Cambodia: Public Financial Management for Rural Development Program

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Lessons

Alignment with government priorities favors the successful implementation of reform programs.

The Asian Development Bank- (ADB) financed Public Financial Management for Rural Development Program (PFMRDP) was complex and involved essential changes in the policy, legal, and institutional frameworks and systems and human resource development and management. However, because it was aligned to government reform priorities, the program was implemented successfully. Such an alignment also helped ensure government commitment and support for the program.

Project Cycle Stage:

Preparation

Implementation of reforms takes time and requires long-term commitment and support.

Originally planned for 2015, the completion of the multistage Public Financial Management Reform Program (PFMRP), the reference government program of the PFMRDP, is currently targeted for 2025. While suggesting the complexity of the reform process, PFRMP’s prolonged implementation period also highlights the need for long-term, sustained commitment from all development partners, with flexibility to adapt to evolving needs and priorities. Learning from the PFMRDP’s experience, where some outputs took longer to be accomplished because of institutional challenges and capacity gaps, ADB can consider providing a longer implementation period for similar future interventions. Besides allowing time for institutional and capacity issues to be addressed, a longer implementation period can also enable the development of incentives that may be useful in maintaining the momentum for reforms.

Project Cycle Stage:

Preparation

Effective coordination and implementation arrangements foster the success of programs/projects.

The absence of a consultant team leader to coordinate activities reduced the timeliness, scope, and integrity of routine and final program reporting and resulted in a heavier workload for the ADB project officer. The transfer of the second project grant’s administration to the Cambodia resident mission allowed for closer monitoring and more timely responses to administration issues. Future interventions should consider this decentralized administration approach, as well as the recruitment of consultants directly by ADB that proved effective for this program, given its complexity and diverse expertise requirements and the capacity constraints in the executing and implementing agencies.

Project Cycle Stage:

Preparation

Implementation

Combining policy-based financing with project support is suitable for advancing far-ranging policy and institutional reforms.

ADB financed the PFMRDP’s 2 subprograms through four grants that totaled $25.81 million and a concessional loan of $10 million-equivalent. The combination of policy-based financing and project support was effective in developing government capacity and sustaining its commitment to implement the necessary policy and institutional reforms to address Cambodia’s binding development constraints and systemic governance and public financing problems. The component-based approach was also appropriate in delivering key outputs, identifying targeted institutions, assigning key responsibilities, and facilitating multi-agency support and cooperation. Building on this program’s experience, future similar interventions can do better by developing more measurable indicators and a tighter, more streamlined design and monitoring framework to facilitate effective monitoring and evaluation throughout the project cycle.

Project Cycle Stage:

Preparation

Background

Cambodia’s rapid economic growth caused the national poverty rate to drop to 13.5% in 2014 from 47% in 1994. However, economic growth was concentrated in urban areas. To accelerate rural development and poverty reduction, the National Strategic Development Plan, 2006–2010 stressed the need for policy and financial support to improve the management and delivery of resources to the agriculture sector on which most of the rural population depends. In line with this, the government launched the multistage Public Financial Management Reform Program (PFMRP) in 2005 to improve the underdeveloped public financial management (PFM) systems and address the governance risks that led to inefficient services in the rural and agriculture sector.

The Asian Development Bank (ADB) approved the Public Financial Management for Rural Development Program (PFMRDP) in December 2008 to support PFRMP stage 2 implementation in Cambodia’s three rural development ministries (RDMs) ─ Ministry of Agriculture, Forestry and Fisheries; Ministry of Rural Development; and Ministry of Water Resources and Meteorology. The PFMRDP’s envisaged impact was strengthened prioritization of resource use and improved governance. Its expected outcome was improved PFM in the foregoing RDMs, to be achieved through three outputs: (i) strengthened PFM framework; (ii) strengthened PFM in rural priority sectors; and (iii) stronger external audit.

Under subprogram 1, financed by $10.81 million in two grants approved along with the PFMRDP, the legal and regulatory framework for public expenditure management, including public debt management, was improved; the PFM capacity of RDMs was strengthened; and the RDM internal audit systems and National Audit Authority’s external audit capacity were enhanced. Under subprogram 2, supported by a $10 million loan and $15 million in grants approved in October 2010, initial program achievements were consolidated: the passage and implementation of amendments to the public finance law and the laws on public procurement and water resources management were assisted; strategic policy documents, including the PDM strategy for 2011─2018, were prepared; government standard operating systems were updated; and a long-term strategy for capacity development for civil service was developed, with leadership, management, and human resources development trainings provided to senior and mid-level central and subnational government officials.

Successful delivery of the planned outputs enabled the program to achieve its intended outcome. While there were challenges in precisely measuring the target 10% reduction in public funds leakage across the RDMs, there was irrefutable evidence of substantive improvements in public expenditure management and accountability. For example, the Public Expenditure and Financial Accountability 2015 report gave an improved rating to Cambodia’s internal audit effectiveness, from D+ in 2010 to C in 2015. The World Economic Forum’s Global Competitiveness Reports registered continuous improvement in Cambodia’s ranking for diversion of public funds from 92nd (of 134 countries) in 2008−2009 to 71st (out of 412 countries) in 2011─2012 and to 68th (out of 138 countries) in 2016−2017. Cambodia’s global percentile ranking for government effectiveness also rose from 17.56% in 2006 to 18.18% in 2010, and 22.75% in 2012; and for control of corruption from 5.8% in 2008 to 7.14% in 2010, and 13.27% in 2012.

With over 90% of the RDM action plans implemented, the program also significantly contributed to the improved prioritization of resource allocation for agriculture and rural development. RDM budgets became better aligned with national development policies and priorities, and budget execution rates improved to above 95% in all the RDMs. Ongoing improvements in budget accountability and PFRMP stage 3 implementation are expected to further improve public services and lead to more inclusive growth.

The program was executed by Cambodia’s Ministry of Economy and Finance (MEF) and the National Audit Authority. The RDMs and the MEF’s General Department of Internal Audit and Department of Cooperation and Debt Management were the implementing agencies.

Project Information

Project Name:

Public Financial Management for Rural Development Program

Report Date:

September, 2018

Main Sector:

Public Sector Management

Country:

Cambodia

Project Number:

41373-012

Report Type: