Document of The World Bank Report No: ICR 00001439 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA- H3240) ON A GRANT IN THE AMOUNT OF SDR 9.8 MILLION (US$15 MILLION EQUIVALENT) TO CAMBODIA FOR A POVERTY REDUCTION AND GROWTH OPERATION 1 (PRGO 1) December 2, 2010 Poverty Reduction and Economic Management Unit Southeast Asia Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CAMBODIA - GOVERNMENT FISCAL YEAR January 1 ­ December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of December 2, 2010) Currency Unit Cambodian Riel (CR) US$1.00 CR4,080 Vice President: James W. Adams Country Director: Annette Dixon Sector Director: Vikram Nehru Country Manager: Qimiao Fan Lead Economist: Mathew Verghis ICR Task Leader Stéphane Guimbert Principal Author: Peter Miovic ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank LMAP Land Management & Administration Project APR Annual Progress Report LNRM Land Natural Resources Management ASEAN Association of South-East Asia Nations M&E Monitoring & Evaluation AusAID Australian Agency for International Development MAFF Ministry of Agriculture, Forestry & Fisheries BSPs Budget Strategy Plans MBPI Merit-Based Performance Incentive ASYCUDA Automated System for Customs Data MDGs Millennium Development Goals CAR Council for Administrative Reform MEF Ministry of Economy & Finance CAS Country Assistance Strategy MIME Ministry of Industry Mines & Energy CC Cadastral Commissions MLMUPC Ministry of Land Management, Urban Planning & Construction CDC Council for the Development of Cambodia MOC Ministry of Commerce CDCF Cambodia Development Cooperation Forum MOE Ministry of Environment CDHS Cambodia Demographic Health Survey MOH Ministry of Health CEFP Committee for Economic & Financial Policies MOI Ministry of Interior CFAA Country Financial Accountability Assessment MOP Ministry of Planning CG Consultative Group MPSDF Mekong Private Sector Development Facility CIB Cambodia Investment Board MTEF Medium Term Expenditure Framework CIDA Canadian International Development Agency NA National Assembly CLP Council for Land Policy NAA National Audit Authority CMDG Cambodia Millennium Development Goal NARLD National Authority for the Resolution of Land Disputes COM Council of Ministers NBC National Bank of Cambodia CPAR Country Procurement Assessment Report NFP National Forest Program CPI Corruption Perceptions Index NPLs Non-Performing Loans CPIA Country Policy & Institutional Assessment NPV Net Present Value CRDB Cambodia Rehabilitation & Development Board NPRS National Poverty Reduction Strategy CSES Cambodian Socio-Economic Survey NRM Natural Resources Management CSR Civil Service Reform NSDP National Strategic Development Plan D&D Decentralization & Deconcentration NT National Treasury DFID Department for International Development OSS One Stop Service DPs Development Partners PAs Protected Areas DSA Debt Sustainability Assessment PETS Public Expenditure Tracking Survey DTIS Diagnostic Trade Integration Strategy PFM Public Financial Management EITI Extractives Industries Transparency Initiative PFMAP Public Financial Management & Accountability Project EC European Commission PFMRP Public Financial Management Reform Program ELC Economic Land Concession PHRD Japan Policy & Human Resources Development Trust Fund FA Forestry Administration PIP Public Investment Program FDI Foreign Direct Investment PMG Priority Mission Group FMIS Financial Management Information System PRGF Poverty Reduction & Growth Facility GDCC Government Donor Coordination Committee PPI Private Participation in Infrastructure GDP Gross Domestic Product PRGO Poverty Reduction & Growth Operation GDCC Government Donor Coordination Committee PSD Private Sector Development GDCE General Department of Excise & Customs RGC Royal Government of Cambodia GDP Gross Domestic Product ROSC Report on the Observance of Standards & Codes IAD Internal Audit Department RS Rectangular Strategy ICA Investment Climate Assessment SAD Single Administration Document ICT Information & Communication Technology SDR Special Drawing Rights IDA International Development Association SEZ Special Economic Zone IFAPER Integrated Fiduciary Assessment & Public SIDA Swedish International Development Cooperation Expenditure Review Agency IFC International Finance Corporation SLC Social Land Concession IMF International Monetary Fund SME Small & Medium Enterprise INT Department of Institutional Integrity SOA Special Operating Agency IPA Independent Procurement Agent TFCP Trade Facilitation & Competitiveness Project IRR Implementing Rules & Regulations TI Transparency International JICA Japan International Cooperation Agency TIW Trade Information Website JBIC Japan Bank for International Cooperation TWG Technical Working Group JMI Joint Monitoring Indicator UNDP United Nations Development Program LASED Land Allocation for Social & Economic WFP World Food Program Development LDP Letter of Development Policy WTO World Trade Organization PREFACE This ICR covers the reforms supported by the first Poverty Reduction and Growth Operation (PRGO 1). This was the first in a planned series of three such operations. An ICR is typically prepared for the entire program. However, due to a long delay between PRGO 1 and the proposed follow-on PRGO 2, ICR guidelines for programmatic operations require that an ICR be prepared at this time for PRGO 1 alone. PRGO 1 was a one tranche operation supporting policy actions that had all taken place by the time the operation was approved by the World Bank Board on June 18, 2007. The operation was of a budget support type and was prepared jointly with the European Union (EU), Japanese International Cooperation Agency (JICA), and Department for International Development (DfID). The ICR was prepared by Peter Miovic (Consultant) under the guidance of Stephane Guimbert (ICR Task Leader). The ICR is based on a detailed desk review of materials from the project file, relevant documents of the EU, IMF and the World Bank, a field mission that took place in late May of 2010, and discussions with World Bank and Development Partner staff in Phnom Penh and Washington. The team is grateful to D. Adler, R. Carter, H. Chea, L. Chea, J. Clarke, A, Khiev, S. Ly, K. Sophorn, and R. Taliercio. A list of people interviewed in the field is given in Annex 5. CAMBODIA IMPLEMENTATION COMPLETION AND RESULTS REPORT POVERTY REDUCTION AND GROWTH OPERATION 1 (PRGO 1) TABLE OF CONTENTS DATA SHEET A. Basic Information ............................................................................................................ i B. Key Dates ........................................................................................................................ i C. Ratings Summary ............................................................................................................ i D. Sector and Theme Codes................................................................................................ ii E. Bank Staff ....................................................................................................................... ii F. Results Framework Analysis ......................................................................................... iii G. Ratings of Program Performance in ISRs ..................................................................... xi H. Restructuring ................................................................................................................ xi PROJECT 1. Program Context, Development Objectives and Design .................................................1 2. Key Factors Affecting Implementation and Outcomes ...................................................5 3. Assessment of Outcomes .................................................................................................9 4. Assessment of Risk to Development Outcome ..............................................................29 5. Assessment of Bank and Borrower Performance ..........................................................30 6. Lessons Learned.............................................................................................................32 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners................33 ANNEXES Annex 1. Bank Lending and Implementation Support/Supervision Processes..................35 Annex 2. Cambodia: PRGO Policy Matrix........................................................................37 Annex 3. Summary of Borrower's Comments on draft ICR .............................................47 Annex 4. Comments of Co-financiers and Other Partners/Stakeholders ...........................48 Annex 5. List of Persons Interviewed in Cambodia ..........................................................49 Annex 6. List of Supporting Documents ...........................................................................50 MAP IBRD 33381 CAMBODIA IMPLEMENTATION COMPLETION AND RESULTS REPORT POVERTY REDUCTION AND GROWTH OPERATION 1 (PRGO 1) DATA SHEET A. Basic Information First Poverty Reduction Country: Cambodia Program Name: and Growth Operation Program ID: P071103 L/C/TF Number(s): IDA-H3240 ICR Date: 11/16/2010 ICR Type: Core ICR KINGDOM OF Lending Instrument: DPL Borrower: CAMBODIA Original Total XDR 9.8M Disbursed Amount: XDR 9.8M Commitment: Revised Amount: XDR 9.8M Implementing Agencies: Ministry of Economy and Finance Cofinanciers and Other External Partners: UK Department for International Development (DFID) Swedish International Development Agency (SIDA) Australian Agency for International Development (AusAID) Canadian International Development Agency (CIDA) European Commission Japanese Government (JBIC) Spanish Cooperation B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/06/2005 Effectiveness: 09/12/2007 Appraisal: 02/15/2007 Restructuring(s): Approval: 07/17/2007 Mid-term Review: Closing: 04/15/2008 04/15/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Program Quality at Entry No None at any time (Yes/No): (QEA): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 37 37 General agriculture, fishing and forestry sector 31 31 General industry and trade sector 32 32 Theme Code (as % of total Bank financing) Administrative and civil service reform 13 13 Land administration and management 25 25 Personal and property rights 13 13 Public expenditure, financial management and procurement 25 25 Trade facilitation and market access 24 24 E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams James W. Adams Country Director: Annette Dixon Ian C. Porter Sector Manager: Mathew A. Verghis Kazi Mahbub-Al Matin Program Team Leader: Stephane Guimbert Robert R. Taliercio ICR Team Leader: Stephane Guimbert ICR Primary Author: Peter Miovic ii F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The operation's development objective is to support second generation growth and poverty reduction based on an improving business climate, higher agricultural productivity, and more effective public service delivery. The PRGO will support the next phase of policy and institutional reform required to maintain growth and accelerate poverty reduction by facilitating trade and diversifying exports, guaranteeing land tenure and increasing access to land for the rural poor, and making the budget a credible management tool and reducing fiduciary risk to public funds. The PRGO program would support outcomes that are driven by policy measures and expenditure policy, both of which are supported by the development partner community as necessary for underpinning medium term growth and accelerating poverty reduction. PRGO-1 features 10 prior actions across private sector development, public financial management, and land and natural resources management. Revised Program Development Objectives (if any, as approved by original approving authority) The PRGO program (2007-09) had three objectives: (a) To support a program of `second generation' growth and poverty reduction policies based on an improving business climate, more effective public service delivery, and higher agricultural productivity. The support to the reform agenda was identified as the program's main Development Objective (PDO). (b) To provide support for the reform agenda by focusing the policy dialogue on results and achievements. It also aimed to build on the reform momentum where political opportunity existed. (c) To harmonize and align development partner (DP) policy positions, build on agreed monitoring frameworks at the sectoral level, and provide financial support to the implementation of the NSDP. The first PRGO (a grant of US$15 million) was approved by the Board in July 2007. It was prepared jointly with the European Commission (EC), Japan, and the United Kingdom (each agency disbursed after PRGO 1 was approved by the Bank's Board). Each operation specified a set of triggers which, when met, were to provide the basis for proceeding with the next operation. Only the triggers for PRGO 1 have been fully met so far. The World Bank guidelines for an Implementation Completion Report (ICR) specify that an ICR be conducted for the entire series of operations. However, in cases where there has been an interruption of over 30 months between two operations, as has been the case between PRGO 1 (done) and PRGO 2 (not done), an ICR on PRGO 1 is required at this time. This ICR therefore focuses only on PRGO 1 although, where relevant, it is put into the context of the entire proposed PRGO program. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : % of declarations processed online through ASYCUDA Value (quantitative or 0 (2006) 80 (2010) 31 (July 2008) Qualitative) Date achieved 08/30/2006 08/31/2010 08/28/2008 Comments iii (incl. % achievement) Indicator 2 : Number of documentary requirements to clear imports Value (quantitative or 16 (2005) 3 (2010) 12 (2008) Qualitative) Date achieved 08/31/2005 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 3 : Days required to clear imports Value (quantitative or 4 (2005) 2 (2010) n/a (2008) Qualitative) Date achieved 08/31/2005 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 4 : Number of documentary requirements to clear exports Value (quantitative or 13 (2005) 3 (2010) 11 (2008) Qualitative) Date achieved 08/31/2005 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 5 : Days required to clear exports Value (quantitative or 3 (2005) 1 (2010) n/a (2008) Qualitative) Date achieved 08/31/2005 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 6 : Automatic issuance of statistics and revenue reports in GDCE Value (quantitative or None 100% (2010) None (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 7 : Inspection rate (total inspections by any agency as a share of declarations) Value (quantitative or 100% (2006) 25% or less (2010) 30% (early 2009) Qualitative) Date achieved 10/31/2006 08/31/2010 01/30/2009 iv Comments (incl. % achievement) Electronic submission of the volume of trade-related required forms, including Indicator 8 : Certificates of Origin, company registrations, trademark registrations, Camcontrol Certificates, and export licenses, through the Trade Information Gateway Value (quantitative or 0 (2006) 85% (2010) 0 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 9 : Per annum growth (%) in exports, excluding garments and oil Value (quantitative or 1.6 5 (2010) 10.2 (2007) Qualitative) Date achieved 08/30/2006 08/31/2010 08/30/2007 Comments (incl. % achievement) Indicator 10 : Percentage of transactions handled by OSSs in SEZs that are processed electronically Value (quantitative or 0 80% (2010) 0 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 10/31/2008 Comments (incl. % achievement) Indicator 11 : All company registrations at MOC provincial offices are completed electronically Value (quantitative or 10 days 4 days (2010) n/a (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 12 : Response time of CIB to investor enquiries is reduced Value (quantitative or 28 days 18 days (2010) n/a (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 13 : Issuance of judgments by a recognized arbitration center Value 0 (2006) 2 or more (2010) 0 (2009) (quantitative or v Qualitative) Date achieved 08/30/2006 08/31/2010 08/31/2009 Comments (incl. % achievement) Indicator 14 : Annual increase in tax revenue: 5% above real GDP growth plus inflation Value 5% above real (quantitative or 19% growth plus 36% (2008) Qualitative) inflation Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 15 : Annual increase in non-tax revenue 5% above real GDP growth plus inflation Value 5% above real (quantitative or 8.5% growth plus 13% (2008) Qualitative) inflation Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Post review carried out of a sample of at least 20% of the total number of contracts Indicator 16 : subject to post review in at least 50% of all procuring agencies in all provinces by 2009 Value (quantitative or 5% 20/50/100 (2010) n/a Qualitative) Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Indicator 17 : 50% of contracts with award information published (above agreed threshold) by 2009 Value (quantitative or 0 50% (2010) 0 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 08/29/2008 Comments (incl. % achievement) Quarterly cumulative expenditure commitment profile: Q1 15%, Q2 45%, Q3 67%, Indicator 18 : Q4 96% Q1 15% Q1 15% Q1 16% Value Q2 45% Q2 39% Q2 48% (quantitative or Q3 67% Q3 56% Q3 72% Qualitative) Q4 96% Q4 94% Q4 95% (2010) (2008) vi Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 19 : Execution rate to budget: salaries 98%, goods/services 95%, capital 80% 98% 92% Value 104% 95% 100% (quantitative or 108% 81% 83% Qualitative) 82% (2010) (2008) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 20 : Payments to creditors made by check: 85% by 2008 Value (quantitative or 41% at end-2006 85% (2010) 65% (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 21 : Payments to civil servants made through the banking system: Value (quantitative or 0% (2006) 20% (2010) n/a Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 22 : GDCE obligations paid by check/transfer at NBC: Value (quantitative or 0% (2005) 85% (2010) 63% Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) MEF's processing time for commitment and payment order approvals for procurement Indicator 23 : items reduced to an average of 15 working days by 2009 Value 30 working days in (quantitative or 46 working days in 2007 15 (2010) 2009 Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 24 : Number of ministries using program budgets: 7 in 2007 and 12 in 2009 vii Value (quantitative or 0 12 (2010) 7 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 25 : Integrated Capital and Recurrent Budget Ceilings adopted for Pilot Ministries Value (quantitative or 0 12 (2010) 7 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 26 : FMIS-generated budget execution reports prepared quarterly Value Manual reports issued 4-6 Manual reports and issued within 1 (quantitative or weeks after end of quarter issued 4-6 weeks week of the end of Qualitative) in 2007 after end of quarter quarter Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Internal audit reports issued regularly by at least 10 IADs to the management of the Indicator 27 : ministry, with copies to the MEF and the NAA Value (quantitative or 0 (2006) 10 or more (2010) 12 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 28 : Implementation of MBPI (ministries / civil servants) Value 1/300 (2008); (quantitative or 1/300 4/1500 (2010) expanded in 2009 Qualitative) and cancelled in 2010 Date achieved 08/30/2006 08/31/2010 08/31/2010 Comments (incl. % achievement) Cumulative total of 1 million titles surveyed and adjudicated; of these 800,000 titles Indicator 29 : are issued, and of these 760,000 titles are delivered to beneficiaries; at an average cost of less than US$30 per title Value 1,3 million (quantitative or 350,000 in 2006 1 million (2010) (titles issued Qualitative) June 10) (2008) Date achieved 08/30/2006 08/31/2010 12/31/2008 viii Comments (incl. % achievement) Indicator 30 : Communal titles issued for indigenous communities in 3 pilot villages Value 0 (in 2008; 3 nearing (quantitative or 0 in 2006 3 (2010) completion in 2010) Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Indicator 31 : Interim protective measures for indigenous lands implemented in 2 provinces 0 Value (12 villages reach (quantitative or 0 in 2006 2 provinces (2010) legal entity stage) Qualitative) (2008) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) 25,000 hectares of land, including 40% released from ELCs, are registered as state Indicator 32 : private land and made available for SLCs Value 4,861 ha registered (quantitative or 0 in 2006 25,000 ha (2010) (2008) Qualitative) Date achieved 08/30/2006 08/29/2010 12/31/2008 Comments (incl. % achievement) Indicator 33 : Minimum of 2,000 poor families are settled on SLCs Value 0 (quantitative or 0 (2006) 2,000 (575 families Qualitative) identified) Date achieved 08/30/2006 08/29/2010 12/31/2008 Comments (incl. % achievement) Indicator 34 : 5 state land maps and databases established Value (quantitative or 0 (2006) 5 (2010) 0 (2008) Qualitative) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Review of all ELCs greater than 10,000 has. completed, including any cancellations Indicator 35 : or reductions required by law, and results reported to public every 6 months ix Value Review ongoing. 2/9 Review completed (quantitative or 0 (2006) over size ELCs (2010) Qualitative) (2008) Date achieved 08/30/2006 08/31/2010 12/31/2008 Comments (incl. % achievement) Technical Secretariat for ELCs reports publicly and regularly on outcomes of Indicator 36 : concession review process concession review process Information on Value cancellation on (quantitative or n/a (2006) n/a (2010) MAFF website Qualitative) (2008) Date achieved 08/30/2006 08/29/2010 12/31/2008 Comments (incl. % achievement) 100% of communities managing forest areas have approved Community Forest Indicator 37 : Agreements and 25% have approved Community Forest Management Plans Value 4 CFAs completed (quantitative or 0/0 100/25 (2010) (2008) Qualitative) Date achieved 08/30/2006 08/29/2010 12/31/2008 Comments (incl. % achievement) Information on PAs and forests is available to the public and updated on a regular Indicator 38 : basis Value (quantitative or n/a n/a (2008) n/a Qualitative) Date achieved 08/30/2006 08/29/2010 08/29/2008 Comments (incl. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : All 38 indicators in the Program matrix recorded as PDO indicators Value (quantitative or n/a n/a n/a Qualitative) Date achieved 08/30/2006 08/29/2010 08/29/2010 Comments x (incl. % achievement) G. Ratings of Program Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 06/08/2008 Moderately Satisfactory Moderately Satisfactory 15.49 H. Restructuring (if any) Not Applicable xi 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance) Country Context At the time that the PRGO series was being prepared (late 2006/first half of 2007), Cambodia was in some ways still a post-conflict country. Although the Paris Peace Accords formally established a truce in 1991, politico-military violence continued until 1998. Important modern institutions of governance and public sector management, which had been weak post independence were decimated by the civil war and are still fragile despite state-building efforts of the past 20 years. The conflict contributed to weak governance and low capacity, which were the primary constraints on development in Cambodia in general and on the World Bank Group's program in particular. Having achieved peace and a degree of political stability, Cambodia achieved very high economic growth. Between 1998 and 2007, economic growth averaged 9.8 percent per year. There was a boom in the garment and construction sectors, some growth in agriculture yields, strong foreign investment in a number of areas, rapid growth of credit to the private sector, and a major increase in export earnings that allowed a build-up in international reserves and diminished dependence on foreign aid. These achievements were the result of the establishment of peace, good macroeconomic management, some structural reforms, and favorable location in a rapidly growing region. Economic growth was accompanied by social development, including a reduction in the poverty rate to near 30 percent by 2007, from an estimated 47 percent rate in 1994. Governance Context Improvements in policy making and implementation were vulnerable to being undermined by critical institutional weaknesses. Though public sector performance had improved in some sectors, the structures that delivered stability and growth were challenged to deliver more in terms of service delivery, business enabling environment, and sustainable management of natural resources. Overall the state institutions continued to be challenged by low levels of capacity and resources while the accountability of civil servants still remained unclear. Despite these difficulties, there had been clear progress in a number of key areas. The Royal Government of Cambodia (RGC) had developed an overarching national development strategy and began to pursue a broad agenda of reforms. The series of Poverty Reduction and Growth Operations (PRGO), the first of which is being assessed in this document, was designed to support RGC's reforms in three critically important areas: (i) Private Sector Development (PSD); (ii) Public Financial Management (PFM), including reforms to the civil service; and (iii) Land and Natural Resources Management (LNRM). The reforms were targeted at sustaining rapid growth, reinforcing the already existing trend to poverty reduction, and stopping the degradation of natural resources. In each area the reforms entailed elements of governance. The World Bank's rating system had begun to recognize improvements in Cambodia's development efforts. For the first time in many years, Cambodia's Country Policy and Institutional Assessment (CPIA) ratings showed consistent increases, with the overall rating increasing from 3.0 to 3.2 in 2005 and 2006. In comparison to 2004, the 2006 assessment found that economic management remained strong (at 3.5); the structural policy cluster rating increased from 2.8 to 3.2; the rating for policies for social inclusion and equity increased from 3.0 to 3.3; and public sector management and institutions cluster rating, while still relatively weak, increased from 2.5 to 2.7. As a result, Cambodia's overall CPIA rating increased to 3.2, just under the IDA average of 3.3. The reform efforts that led to the improved ratings were a major achievement. Economic Context Cambodia's real GDP grew by 10.8 percent in 2006, following an unprecedented 13.5 percent growth rate in 2005, marking the third consecutive year of double digit growth. The stellar performance was driven by garment exports, tourism receipts, significant growth in foreign direct investment (FDI), the continuing construction boom, and robust crop expansion in agriculture. Agriculture continued to be a crucial sector for the economy, accounting for some 60 percent of total employment and growing by 5.5 percent in 2006. The expectation in mid-2007 was that rapid growth would continue although perhaps not at the double digit rates of recent years. Garment exports were expected to face increasingly stronger competition from Vietnam after its accession to the World Trade Organization (WTO) and from China once US quotas were removed. The export base was considered narrow and therefore vulnerable to shocks. On the other hand, there were hopes that recent successes in oil and gas exploration would turn into production by 2010-11 which would boost growth, but if poorly managed, also carry with it dangers of "Dutch disease" (see below). External developments were also positive in 2006. Despite pressure from high world oil prices, the balance of payments improved and gross international reserves expanded by 20 percent to US$1.1 billion. FDI continued its upward trend reaching US$475 million. Consumer price inflation declined to 2.8 percent (from 5.9 percent in 2005). The consumer price index was expected to remain low (below 5 percent) for 2007 and, given continued prudent fiscal and monetary policies, the Riel was expected to remain stable both in terms of dollars and in terms of other partner country currencies. The fiscal front saw some improvement in 2006 as the ratio of tax revenue to GDP grew modestly from 7.6 percent in 2005 to an estimated 8.0 percent in 2006. As a share of GDP non- tax