must continue its leadership in supporting the reform in all the Ministries and Institutions within the framework of the Economic and Public Finance Policy Committee and the Public Financial Management Reform Steering Committee.
Third, there is a need to cohesively and consistently link the Public Finance Reform Program with other reform programs, which will be important and indispensable for their effectiveness and success, especially the Public Administration Reform and the De-centralization and De-concentration Policy and Strategy. To prepare a qualified and competent civil administration to provide public service effectively is a matter of significance and priority for the Royal Government. In this regard and within the framework of the medium term strategy for the Public Administration Reform, the Council for Administrative Reform has initiated the establishment of 6 policies and an action plan.
Fourth, the Council for Administration Reform must closely cooperate with the Economic and Public Finance Policy Committee and the Public Financial Management Reform Steering Committee to improve the civil servants’ incentives in order to enhance the quality, efficiency and honesty of the whole public administration. We should learn from the experiences of the 1st stage implementation of the Merit Based Payment Initiative in the Ministry of Economy and Finance in order to expand the coverage of these incentives to other line ministries and institutions. The incentives in salary term for the civil servants must be consistent with their qualifications and skills and must not be in a form of nepotism, family network or partisan. A working system has to be set up with strict management in order to ensure the working efficiency.
Fifth, based on this good experiences of the cooperation between the De-centralization and De-concentration Reform Steering Committee and the Public Financial Management Reform Committee, the National Committee for the Development of Democracy at the Sub-National Level and the Economic and Public Finance Policy Committee have to continue the cooperation in order to prepare laws such as Draft Law on the Amendment of Law on Financial Regime and the Management of Municipality and Province Properties, which is being prepared by the Ministry of Economy and Finance for implementing the Law on the Administration of the Municipality/Provinces and District/Khan as well as theLaw on the Public Financial System.
Sixth, all ministries and institutions have to be informed that if any of the 35 ministries and institutions cannot act as the owner of the 2nd Platform of the Public Financial Management Reform, meaning that if those ministries and institutions cannot prepare or implement the action plan, or cannot set the indicators, it will lead to the failure of the whole 2nd Platform of the Public Financial Management Reform. On the other hand, this Public Financial Management Reform Program will not be successful if one or other reforms fail. Therefore, I would like to give an order to the leaders of each ministry, institution, reform council and reform committee to be responsible for the implementation of the 2nd Platform of the Public Financial Management Reform and the implementation of their own reform programs by strictly adhering to the active management approach.
Seventh, I would like all participants in this meeting to abide by my 6 recommendations and orders mentioned above. As for the one-and-half day meeting, I would like the whole meeting to adopt the 3 political thoughts raised by His Excellency Senior Minister Keat Chhon as the basis for discussion, which are as follows:
– Being the owner is difficult, but we have to start in a situation where there is a certainty and strong willingness.
– Even it is an election period, the reform has to be continued in order to ensure the development sustainability.
– The Public Financial Management Reform Program: the 2nd Platform will bring quality change. Therefore, we need to understand and grab the complexity of this change.
16. I would like to reaffirm again that the Royal Government of Cambodia does have strong will, ownership, and high responsibility for all reform programs and policies, especially on this special Public Financial Management Reform which is the heart of Public Administration Reform in the implementation of the “Rectangular Strategy”. Our will and determination on the reforms have been gradually increased that make us more courageous and successful. According to my view in the speech on the occasion of the formal launching of the Public Financial Management Reform Program on December 05, 2004 and in other forums “the reform is a live and death of the Royal Government. The reform should be regarded as a day-to-day work in order to improve, enhance, strengthen and expand our capacity, capability and potential aiming at keeping up with the development of society, economy and politics within the country, region and the world”. To accomplish successfully in implementing the 2nd Platform of the Public Financial Management Reform Program, each ministry and institution must be the active actor and ensure ownership. At the same time, I would like to appeal to all development partners to continue the long-term support on both financing and the technical assistance to ensure the success and the sustainability of the reform program. I would like to encourage and wish this one and half day meeting a fruitful evaluation, discussion and exchange ideas that will become additional inputs for the improvement of the 2nd Platform action plan to be more realistic, comprehensive, effective and highly efficient.
17. On behalf of the Royal Government of Cambodia and myself, I would like to express my sincere appreciation on the efforts of the leaders and officials at all levels in the Ministry of Economy and Finance for their hard work in preparing and implementing this Public Financial Management Reform Program with ownership, high responsibility and success. I would like to highly complement all relevant government ministries, institutions and development partners for the valuable contributions in implementing this reform program. I would like also to express my special appreciation to His Excellency Senior MinisterKeat Chhon and Dr. Aun Porn Moniroth for leading the reform program in the capacity as the Chairman of the Economic and Public Finance Policy Committee and the Chairman of the Public Financial Management Working Group. I wish the third annual review of the Public Financial Management Reform Program successful.