revenue remained constant at 2.3 percent. Expenditure was estimated to have remained steady at 13.5 percent of GDP in 2006 but greater emphasis continued to be put on the social sectors. Total capital spending was estimated to have increased modestly to 5.6 percent of GDP. In 2007 the overall budget balance was anticipated to be stable at around -3.2 percent of GDP (excluding grants). Similarly, the financial sector saw some improvement in 2006, although some management vulnerabilities remained. Combined deposits (in Riel and foreign currency) of banks operating in Cambodia rose by 43 percent and the lending-to-deposit ratio continued to trend upward. There were 20 banks operating in Cambodia, up from 18 at the end of 2005. There were, however, some concerns about the soundness of some of the banks. Cambodia also remained a highly dollarized economy with nearly 75 percent of broad money and 97 percent of the banking deposits made in US dollars. The commercial interest rate was high at around 16.3 percent per annum in a relatively low inflation environment. External debt constituted nearly 95 percent of Cambodia's total public debt. At end-2006, Cambodia's total external public debt was US$2.25 billion (31 percent of GDP; 22 percent of GDP in 2 net present value (NPV) terms), while domestic debt amounted to 2.0 percent of GDP. It should be noted that Cambodia's relatively high debt stock was largely due to the historical legacy of borrowing from the US and the former USSR. The RGC has tried to negotiate debt rescheduling agreements with both these countries, but the efforts have so far been unsuccessful. In December 2005 Cambodia met the International Monetary Fund (IMF/Fund) criteria for the Multilateral Debt Relief Initiative, which resulted in debt relief of US$82 million. The joint IMF/Bank debt sustainability analysis (DSA) concluded that Cambodia's debt was on a sustainable path and that the risk of debt distress was moderate. In addition to having low debt-to-GDP ratios, debt servicing was also very limited (at 4 percent of revenues). The macroeconomic framework was, however, vulnerable to the weak revenue base in the short to medium term. The major opportunity, but also potential challenge, to Cambodia's medium to long term growth was the discovery of significant amounts of offshore petroleum. According to the Cambodian National Petroleum Authority (CNPA), the precise amounts of oil and natural gas in Block A are not known, although Chevron had had some success with its exploratory wells. Block A, operated by Chevron, is in the most advanced stage of operation. Discovery of commercial quantity of petroleum is expected to be declared in 2010 leading to production of first oil by the end of 2012. Both the staffs of the Bank and the Fund had concluded that Cambodia's macroeconomic policy framework was appropriate and sustainable. The Fund's 2007 Article IV mission strongly supported the RGC's macroeconomic and structural reform agenda. Nevertheless, the proposed Poverty Reduction and Growth Facility (PRGF) was delayed due to a lack of resolution of the US and Russian debt negotiations. However, in the short to medium term, the delay of the PRGF was not expected to jeopardize macroeconomic stability or the attainment of the economic development objectives of the proposed program (Annex 4 of the PRGO 1 Program Document, WB (2007)). The Proposed Series of Poverty Reduction and Growth Operations (PRGO) The principal purpose of the proposed Poverty Reduction and Growth Operation (PRGO) program (2007-09) was to provide support for the implementation of RGC's "good governance" reform program. The reform program was laid out in RGC's National Strategic Development Plan (NSDP) (see RGC (2005)). The NSDP endeavored to operationalize the Government's "Rectangular Strategy for Growth, Employment, Equity and Efficiency" (RS), adopted in July 2004. The RS proposed to improve governance by: (i) fighting corruption; (ii) pursuing specific legal and judicial reforms; (iii) reforming public administration; and (iv) deepening decentralization and de-concentration. The World Bank's 2005 Country Assistance Strategy (CAS) followed the RS by recognizing governance issues as the primary obstacle to growth, poverty reduction, and aid effectiveness in Cambodia. It also laid the basis for selecting the reform areas to be supported under the PRGO program. The PRGO program (2007-09) had three objectives: (d) To support a program of `second generation' growth and poverty reduction policies based on an improving business climate, more effective public service delivery, and higher agricultural productivity. The support to the reform agenda was identified as the program's main Development Objective (PDO). 3 (e) To provide support for the reform agenda by focusing the policy dialogue on results and achievements. It also aimed to build on the reform momentum where political opportunity existed. (f) To harmonize and align development partner (DP) policy positions, build on agreed monitoring frameworks at the sectoral level, and provide financial support to the implementation of the NSDP. The first PRGO (a grant of US$15 million) was approved by the Board in July 2007. It was prepared jointly with the European Commission (EC), Japan, and the United Kingdom (each agency disbursed after PRGO 1 was approved by the Bank's Board). Each operation specified a set of triggers which, when met, were to provide the basis for proceeding with the next operation. Only the triggers for PRGO 1 have been fully met so far. The World Bank guidelines for an Implementation Completion and Results Report (ICR) specify that an ICR be conducted for the entire series of operations. However, in cases where there has been an interruption of over 30 months between two operations, as has been the case between PRGO 1 (done) and PRGO 2 (not done), an ICR on PRGO 1 is required at this time. This ICR therefore focuses only on PRGO 1 although, where relevant, it is put into the context of the entire proposed PRGO program. Analytical Base for the Proposed PRGO Program and its Relationship to other Bank Operations The proposed reform program incorporated the finding and recommendations of a range of recent and ongoing lending, analytical and advisory services from the Bank. Details on these are provided in Section 2.2 below. 1.2 Original Program Development Objective (PDO) and Key Indicators (as approved) PRGO's Program Development Objective was to support `second generation' growth and poverty reduction based on an improving business climate, more effective public service delivery, and higher agricultural productivity. Policies leading to an improved business climate, more effective public service delivery, and higher agricultural productivity were arranged under three broad reform areas: Private Sector Development; Public Financial Management, including Civil Service Reform; and Land and Natural Resource Management. Key Performance Indicators (KPIs) that were to be tracked in order to assess the success of the program are presented in the last column of the PRGO Policy Matrix (Annex 2), along with their baseline values. They comprise a subset of what are called Joint Monitoring Indicators (JMIs), tracked jointly by the RGC and DPs. This is done on a periodic basis within thematic Technical Working Groups (TWGs, of which there are almost 20). 1.3 Revised PDO and Key Indicators, and Reasons/Justification The PDO was not revised. 1.4 Original Policy Areas Supported by the Program (as approved) 4 There were ten Prior Actions carried out before PRGO 1 was approved by the Board, grouped under the three broad policy areas previously mentioned. They are presented in Table 1 below. 1.5 Revised Policy Areas (if applicable) Policy areas were not revised. 1.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) There were no significant changes in the design, scope and scale, implementation arrangements and schedule, or funding allocations. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance (supported by a table derived from the policy matrix) This section assesses Program Performance from a legal point of view. Section 3 contains a discussion and assessment of Program Performance from the point of view of outcomes. PRGO 1 was a one tranche operation. All conditions were met (Prior Actions taken ­ see Table 1) by the time the operation was approved by the Board on July 17, 2007. The operation was made effective on September 12, 2007, the tranche of US$15 million was disbursed a month later and the operation was closed on April 15, 2008. Table 1: Summary of PRGO 1 Prior Actions and their Status in June 2007 PRGO-1 Prior Actions Status in June 2007 Private Sector Development 1. Issuance of Prime Ministerial Order (PMO) requiring Achieved: The PMO has been issued, and the SAD all relevant agencies to define their critical data needs was prepared and its technical configuration and for the adoption of a single administrative document layout have been completed. (SAD) 2. Issue a sub-decree and implementing regulations on Achieved: The sub-decree was issued. The risk trade facilitation through a risk management approach management strategy is now being implemented to inspections and clearance of imports and exports of jointly with ASYCUDA. goods 3. Adopt sub-decrees establishing Special Economic Achieved: The sub-decrees were issued and an SEZ Zones (SEZs) and an SEZ Board in the Council for Board established. the Development of Cambodia (CDC) Public Financial Management 4. Fortify decentralized procurement by strengthening Achieved: The Prakas on the Implementation of the 1995 procurement sub-decree and the 1998 Deconcentrated Public Procurement was issued on implementing regulations to promote economy, January 3, 2005 and an amended 1995 sub-decree on efficiency, and transparency Public Procurement was issued on October 18, 2006. The corresponding revised 1998 implementing rules and regulations were issued on January 31, 2007. 5. Develop and implement first phase of new transaction Achieved: The first phase of streamlined execution processes from budget release to commitment in procedures was adopted by the Ministry of Economy and Finance (MEF) via a circular and a Prakas, and 5 order to streamline budget execution became effective January 2007. 6. Increase reliance on the banking system for tax and Achieved: The Prakas mandating that all customs customs payments, and for RGC payments to and excise duties be paid by check at the National creditors and civil servants via transfer and/or check Bank of Cambodia (NBC) in Phnom Penh and Sihanoukville was adopted in December 2004 (and complemented by a clarifying instruction in March 2007). Achieved: The order for Treasury to pay all suppliers by check or transfer in Phnom Penh and Sihanoukville took effect September 1, 2006 (for all payments). Achieved: The pilot program to pay civil servants by transfer to private commercial bank accounts began in August 2006 for nearly 300 staff in MEF and Ministry of Health (MOH). 7. Introduce an official merit-based pay and Achieved: The MEF Merit-Based Performance employment reform pilot in MEF in support of the Incentive (MBPI) was introduced in August 2005. Public Financial Management Reform Program (PFMRP) Land and Natural Resources Management 8. The Council of Ministers (COM) to adopt a sub- Achieved: Sub-decree adopted in 2005 and Prakas in decree on State Land Management including 2006. participation of local communities in mapping and land use planning, as well as open public access at provincial level to register of state land use information and issues implementing regulations 9. COM adopts Sub-decree on Economic Land Achieved: Sub-decree adopted and the ELC Concessions (ELCs) that includes provisions for Technical Secretariat was established in June 2006. resolution with local communities of issues of prior However, there are concerns about the quality of occupancy/use of lands and classification of land to implementing regulations with respect to exclude forests and protected areas transparency issues, but a time-bound concession review process associated with public information provision has been triggered. 10. Establish a mechanism and periodically disseminate Achieved: Mechanism to disseminate information on information on Economic Land Concessions ELCs has been established and is being updated periodically. Available at http://maff.gov.kh/elc/. 2.2 Major Factors Affecting Implementation: Governance Issues. While all Prior Actions for PRGO 1 were, by definition, taken before the operation was approved by the Board, they covered very difficult areas and sustaining implementation has been challenging. Perhaps the hardest were the measures related to land and natural resources management. With rapid growth, interests in land and other natural resources for (often large-scale) commercial use intensified. Land concessions for logging, mining, plantation agriculture and construction (in more urbanized areas), often overlapped with the interests of people who needed land and forests for their livelihoods, and conflicts arose. On the other hand, the focus on regulatory reform and transparency in PRGO I actions (in particular in land and natural resources management) left difficult questions relating to implementation open. The Merit-Based Pay Initiative (MBPI, later renamed to Merit-Based Performance Incentives) also proved troublesome as its asymmetric approach challenged equity within the civil service (a risk that materialized as the 6 scheme was eventually cancelled late 2009, see below). Finally, the automation and consolidation of business processes in customs also potentially challenged past practices and opportunities created by cumbersome processes. Collaboration with the IMF. The Bank and Fund staffs collaborated closely on the proposed PRGO series. Bank and Fund teams ensured that the proposed conditionalities (and structural policy aims in the Article IV consultations) were complementary and mutually reinforcing. As indicated, the PRGF did not go forward due to unfinished discussions regarding the rescheduling of official debt owed by Cambodia to the US and the former USSR. The IMF has continued with its regular program of Article IV consultations and other missions. Based on that, it provided a favorable assessment of Cambodia's macroeconomic environment (see Annex 4 of the PRGO 1 Board document). An adequate macroeconomic environment is a necessary pre-condition for a budget support operation such as the PRGO. Collaboration with other Development Partners. The PRGO is cofinanced by 4 DPs, working in partnership with a broader group of DPs. After PRGO 1 was approved by IDA's Board in July 2007 the Japanese Government signed a JBIC loan for JPN¥1 billion (around US$8.5 million at March 2008 exchange rates). The European Commission (EC) approved a contribution of 22.2 million for the period 2007-10 (plus 0.72 million for complementary technical assistance (TA) to support building RGC's statistical capacity, and 0.18 million for the operations' evaluation). The first annual disbursement equal to 5 million (around $7 million) was disbursed in December 2007. DFID (UK) approved a £7.5 million program over 3 years (plus £200,000 complementary TA funds). The first disbursement of £1.5m (around US$3 million) was made in March 2008. In addition, AusAid, CIDA, SIDA, and the Spanish Cooperation have been closely engaged in the process. In total, US$31 million of budget support funds have been disbursed in support of PRGO 1. Analytical Underpinnings and Relationship to Other Bank Operations Each broad reform area of the PRGO program is underpinned by analytical work and supported by complementary operations (Table 2). This complementary also reflects the fact that the PRGO supports the pillars of the CAS. In many cases, these complementary products were supported (or even led, as in the case of the FY08 Diagnostic Trade Integration Strategy) by other DPs. Analytical work has played a catalytic role in identifying key issues, designing policy options, and mobilizing stakeholders to design a reform strategy. At the same time, complementary TA and investment operations were necessary to ensure implementation of the RGC's reform program. Given RGC's weak implementation capacity, these projects typically had a strong capacity building component. In turn, the PRGOs addressed high-level policy changes and cross-sectoral issues that were important in creating an enabling environment for the investment projects. In the area of Private Sector Development, the 2004 Investment Climate Assessment (ICA) was a key input to the design of the Bank's US$10 million Trade Facilitation and Competitiveness Project. The project focuses on trade facilitation, export promotion, fostering private participation in infrastructure, and legal transparency. In 2007, the Bank participated in a multi-donor effort led by the UNDP to update the Diagnostic for Trade Integration Strategy. In 2008, further analytical work was undertaken to update the ICA and study Cambodia's sources of growth. This was complemented by a strong collaboration with the International Finance Corporation (IFC), including its Mekong Private Sector Development Facility, which supports Government-private sector dialogue, business enabling environment, financial sector reform, and sectoral developments (micro-finance, agro- business, and tourism). 7 In the area of Public Financial Management, the 2003 Integrated Fiduciary Assessment and Public Expenditure Review, which was followed in 2004 by the Country Procurement Assessment Report (CPAR, 2004) and in 2006 and 2007 by Public Expenditure Tracking Surveys (PETS) in education and health, served as important inputs to the RGC's PFM Reform Program (PFMRP). A major PFMRP Stage 2 planning exercise was undertaken with a multi-donor review mission in November 2007. In FY06, IDA approved a US$14 million grant for the Public Financial Management and Accountability Project, with the objective of strengthening: (i) the mobilization of public resources; (ii) the management of public resources; (iii) the management of human resources; and (iv) external audit capacity. The project focuses on revenue management, budget formulation and execution, capacity development, and external audit. The project is cofinanced by a US$17 million Multi-Donor PFM Trust Fund, managed by the Bank, and supported by AusAID, DFID, EC, and SIDA. Table 2: Analytical Underpinnings and Relationship to Other Bank Operations Reform Area Analytical Underpinnings Investment projects Private Sector Investment Climate Assessments Trade Facilitation and Competitiveness Development (FY04, FY09) Project (FY05) Diagnostic Trade Integration Strategy Multi Donor Trust Fund for Trade-Related (FY02, FY08) Assistance (FY09 with EC, DANIDA and UNIDO) Public Financial Integrated Fiduciary Assessment and Multi-Donor Trust Fund (FY05, with Management and Public Expenditure Review (FY04) AusAid, DFID, EC, and SIDA) Civil Service Education and Health Public Public Finance Management and Reform Expenditure Tracking Surveys (FY05 Accountability Project (FY06) and FY08) PFM Stage 2 Multi Donor Review Mission (FY07) Land and Natural Poverty and Social Impact Assessment Land Management and Administration Resource (FY04) Project (FY02, with Germany, Finland, and Management Rural Sector Strategy Note (FY05) Canada) Environment Monitor (FY08) Land for Social and Economic Development Agrarian Structure Study (FY08) Project (FY08, with Germany) Strategic Partnership Framework for Livelihoods Support Program (FY07, with Natural Resources Management Denmark, and UK) (FY08) Biodiversity and Protected Areas Forest Law Enforcement and Management Project (FY02, with IDA and Governance (FY09) GEF funding) Community Forestry JSDF (FY07) Demand for Good Governance (FY09) In the area of Land and Natural Resource Management, a Poverty and Social Impact Analysis (2004) was carried out in support of plans to implement a program of social land concessions, a Rural Sector Strategy Note (2005) establishes a broad framework to explore options for Cambodia's future directions for rural development, and an Agrarian Structure Study (FY08) deepened the analysis on the role of various models of land distribution and farm sizes in the development of commercial agriculture. A series of Environment Monitors helped raise the awareness on some of the major environmental challenges of the country (such as the conservation of Cambodia's exceptional bio-diversity). The Justice for the Poor AAA program (FY 05-07) threw light on issues relating to land disputes and dispute resolution. The Strategic Partnership Framework for Natural Resources Management, prepared by the World Bank, identifies cross-cutting as well as sub-sector specific 8 actions needed to progress towards Cambodia's broader socio-economic objectives. In FY02 IDA approved the US$24 million Land Management and Administration Project (LMAP) to improve land tenure security and promote the development of efficient land markets through: (i) development of policies and institutions for land administration; (ii) issuance and registration of titles; and (iii) establishment of an efficient and transparent land administration system. In FY08, IDA approved a US$11.5 million Land Allocation for Social and Economic Development (LASED) Project which supports RGC's efforts in the area of social land concessions. Other donors also provided funds to strengthen community forestry, support biodiversity and protected areas (PAs), and encourage civil society engagement in the implementation of social land concessions. The PRGO also links to the World Bank's engagement on the demand-side of governance, one of the CAS pillars. Increasing support for demand-side approaches to good governance ­ involving the broader constituencies for reform; e.g. citizens, youth, media, Parliament, private sector, NGOs, DPs, etc ­ complemented the reform program supported by the PRGOs (e.g. progress towards transparency in PFM and LNRM). A US$2 million grant was mobilized in 2006 to build capacity of the civil society in the area of social accountability. A Demand for Good Governance Project to strengthen the accountability of state and non-state institutions was approved by the Board in January 2009 (US$20 million). 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The main reform areas were presented in the PRGO Policy Matrix which specifies policy actions to be taken, and performance indicators (with baseline values and targets to be reached by the end of the program series). Targets to be reached were almost always quantified. The indicators were a subset of the JMIs which are also tracked within the thematic TWG. The set of indicators and targets was further refined during implementation (with technical inputs from an EC- funded analysis) to improve the quality of the PRGO program and define a methodology for impact evaluation. The PRGO program also supported the monitoring of the NSDP and has been helping with statistical capacity development. Together with DFID, Swedish Statistics, and the UNDP, the Bank supports the Ministry of Planning and the National Institute of Statistics. PRGO monitoring was based on continuous dialogue with government counterparts to assess progress and bottlenecks. With most team members in the Phnom Penh office, synergies with complementary TA projects and analytical work, and close coordination with field office staff of DFID, EC and JBIC (through JBIC Bangkok and JICA Cambodia Offices at that time), monitoring was done on a relatively continuous basis. In March 2008, an EC-funded consultant supported the team in improving the monitoring framework and drafted a methodology for end-of-program evaluation. 2.4 Expected Next Phase/Follow-up Operation (if any): Dialogue has been continuing on the preparation of a follow-up operation (PRGO 2). Future Development Policy Operations were envisaged as part of the CAS Progress Report submitted to the Bank's Board in 2008. 3. Assessment of Outcomes 9 3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The PRGO program (2007-09) had three objectives (see Section 1.1): Objective 1 was the main PDO. Policy actions to support the achievement of that objective were grouped into three broad reform areas: (i) Private Sector Development aimed at improving the business climate; (ii) Public Financial Management in order to improve public service delivery; and (iii) Land and Natural Resource Management which, by devising a legal framework and procedures to allocate land as equitably as possible to a range of users, would raise agricultural productivity (including, sustainable management of forests). In each of the areas, there were policy actions that were aimed at the improvement of various aspects of governance. Policy actions in the three broad reform areas were chosen in line with the Government's NSDP, the Bank's CAS (which was aligned with the NSDP, but with a focus on selective areas covered in the PRGO series) and in discussion with the DPs that were cofinancing the PRGO, other DPs and representatives of civil society (especially in the LNRM areas). The policy actions chosen were relevant, based on evidence obtained through a series of analytical reports and supported in almost every case with TA projects with strong capacity building components (see section 2.2). Each reform area was monitored both in terms of process through various levels of dialogue with the Government and through a series of quantified JMIs. Tables 5 through 7 in Section 3.2 summarize the reform areas covered, policy actions taken in each area and, to the extent possible, the performance indicator measures of outcomes. Prior actions for PRGO 1 are also discussed in the Letter of Development Policy (LDP) accompanying the PRGO 1 Program Document (Annex 1, WB (2007)) where they are related to the relevant aspects of the Government's RS. They are also laid out in full detail in the PRGO Policy Matrix in Annex 2 of this ICR. Objective 2. The PRGO Policy Matrix contains nearly 40 performance indicators, virtually all quantified, to allow the RGC, DPs and civil society to track progress over time. The selection of reform areas to be supported built on the reform momentum in these areas. One could argue about the strength of the momentum in the LMRN area, but given that some 90 percent of Cambodia's population live in the countryside, that 70 percent of all the poor derive their living from agriculture, and that job creation in rural areas will remain important for the years to come (given the size of the non-agricultural private sector) to absorb the surplus rural population, the PRGO took a calculated risk by entering into some politically and technically thorny issues in land and natural resources. Transparency in extractive industries and the asymmetric approach to civil service reform were other complex risk areas. Objective 3. The PRGO program was, in part, meant to be an instrument for the harmonization of DP policy positions, as well as a test to see whether budget support (in tandem with TA support in each reform area) would improve aid effectiveness, It was also to gradually tie into the budget cycle of the government. The selection of performance indicators from among the existing JMIs was also meant to improve DP alignment with the government. Given the fragmented nature of aid in Cambodia and the RGC's leadership in aid effectiveness (under the Council for the Development of Cambodia); this was a highly relevant objective for PRGO. 10 3.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by operations and outcomes) Overall Program Development Objectives and macroeconomic framework: Cambodia's macroeconomic framework was conducive to growth during 2007 and 2008. The economy grew strongly in 2007 and at a somewhat more subdued rate in 2008. Gross investment, led by private investment, continued to grow as a proportion of (strongly growing) GDP which suggests that private investors found the business environment sufficiently conducive. FDI was particularly strong in 2007/2008 (almost 10 percent of GDP in 2007). The one weak point was a pick-up in inflation in late 2007 and the first half of 2008, largely driven by a world-wide boom in commodity prices, including oil, the price of which at one point exceeded US$100 a barrel. This supply-driven inflation was observed in many countries around the world but not at the level of Cambodia's. This reflected a combination of domestically-generated overheating pressures and weakness of the monetary instruments due to the extreme dollarization of the economy. Still, Cambodia was able to keep the nominal exchange rate steady which meant a strong appreciation of the real exchange rate (of the Riel) in 2008. The main PDO of PRGO 1 was aimed at improving the business environment and agricultural productivity in the medium term. Thus, almost by design it could not have had much of an impact on macroeconomic outcomes in 2007 and 2008. Those were mainly due to the momentum built up in the past few years. There were three PRGO performance indicators at the macro level: (i) growth continuing at the rate of at least 7 percent a year: achieved; (ii) maintaining debt sustainability and moderate risk of debt distress: achieved (see IMF 2009, Annex of DSA); and (iii) poverty reduction in accordance with the Cambodia Millennium Development Goals (CMDGs): unknown but likely. While data on the CMDGs is not yet available, the continued rapid growth in 2008 is likely to have translated into higher employment and reduced poverty rates. Higher prices of food have increased vulnerabilities but have also created opportunities for poorer farmers (those that are net producers of rice in particular). The translation of growth to other MDGs is more indirect but, except in rare cases, growth (through higher revenues and therefore expenditures) tends to be beneficial to most outcomes that depend on service delivery. The one area that could have been impacted negatively is that of natural resources, which tend to get depleted if growth depends strongly on their exploitation for commercial purposes. The NLRM reform area in the PRGO is trying to help the RGC put in place legal frameworks and policies that would mitigate that. Table 3: Economic Indicators Output and Prices 2005 2006 2007 2008 Real GDP growth (%) 13.3 10.8 10.2 6.7 GDP per capita (US$) 479 544 640 776 GDP (million US$) 6,288 7,246 8,690 10, 700 Gross Fixed Invest (% of GDP) 18.5 20.6 20.8 19.5 o/w Private Investment 10.5 14.9 14.7 13.7 CPI Inflation (%)--end of period 6.7 4.2 14.0 12.5 Exchange Rate (Riels per US$) 4,097 4,109 4,032 4,042 Sources: NIS, MEF, IMF, Bank Staff. A prudent fiscal framework (see Table 4) was continued during PRGO 1. Revenues, although low (by international standards) as a percentage of GDP were well in excess of current expenditures throughout the period covered in Table 4. This enabled the RGC to have capital expenditures 11 amounting to about 6 percent of GDP and still be able to set money aside for reserves (cash deposits with NBC that could be drawn on in case of emergency). This was due mainly to strong grant and (net) foreign financing inflows, of which budget support from PRGO 1 during 2007 represented less than 10 percent. The flipside of Cambodia's fiscal prudence is that, at 14 percent of GDP, the expenditure envelope might be too tight to accommodate adequate support for service delivery areas such as education, health and the judiciary (needed to improve governance). This partly reflects capacity constraints, but is a challenge that the Cambodian authorities face in mobilizing more domestic revenues (through improvements in tax administration, new taxes or reductions in tax concessions to foreign investors which are substantial). Future budget support operations may wish to look at the tight fiscal space more closely as the authorities develop estimates of the levels of support that Cambodia could productively absorb in the key identified service delivery areas. Table 4: Fiscal Framework 2001 2002 2003 2004 2005 2006 2007 2008 Billion Riels Domestic revenue 1,601 1,825 1,815 2,220 2,722 3,395 4,226 5,575 of w hich central gov ernment 1,530 1,744 1,765 2,127 2,625 3,259 4,021 5,292 Tax 1,097 1,227 1,220 1,577 1,911 2,271 3,206 4,243 Non tax 424 501 513 530 563 638 806 970 Others 81 98 82 113 248 486 214 362 Expenditures 2,587 3,043 3,042 3,080 3,584 4,259 5,249 6,764 Recurrent 1,416 1,575 1,758 1,746 1,967 2,367 2,874 3,774 Wage 509 587 615 640 711 822 1,058 1,438 Non-w age 907 988 1,143 1,106 1,256 1,545 1,816 2,336 Prov incial ex penditure 70 80 85 110 130 181 252 335 Capital 1,101 1,388 1,199 1,225 1,486 1,712 2,123 2,654 Deficit (w/o grants) -930 -1,203 -1,055 -881 -898 -1,034 -1,082 -1,272 Financing 931 1,203 1,055 881 898 1,034 1,082 1,271 Domestic 41 -47 84 -44 -387 -407 -730 -1,109 Ex ternal 889 1,249 971 925 1,285 1,442 1,811 2,380 Budget support 54 178 139 45 120 138 181 282 Project aid 839 1,079 891 905 1,203 1,359 1,693 2,201 Debt amortization -4 -8 -59 -25 -38 -55 -63 -102 % GDP Domestic revenue 10.2 10.9 9.8 10.4 10.6 11.4 12.1 13.3 Tax 7.0 7.3 6.6 7.4 7.4 7.6 9.1 10.1 Expenditures 16.5 18.1 16.4 14.4 13.9 14.3 15.0 16.1 Recurrent 9.1 9.4 9.5 8.1 7.6 7.9 8.2 9.0 Wage 3.3 3.5 3.3 3.0 2.8 2.8 3.0 3.4 Non-w age 5.8 5.9 6.2 5.2 4.9 5.2 5.2 5.6 Prov incial ex penditure 0.4 0.5 0.5 0.5 0.5 0.6 0.7 0.8 Capital 7.0 8.3 6.5 5.7 5.8 5.7 6.1 6.3 Deficit (w/o grants) -6.0 -7.2 -5.7 -4.1 -3.5 -3.5 -3.1 -3.0 Financing 6.0 7.2 5.7 4.1 3.5 3.5 3.1 3.0 Domestic 0.3 -0.3 0.5 -0.2 -1.5 -1.4 -2.1 -2.6 Ex ternal 5.7 7.4 5.2 4.3 5.0 4.8 5.2 5.7 Budget support 0.3 1.1 0.8 0.2 0.5 0.5 0.5 0.7 Project aid 5.4 6.4 4.8 4.2 4.7 4.6 4.8 5.2 Debt amortization 0.0 0.0 -0.3 -0.1 -0.1 -0.2 -0.2 -0.2 Sources: Ministry of Economy and Finance 12 Reform Program Outcomes in the policy area of Private Sector Development (PSD) The RS and the NSDP placed PSD at the center of the reform agenda. By the time that the PRGO series was being designed, Cambodia had already put in place a number of measures to improve the business environment. In the policy area of PSD, the PRGO series aimed at improving reform program outcomes in three areas: (i) facilitating trade and improving transparency and accountability of all trade-related procedures; (ii) increasing the volume of exports and diversifying the export base; and (iii) increasing domestic and foreign private investment, including in infrastructure. The three reform program outcome areas are marked in bold in the first column of Table 5 below (an excerpt from the PRGO Operation Policy Matrix). PSD reform program outcome areas (i) facilitating trade and improving transparency and accountability of all trade-related procedures; and (ii) increasing the volume of exports and diversifying the export base. The first challenge to successfully attain these outcomes was to continue to make progress on the regulatory and institutional front. On the regulatory side, the Customs Law was enacted in 2007 and a first batch of supporting regulations has since been adopted. The ASEAN Harmonized Trade Tariffs were introduced in July 2007, further reducing tariffs. On the institutional front, the Ministry of Commerce (MOC was restructured in 2007, in order to pave the way for future performance related incentives). A well designed risk management strategy was expected to reduce the number of containers that are physically opened, while improving control. After the issuance of a sub-decree on risk management in March 2006, progress has been made in a number of areas. First, a Risk Management and Audit Office was created and staffed in the General Department of Customs and Excise (GDCE). Second, progress was made in implementing a risk-based approach at the border: (i) a list of prohibited and restricted goods has been agreed (and its length has been rationalized); (ii) service level agreements between the relevant agencies were drafted (although there were significant delays before their finalization in 2009 and 2010); (iii) standard operating procedures have been agreed; and (iv) a Traders' Credibility Management System has been established to profile traders through risk indicators and selectivity criteria and the system has been linked to ASYCUDA. Computerization of Cambodia's customs system was expected to facilitate business for traders, improve security through better screening and risk management, enhance revenue collection and reduce the opportunities for rent seeking. Although there was a delay in implementation, an important milestone was met in May 2008 with the launch of the ASYCUDA system in the Port of Sihanoukville. With the expansion to the Phnom Penh dry ports and international airport, half of the declarations are now lodged through the ASYCUDA system. A Steering Committee was created in June 2008 to manage the development of the Single Window. The Ministry of Commerce (MOC) is preparing a master plan to computerize its operations, in order to be able to link its trade-related processes to the Trade Information Website. The GDCE is considering introducing a fee to finance the operation and maintenance of ASYCUDA. This may offer an opportunity to review fees across trade-related processes. 13 Table 5: Reform Program Outcomes in Private Sector Development Performance Indicators Reform Program Outcomes Indicator Base 2008 Target (2010) PRIVATE SECTOR DEVELOPMENT Facilitate trade, and improve % of declarations processed 0 (2006) 31 80 transparency and accountability of online through ASYCUDA (July all trade-related procedures: 2008) 1. Trade facilitation agencies reduce Number of documentary 16 12 3 clearance times and costs to traders requirements to clear imports (2005) Days required to clear imports 4 (2005) n/a 2 Number of documentary 13 11 3 requirements to clear exports (2005) Days required to clear exports 3 (2005) n/a 1 Automatic issuance of statistics None None 100% and revenue reports in GDCE Inspection rate (total inspections 100% 30% 25% or by any agency as a share of (2006) (early less declarations) 2009) 2. Transparency of trade-related Electronic submission of the 0 (2006) 0 85% processes and accountability of civil volume of trade-related required servants in trade-related functions are forms, including Certificates of improved Origin, company registrations, trademark registrations, Camcontrol Certificates, and export licenses, through the Trade Information Gateway Increase volume of exports and Per annum growth (%) in 1.6 10.2 5 diversify export base exports, excluding garments and (2007) oil Percentage of transactions 0 0 80% handled by OSSs in SEZs that are processed electronically All company registrations at 10 days n/a 4 days MOC provincial offices are completed electronically 14 Increase domestic and foreign Response time of CIB to 28 days n/a 18 days private investment, including in investor enquiries is reduced infrastructure: 1. Reduced uncertainty over investment procedures and approval processes, and enhance confidence in Cambodia as a destination for FDI Issuance of judgments by a 0 0 2 or 2. Greater private participation in recognized arbitration center (2006) (2009) more infrastructure (PPI) in the public interest through fair, transparent, and competitive procedures Simpler and more transparent documentary requirements would facilitate trade. First, a Single Administrative Document (SAD) was implemented in its manual version in January 2008. Its electronic version was subsequently implemented with ASYCUDA. The SAD simplifies and standardizes the documentary requirements for imports and exports. Second, the MOC has significantly enhanced the volume of information available to businesses and traders. A number of regulations and processes were posted on the MOC website. An export booklet was prepared and disseminated by the RGC and the private sector. The MOC has also started to design a Trade Information Website (TIW) to enable the publication of trade-related information. Progress was visible by 2009. Time for imports at the Phnom Penh International Airport had dropped from 3 days for imports (2 days for exports) in June 2005 to a few hours by late 2009, and, at the Port of Sihanoukville, from 5 days for imports (2 for exports) in June 2005 to 3-4 days by late 2009. ASYCUDA was functioning in the Port of Sihanoukville: during the first 9 months of 2009, for example, less than 20 percent were physically inspected (red channel), with the rest going through either yellow or blue channel. Performance indicators in Table 5 above reflect these findings. Outcomes in PSD reform program outcome areas (i) and (ii) are thus judged to be satisfactory (see Table 5 above). PSD reform program outcomes in area (iii) increasing domestic and foreign private investment, including in infrastructure. A number of regulatory and administrative requirements were considered to be detrimental to private investment. The "Doing Business Indicators" suggest that regulatory requirements remain high. As a result the RGC has taken several actions. The amendments to the Law on Investment and the associated regulations brought critical improvements to the process of foreign investments and the role of the Cambodia Investment Board (CIB). In 2006, an investment guidebook for investors was issued for the first time in the country. In 2007, a Handbook on Commercial Registration was produced to help entrepreneurs understand the process to setup a business, a new commercial registry was established at MOC, the decentralization of business registration was piloted in the province of Battambang, a business licensing hotline was launched, and a one-stop information window was created to provide information on all licenses affecting Small and Medium Enterprises (SMEs). Commercial arbitration has been identified as a key issue for the investment climate. A Law on Commercial Arbitration was enacted by the National Assembly (NA) in 2006, paving the way for the creation of an independent Arbitration Center. The subsequent approval of an implementing sub- decree and recruitment of a first batch of arbitrators pave the way for initial implementation in 2010. 15 The number of judgments issued by such a center was to be an indicator of performance later in the PRGO series. Progress in facilitating Private Participation in Infrastructure (PPI) in an effective and transparent way is critical. The Law on Concessions was enacted by the NA in 2007, an important milestone for PRGO 1. Adoption of the sub-decree for its implementation should facilitate the implementation of sound PPI principles, such as the disclosure of concessions. Nevertheless progress in 2008-10 toward that objective has been limited, with the sub-decree not approved yet. Finally, the RGC has embarked on a policy to create Special Economic Zones (SEZ) in addition to its efforts to facilitate necessary infrastructure development. First, the legal and regulatory framework, now based on a 2005 sub-decree, was reviewed based on the implementation experience. Second, services offered by the SEZ need continued improvement. One Stop Services (OSS) have been introduced in the first operational SEZ in Bavet and in other SEZs in the future. Third, a troubleshooting committee has been created and is considered as effective in quickly addressing problems identified by SEZ-based firms. Progress in all the areas was on track, with the exception of PPI. Outcomes in PSD reform program outcome area (iii) is considered to be moderately satisfactory. Reform Program Outcomes in the policy area of Public Financial Management The RGC has placed PFM reform squarely on its development and poverty reduction agendas. Weaknesses in the public expenditure and financial management system not only have high costs in terms of allocative and operational efficiency but also create unacceptably high levels of fiduciary risk to public funds. The critical test of a public expenditure management system is its ability to deliver a predictable and timely flow of funds to the spending agencies. The cash-based payments system was a major constraint to the achievement of this objective. Due to cash constraints, budget execution suffered from delays and an unpredictable release of funds, undermining operational planning, and leading to the build-up of arrears. The system was plagued by gate-keeping and deficient accounting and reporting systems, thus leading to a weak control environment and increasing opportunities for corruption. Beyond PFM, one of the other major reasons for low quality public services in Cambodia was the absence of an effective system of incentives and accountability mechanisms in the civil service. Weak merit-based civil service management and low pay were the leading causes of Cambodia's relatively poor standing on public sector performance. A strategically sequenced civil service reform needed to be initiated in the short term and carried out over the medium term. The reform program needed to take a broad approach to strengthening civil service management, by introducing a merit-based system that guaranteed that human resource expenditures were subject to controls (viz., on hiring and promotion) and were fully integrated with the budget formulation process. Wages of the civil servants had to be raised, in order, to attract and retain skilled staff, especially for high level management and priority sector staff. In response to these challenges, the RGC formulated a ten-year Public Financial Management Reform Program (PFMRP), launched by the Prime Minister in December 2004. Supported by the PRGO series, it focuses on four development objectives: (i) ensuring that the budget is realistic and implemented as intended in a predictable manner; (ii) implementing the policy agenda through a comprehensive, orderly and transparent budget process; (iii) improving accountability and internal 16 control systems to strengthen compliance and transparency in the mobilization and use of public resources; and (iv) motivating civil servants through an incentive system managed according to meritocratic principles and procedures. The four reform program outcome areas are marked in bold in the first column of Table 6 below. PFMRP outcomes in area (i) ensuring that budget is realistic and implemented as intended in a predictable manner. A realistic budget depends on a strong revenue base which, in turn, depends on effective collection of revenues. Cambodia has one of the lowest revenue to GDP ratios among developing countries. A good portion of the revenues in the past came from import tariffs. As the economy opened up, this source of revenues declined. The economy's rapid growth was also stretching the capacity of the tax administration. In 2008, the MEF adopted an overarching resource mobilization policy. This policy sought to progressively increase the revenue to GDP ratio to above 12.5 percent by 2010 and clarified RGC's intent in the area of extractive industry taxation and non-tax revenues. The MEF has also produced an approach paper for debt management policy. A related issue was to maximize revenues from extractive industries and manage them effectively and transparently. At the time PRGO 1 went to the Board, there was a prospect of a major increase in revenues from the extraction of oil, gas, or mining resources. In 2007/08, the RGC studied various options for the fiscal regime of petroleum production and revenue management. Amendments to the Tax Law for the petroleum sector were prepared. The MEF prepared a paper on oil revenue management options, including oil funds, stressing key principles of transparency and budget integration. The RGC analyzed the pros and cons of implementing the Extractive Industry Transparency Initiative (EITI). Given continued uncertainty of available resources, the RGC decided to give priority to: (i) building its capacity to administer revenue policies in the sector; (ii) strengthening fiscal transparency through regular disclosure of quarterly fiscal reports identifying revenues from extractive industries; and (iii) improving accountability through better information- sharing and discussion mechanisms (within the RGC and with civil society). An action plan to implement this approach was approved and regular public fiscal reports started to incorporate information on revenues from extractive industries in 2009. Increasing RGC's reliance on the banking system would improve expenditure management and revenue collection. The past system, relying on cash payments and transfers, is very ineffective and vulnerable to leakages. On the salary side, bank transfers have been piloted since August 2006. In 2007, the pilot was expanded to all civil servants in Phnom Penh with a salary of 400,000 Riels or above (around US$100) and to all civil servants in Sihanoukville and Siem Reap with a salary of 200,000 Riels or above. Payments to creditors made by check increased from 41 percent in 2006 to 63 percent in 2008. GDCE obligations paid by check rose to 63 percent by 2006. Banking arrangements were heavily fragmented, in part a reflection of poor aid practices including the establishment of parallel bank accounts (the RGC closed some 760 of its accounts in 2007/08). Weak procurement practices contribute to ineffectiveness of the PFM system (as evidenced for instance by the 2006 INT investigations, which led to the hiring of an IPA for all IDA investment operations). First, the regulatory framework needed to be further upgraded. The RGC took major steps in 2005-07 to strengthen it, including the adoption of a sub-decree to modernize the Implementing Rules and Regulations (IRRs), which now provide greater clarity about roles and accountabilities and increase transparency. Second, efforts to build capacity and redefine MEF's role, as a steward of public procurement, stalled in 2008, in part due to the focus on the IPA. 17 Finally, budget execution processes need streamlining. The complexities in this area contributed both to delays in implementing the budget (and gaps between budgets and actuals, which eroded the credibility of the budget) and opportunities for rent-seeking. A first phase of streamlining was implemented in January 2007, simplifying many processes (for salary payments, non-procurement items, and petty cash), revamping commitment processes, and beginning the process of relocating financial controllers to line ministries. As a result, MEF's processing time for commitment and payment order approvals for procurement items has been reduced from 46 to 30 working days. Further streamlining will depend on the implementation of the Financial Management Information System (FMIS). Table 6: Reform Program Outcomes in Public Financial Management Performance Indicators Reform Program Outcomes Target Indicator Base 2008 (2010) PUBLIC FINANCIAL MANAGEMENT Ensure budget is realistic and Annual increase in tax revenue: 19% 36% 5% -- implemented as intended in a 5% above real GDP growth plus above predictable manner: inflation real growth plus inflation 1. Budget holders commit Annual increase in non-tax 8.5% 13% 5% expenditure in line with budgets revenue 5% above real GDP above and cash flow plans growth plus inflation real growth plus inflation 2. Reduced procurement delays in Post review carried out of a 5% n/a 20/50/1 the context of a more efficient and sample of at least 20% of the 00 transparent system total number of contracts subject to post review in at least 50% of all procuring agencies in all provinces by 2009 3. Oil revenue management 50% of contracts with award 0 0 50% framework, including endorsement information published (above of Extractive Industries agreed threshold) by 2009 Transparency Initiative (EITI), put in place 18 Quarterly cumulative Q1 16% Q1 15% Q1 15% expenditure commitment profile: Q2 48% Q2 39% Q2 45% Q1 15%, Q2 45%, Q3 67%, Q4 Q3 72% Q3 56% Q3 67% 96% Q4 95% Q4 94% Q4 96% Execution rate to budget: 104% 92% 98% salaries 98%, goods/services 108% 100% 95% 95%, capital 80% 82% 83% 81% Payments to creditors made by 41% at 65% 85% check: 85% by 2008 end-2006 Payments to civil servants made 0% in n/a 20% through the banking system 2006 GDCE obligations paid by 0% in 63% 85% check/transfer at NBC 2005 MEF's processing time for 46 n/a 15 commitment and payment order working approvals for procurement items days in reduced to an average of 15 2007 working days by 2009 Policy agenda implemented Number of ministries using 0 7 12 through a comprehensive, program budgets: 7 in 2007 and orderly and transparent budget 12 in 2009 process, including better control Integrated Capital and Recurrent 0 7 12 of the civil service establishment Budget Ceilings adopted for Pilot Ministries Improved accountability and FMIS-generated budget Manual ditto prepared internal control systems result in execution reports reports quarterly strengthened compliance and issued 4-6 and weeks issued transparency in the mobilization after end within 1 and use of public resources: of quarter week of in 2007 the end 1. More reliable data produced and of it is more effectively reported quarter Internal audit reports issued 0 in 12 10 or 2. Government budget managers regularly by at least 10 IADs to 2006 more are held accountable for their the management of the ministry, management of public funds. with copies to the MEF and the NAA Civil service Civil servants are motivated by Implementation of MBPI 1/300 1/300 4/1500 an effective incentive system and (ministries / civil servants) (2008); are managed according to cancelled meritocratic principles and in 2010 procedures: 1. Civil service pay is increasingly adequate to attract and retain the requisite skills 2. Civil servants are increasingly managed according to merit- and performance-based criteria 19 Progress in areas of budget realism was positive. Outcomes in PFMRP outcome area (i) are considered to be satisfactory. PFMRP outcomes in area (ii) ensuring that the policy agenda is implemented through a comprehensive, orderly and transparent budget process, including better control of the civil service establishment. The quality of the budget preparation process has improved. Although the PFMRP recognizes this as a medium term issue (a prerequisite is to improve the realism of budget implementation and the quality of reporting), a number of initiatives are under way. First, the organization of the budget cycle has been restructured to allow for a strategic phase early in the year (with the preparation and discussion of a medium term expenditure framework), followed by line ministries' submissions of Budget Strategy Plans (BSPs), budget negotiations, and the finalization of the budget for submission to the NA. Second, the MEF has introduced program budgeting in 7 pilot ministries. Together with the new chart of accounts and budget classification structure, BSPs and program budgets will enhance the policy content of the budget. However, the approach remains limited as programs currently cover only non-salary recurrent spending. Despite some improvement, the budget continues to lack integration. Dual budgeting is evident from budget preparation to budget execution, with different processes for the recurrent and the capital budgets and different departments leading the process both in MEF and in line ministries. The issue is compounded by aid practices. Some progress has been made in terms of reporting and, since 2010, through a breakdown of the "domestically-financed" capital budget by main ministries. Linkages between the budget and civil service management remain weak. At the time that PRGO 1 was being prepared, the payroll and the establishment control was being managed by the Council for Administrative Reform (CAR), with little coordination with MEF at the time of budget preparation. In 2008, some progress was made through an improved flow of information for budget preparation. The adoption of a fiscally sustainable pay reform would further enhance the linkages between the budget and civil service management (see below). Progress on the program budgeting side was on track, while the implementation of budget integration and linkages between the budget and civil service management are moving slowly. Outcomes in PFMRP outcome area (ii) are judged to be moderately satisfactory. PFMRP outcomes in area (iii) improving accountability and internal control systems in order to strengthen compliance and transparency in the mobilization and use of public resources The RGC intends to automate and improve data management, accounting, and reporting. Since 2006, a number of preparatory steps have been taken to enable the implementation of a Financial Management Information System (FMIS), including mapping out principles, roles, responsibilities, and business processes for a more de-concentrated PFM system. Progress in 2007 was slower than initially anticipated; nevertheless experience from other countries emphasizes the need to put the right conditions in place before embarking on an FMIS project. A number of these conditions have seen been put in place (and the second stage of the bidding process has been initiated): (i) approval of an FMIS policy paper; (ii) review of roles and responsibilities, principles, business processes, and controls included in revised FMIS specifications; (iii) recruitment of 10 ICT specialists (currently undergoing training); (iv) recruitment of 10 business analysts (underway); and (v) deployment of a 20 team of FMIS experts to support FMIS implementation (ICT, functional, change management, and legal experts). Internal and external audits are important for strengthening accountability. While 26 Internal Audit Departments (IADs), including a coordinating IAD in MEF, were created in 2006, only 23 were operational by mid-2010 and they were producing regular reports. The MEF is developing its capacity to manage and oversee these IADs. In Nov 2009 and Apr/May 2010, MEF reviewed a strategic plan for internal audit and internal audit modalities. On the external audit side, the National Audit Authority (NAA) produced reports of the annual accounts of the 2005 was tabled to the NA in 2007. By law (2000 Audit Law), the report issued by the Auditor-General shall be deemed to be public document (Article 29) unless the report affects the public interest and the legal business (Article 37 and 38). A major development was the release in 2009 of the first annual audit report covering the fiscal year 2006. Progress on developing the FMIS was good, although slower than expected. Development of the audit functions could have been stronger. While considerably more progress in the audit area occurred by early 2010, it is not appropriate to count it as an outcome of PRGO 1. On balance, the outcomes in PFMRP outcome area (iii) are judged to be satisfactory. PFMRP outcomes in area (iv) motivating civil servants through an effective incentive system and managing them according to meritocratic principles and procedures. The RGC has recognized the critical role of an effective system of incentives and accountability mechanisms in the civil service. Weak merit-based civil service, low pay, and pervasive corruption are the leading causes of Cambodia's relatively poor standing on public sector performance. These issues were compounded by the practice of uncoordinated salary supplements by DPs. CSR has been discussed in Cambodia for more than a decade: some progress had been made in rationalizing the civil service and raising general pay levels, but decompressing salaries and introducing merit and performance-based practices remained challenging. The situation resulted in the introduction of a targeting scheme, the MBPI, which sought to provide better salaries for key public officials, rationalize salary supplements (which are rampant in Cambodia), and introduce the notion of merit- based selection (into the scheme) and performance evaluation (each person selected would sign a contract which included expected performance targets). The risks associated with the approach ­ including risks of inequitable or ring-fenced coverage, inherent to an asymmetric scheme, and risks of poor sustainability (with sustainability based on a fiscal transfer onto Government funding which was very gradual) ­ were recognized upfront. When PRGO 1 was being prepared, the scheme had already been introduced into the MEF and the Minister of Commerce had requested that the Bank work with him on introducing it into the MOC. There were also discussions in progress on introducing it into the MOH. In April 2008, the RGC passed Sub-Decree 29 to amend Sub-Decree 98, which had created the MBPI. These amendments created a unified scheme that could be used in all ministries with development programs. It was based on the MBPI and incorporated its key principles (merit-based selection and evaluation, complaint mechanisms, sustainability, etc.). The approach was supported by an effort from DPs to rationalize salary supplementation schemes and enhance coordination and transparency. Under the leadership of the Council for Administrative Reform, a number of the shortcomings identified from the pilot stage were addressed. 21 In parallel, the RGC started developing the framework for a comprehensive reform. In recent years, the RGC had implemented across-the-board pay increases to reduce the gap between public sector and private sector wage levels. Yet, these increases were neither creating the necessary decompression of the pay scales, nor introducing better performance management practices. This led to the start of a more determined longer term effort to redesign and sustainably fund a multi-stage reform of the civil service. A draft National Program for Administrative Reform was prepared in 2009 and a number of human resource management policies are nearing completion. However, the MBPI (as well as the related Priority Mission Group schemes, and all forms of salary supplements) was terminated at the end of 2009. Concerns gradually emerged about the divisive nature of an asymmetric scheme. The RGC has now put forward a two-track approach, with an interim scheme ("Priority Operating Costs") to support in the short-term the implementation of reform programs, and, in parallel, a compensation reform as part of the broader National Program for Administrative Reform. Progress on developing solutions to capacity constraints in the civil service was there for a while but, at the time of writing, seems to have been unsustainable. It presents a dilemma that is fairly common in developing countries with a weak civil service. Such countries badly need to improve the capacities of their civil service, yet there are virtually no success stories to use as "models". The MBPI was to be an interim solution while the groundwork was being laid for the reform of the entire civil service. Unfortunately, it proved to be unsustainable. The PFM reform program outcome in area (iv) is thus judged as unsatisfactory. But, there may be a silver lining to this unsatisfactory experience. The policy dialogue after the cancellation of the MBPI, the MBPI experience itself, which introduced merit-based practices in some programs, the RGC / DP consensus to stop all forms of ad hoc salary supplements, and the Council of Administrative Reform's National Program for Administrative Reform may pave the way for more robust outcomes in the area of civil service reform in the future. Reform Program Outcomes in the policy area of Land and Natural Resources Management The RGC has indicated that stewardship of natural resources and secure access to land are of vital importance to Cambodia's rural majority, yet major governance constraints--rooted in non-transparent processes, a lack of public accountability, and complex historical legacies-- undermine the use of natural resources for pro-poor growth and poverty reduction. The key document that reflects RGC's position in this area is the Statement on Land Policy approved by the COM in May 2001. The Statement identifies three objectives for a pro-poor, pro-growth land policy to: (i) strengthen land tenure security and land markets, and prevent or resolve land disputes; (ii) manage natural resources in an equitable, sustainable, and efficient manner; and (iii) promote land distribution with equity. The RGC has acknowledged past and current abuses of natural resource management, and is taking an approach to reform that reflects the challenges of competing interests within and outside government. Given this context, the RGC, in the years since 2001, has focused on completing the legal framework, establishing delivery systems for key services required to establish a more transparent and participatory approach to land and natural resources management and, where necessary, piloting implementation of the delivery systems to build implementation capacity and feed back into the development of the regulatory framework. This approach has facilitated incremental reform, but has not yet effectively reduced pressures on land and natural resources. 22 The Land Policy objectives respond to the need to increase agricultural productivity by addressing landlessness and tenure insecurity. The proportion of rural households lacking land for cultivation has trended upward, from 13 percent in 1997 to 20 percent in 2004. While the major causes of landlessness are population growth and low agricultural productivity, transfers of state lands (including those occupied by the poor) to powerful interests is worsening the situation. At the same time tenure insecurity weakens the agriculture sector's ability to underpin broad-based growth and poverty reduction (World Bank, 2006). Thus, improving the administration and management of land and natural resources is vital for increasing agricultural productivity, which lags in Cambodia in regional comparison, and reducing social conflict. In order to implement the policy statement, the RGC enacted a new Land Law, established the Council for Land Policy (CLP), and mobilized DP financing. The new Land Law was passed in 2001 following an extensive consultation process. The CLP was established to coordinate Government agencies involved in land resources management. Steps taken by the RGC in the months preceding the preparation of PRGO 1 suggested a degree of momentum on L&NRM issues. It: (i) passed a Sub-Decree on state land management requiring that state land be registered prior to transaction; (ii) prepared a draft Sub-Decree on Land and Property Acquisition and Addressing Socio-Economic Impacts Caused by State Development Projects, setting out procedures for public appropriation of privately owned land (including limitations on the instances in which land can be expropriated and frameworks for deciding on compensation); and (iii) worked with GTZ and the World Bank to conduct a review of the functioning of the Cadastral Commission (completed in 2006) providing a series of recommendations for improving its performance. During this time the RGC also completed its first mapping and registration of state lands--a key element of improving overall state land management--in the context of allocation of land to the poor through social land concessions. The PRGO series built on these steps in order to support the implementation of key elements of the RGC's land policy strategic framework, so that improved utilization of land resources could support sustainable growth and poverty reduction. The actions proposed in PRGO were supportive of the Strategic Framework for Natural Resources Management (NRM) under discussion at the time. The draft NRM framework emphasizes increased transparency, decentralization and local empowerment, and partnership as the basis for moving from a situation of high conflict and minimal public benefits to one which increases both local and national public benefits and increases collaboration amongst state actors and state and private entities in the protection and use of natural resources. The areas of PRGO focus--titling and dispute resolution, decentralized state land management, increased transparency of state land utilization and land distribution, expanding use of participatory approaches to natural resources management, and demarcation of production and protection forests--potentially represent the basis for implementing a substantial shift in the governance of land and natural resources in favor of local communities and the poor as well as increasing public accountability. The PRGO series supporting RGC's reform program in the policy area of LNRM is focused on improving reform program outcomes in two broad areas: (i) accelerating the distribution of land and the issuance of secure land titles; and (ii) improving the management of state land. The two reform program outcome areas are marked in bold in the first column of Table 7 below. 23 LNRM reform program outcomes in area (i) accelerating the distribution of land and the issuance of secure land titles Security of tenure for private land must be ensured. First, with support from the LMAP, an improved process of land registration and title issuance is now in place. As of June 2008 1.18 million plots had been surveyed, 988,000 plots had been adjudicated, and 856,000 titles had been issued, although concerns exist in relation to the process for deciding whether households are lawful possessors and how they should be treated if they are not. To accelerate the process, the Ministry of Land Management Urban Planning and Construction (MLMUPC) issued a Prakas to authorize provincial governors to sign off on cadastral maps as the basis for title issuance. This has been implemented in 15 out of 24 provinces. Second, the RGC has discussed adjusting the incentives for formal registration as the pace of land transfers especially in urban areas is increasing due to land speculation, with concerns that subsequent transactions are not properly registered in the cadastre. Third, Cadastral Commissions (CC) and a National Authority for the Resolution of Land Disputes (NARLD) were established (in 2003 and 2006 respectively) to resolve land disputes. CC performance has improved gradually, even though resolving more complex or high-profile disputes will remain an issue absent a stronger judiciary. The basis for tenure security should be extended to those not covered by individual titles, indigenous communities in particular. Despite some progress in setting up the legal framework for titling land belonging to indigenous communities, these groups remain acutely tenure insecure and progress needs to be accelerated on this front. In 2007, a Policy on the Registration of Indigenous Community Land was developed by the Council for Land Policy (CLP) and disseminated for public review and comment. A Sub-Decree on the same subject was prepared in 2008 and adopted in 2009. The titling of land for these communities follows a two-step process: (i) the Ministry of Interior (MoI) registers indigenous communities as legal entities (12 had been registered by mid-2010 and 15 were expected to be registered by the end of 2010); then (ii) MLMUPC leads the demarcation and registration of community land (three pilot villages in Ratanakiri and Mondulkiri were coming close to completing that process by mid-2010). Finally, some efforts have been made to take measures to prevent the alienation of land prior to titling (most notably by the Governor of Mondulkiri who issued a December 2008 order to cease land transactions in one village that had reached the stage of legal entity registration). Progress to secure land for indigenous communities has however been slow, owing to the complexity of the task of generating consensus and creating by-laws for communities and the many public agencies involve in the process, while in parallel economic pressures on land, including that of indigenous communities, have been increasing. The RGC's Social Land Concession (SLC) policy is important for the landless poor. To facilitate the allocation of land to poor people, the RGC is implementing its SLC program with the support of the WB and GTZ funded Land Allocation for Social and Economic Development (LASED) project in Kampong Cham, Kompong Thom, and Kratie Provinces. Progress has been made in these provinces to distribute land, with the land use and allocation plan already approved for 745 families in Kratie and Kompong Cham (an allocation plan has been approved in Kompong Thom and beneficiaries are now being selected). The program seems to have generated substantial interest since, at the time of the interviews for this report; the author was shown a long list of communities applying for the SLC land allocation program. 24 Progress in land allocation and issuance of secure land titles has been strong in the case of securing private land titles of the existing land owners, while progress to allocate land to the landless and the titling of indigenous people's community lands has been slow but positive. On balance, the outcomes in the LNRM reform program outcome area (i) are satisfactory. It is however noted that the design of the program did not fully address part of this reform program outcomes, namely "resolution of land disputes quickly and transparently". In the design, no performance indicator specifically monitored this outcome and only one milestone was directly related to it. As noted above, despite a gradual improvement in CC performance, progress in the speed and transparency of land dispute resolution has been limited. LNRM reform program outcomes in area (ii) management of state lands through transparent, participatory mechanisms, including review and check on commercial contracts and concession agreements on natural resources and state assets. Mapping of state land, together with better management procedures for state land are important issues. The legal and regulatory framework, which sets processes for public participation and transparency in management of state land, was put in place in 2005/06. In March 2007, the first registration of state land was completed, following a process that is generally seen as appropriate in the context of the SLC pilot in Kratie Province. This was supported by follow-up work on SLCs and forestry demarcation. However, there remain ambiguities in the legal framework and in inter-agency management regarding the mapping, demarcation, and management of land, Economic Land Concessions (ELCs), forests, and PAs. Recent years have seen a continuation in evictions and episodes of violent land conflict, in Phnom Penh, other important urban areas and in rural areas. The issue is attributable in part to the high rate of economic growth and rapidly escalating land prices throughout the country. Table 7: Reform Program Outcomes in Land and Natural Resources Management Performance Indicators Reform Program Outcomes Target Indicator Base 2008 (2010) Land and Natural Resources Management Ensure an environment conducive Cumulative total of 1 million titles 350,00 1,3 million 1 million to private sector participation in surveyed and adjudicated; of these 0 in (titles agricultural sector enterprises (by 800,000 titles are issued, and of 2006 issued accelerating the distribution of these 760,000 titles are delivered June 10) land and the issuance of secure to beneficiaries; at an average cost land titles): of less than US$30 per title 0 (3 1. Extension of tenure security by Communal titles issued for 0 in nearing 3 plot registration and land titling indigenous communities in 3 pilot 2006 completion with greater community villages in 2010) participation 2 2. Resolution of land disputes Interim protective measures for 0 in 0 quickly and transparently indigenous lands implemented in 2006 (12 villages 2 provinces reach legal entity stage) 25 3. Commune based social land 25,000 hectares of land, including 0 in 4,861 ha 25,000 concessions (SLCs) leading to 40% released from ELCs, are 2006 registered titling integrated into majority of registered as state private land and standard commune/sangkat made available for SLCs development plans Minimum of 2,000 poor families 0 in 0 (575 2000 are settled on SLCs 2006 families identified) Management of state lands 5 state land maps and databases 0 in 0 5 through transparent, established 2006 participatory mechanisms, including review and check on Review of all ELCs greater than 0 in Review Review commercial contracts and 10,000 has. completed, including 2006 ongoing. complete concession agreements on any cancellations or reductions 2/9 over d natural resources and state required by law, and results size ELCs assets: reported to public every 6 months cancelled 1. Legal framework defining Technical Secretariat for ELCs n/a Information n/a procedures for mapping, reports publicly and regularly on on MAFF allocating, and managing state outcomes of website. lands in place concession review process 2. Greater public access to 100% of communities managing 0/0 4 CFAs 100/25 information forest areas have approved completed on location and use of state lands Community Forest Agreements and 25% have approved Community Forest Management Plans 3. Improve forest management Information on PAs and forests is n/a through increased transparency, available to the public and participatory demarcation of updated on a regular basis forest boundaries, strengthened protected areas management and improved/expanded community forestry Another challenge was how to improve the situation with regard to ELCs. This requires that their allocation is based on effective land assessment, local consultation, formal registration of boundaries, competitive bidding and effective resolution of disputes with / compensation of existing land users. An ELC Sub-Decree was signed in 2005 to improve the legal and regulatory framework. In 2007/08, progress was made in the area of transparency, through the disclosure and regular update of a list of ELCs on the website of Ministry of Agriculture, Fisheries, and Forestry (MAFF). In addition, MAFF reports that seven ELCs, each exceeding the 10,000 ha limit under the Land Law, have been reviewed and appropriate action consistent with Chapter 6 of the sub-decree on ELCs to reduce or cancel is being taken. According to company profiles published in the MAFF website, as of April 2010, two ELCs above 10,000 ha had been cancelled; five ELCs were still active but with negotiations completed negotiation; and two were still under negotiations. An important further step was taken in September 2008, banning the allocation of smaller ELCs by provincial authorities (the implementation of the processes mandated by the sub-decree for these ELCs proved difficult to monitor). Beyond the issue of ELCs that exceed the statutory limit of 10,000 ha, full enforcement of the ELC sub-decree remains a challenge (e.g. to implement consultation process prior to land allocation; or to ensure investment actually occurs). 26 The issue of forest and PA management, balancing the objectives of biodiversity conservation and economic development, remains controversial. First, in the forestry sector, in 2007/08, the Forest Administration (FA) piloted forest boundary demarcation (592 kilometers of state forest land boundaries and 17 PAs have been demarcated). The experience with forest demarcation as well as state land mapping and registration, PA demarcation, mining demarcation and establishment of fishing lots and other processes related to state land demarcation, would provide lessons on how to improve both efficiency and multi-stakeholder participation and resolution of claims by local communities. Second as of April 2010 4 community forestry agreements had been completed with a further 175 potential forestry communities identified. Eleven Community Protected Areas have also been approved. Finally, with respect to bio-diversity and conservation, a PA Law was enacted in 2008. Progress was made in the demarcation of forests and PAs, the development of the regulatory framework for state land management, the coverage of community forestry and in the provision of public available information about ELCs. However, though significant areas of ELC have been cancelled, the area granted in new ELCs increased year on year in 2008 and 2009 and it is not clear that regulatory capacity is keeping pace with demand. Progress on state land management (e.g. toward state land maps) has been limited. The outcomes in the LNRM reform program outcome area (ii) are moderately unsatisfactory. 3.3 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs) Overall Rating: Moderately Satisfactory With the support of the PRGO program, Cambodia made significant progress towards achieving the PDOs and a range of associated outcome goals, suggesting a satisfactory rating. However, the proposed rating reflects the more limited progress in some areas (e.g. state land) and the uncertainty on the sustainability of progress in other areas (e.g. civil service reform). In terms of the three objectives discussed in Section 3.1 above: Objective 1. The PRGO program was carefully aligned with RGC's RS and NSDP. These in turn were reflected in the Bank's CAS and finally in the areas supported under the program. The key in choosing the areas to be supported under the PRGO program was selectivity. There were and are many potential areas that could have benefited from policy reforms in Cambodia. There was a severe shortage of electric power (which in addition is very expensive), roads needed repair and rehabilitation, and education and health were under-resourced. Yet, instead of focusing on these service delivery areas, the PRGO selected three areas that would sustain growth and service delivery in the longer run as certain aspects of governance were addressed first. That meant for example, changing regulations that impeded business development, fixing PFM systems to provide budgetary and revenue tools that would eventually improve service delivery as well as reduce fiduciary risks, and creating the institutions and capacities that would lead to more equitable access to land and other natural resources and encourage their efficient yet sustainable use. The selection of areas to support was apt, the proposed reform actions were credible and the various triggers and milestones robust, with perhaps a few exceptions (e.g. the likely success of MBPI down the road, or the difficulties in adjudicating and registering communal lands, or how difficult it would be to implement a fair and transparent oil and gas revenue regime had production come on stream as expected in mid-2007). The overall average across reform program outcomes is moderately satisfactory. This reflects a balance between various successes across most reform areas and the 27 difficulty and long-term nature of the challenges that were being addressed in areas such as civil service reform and the adjudication and registration of indigenous people's lands. These were also two areas where outcomes were less than satisfactory. The unsatisfactory rating of the MBPI scheme in large part reflects the situation at the time of writing, and therefore may suffer to some extent from a hindsight bias. The moderately unsatisfactory rating pertains to the area of the state land management. Objective 2. The objective was to focus the policy dialogue on results and achievements, and to build on the reform momentum where political opportunity existed. The PRGO Policy Matrix contains nearly 40 performance indicators, virtually all quantified, to allow the Government, the DPs and the civil society to track progress over time. The indicators were chosen from among a larger group of so-called Joint Monitoring Indicators (JMIs). They were plausible and did help focus attention on achieving the agreed targets. In preparation for PRGO 2, there was an EC-supported effort to re-examine the indicators for the relevance, availability, frequency and other attributes and recommendations were made for possible adjustments. In terms of "political opportunity", the MEF was a strong champion of the PFMRP as well as conducting a prudent fiscal policy. It, along with the CAR, was acutely aware of the need to provide incentives to and build capacity of the civil service. CDC and MOC had a strong interest in improving the environment for private investment and facilitating trade. The area of land and natural resources was more diffusing with many potential actors, at times at cross purposes. Further engagement on the PRGO series, in 2009/10, also suggests a moderately satisfactory momentum. At the time of the pre-appraisal mission for PRGO 2, the Task Team Leader prepared a set of one page assessments for each of the 10 Prior Actions (triggers) and 20 milestones. Each page stated what the action or the milestone was, how it would be measured, what evidence would be needed for the Government and DPs to be satisfied that the action was indeed taken and/or the milestone passed, and a brief comment as to the likelihood and timing of achieving the Policy Action/milestone. These assessments suggested good progress--even beyond what was envisaged under PRGO 1--implying that PRGO 1 was achieving satisfactory outcomes. Of the ten Policy Actions that the one pagers assessed, two had been carried out by the time of the mission (March 2008), six were well on the way, and two were proving challenging. On the milestones side, six had been achieved, eleven were close to being achieved and three were lagging. Objective 3. The process of preparing and implementing the PRGO series has had a significant impact on further harmonization of DP policy positions. The success of aligning budgetary support with the Government's cycle, however, has been elusive, not least because PRGO 2 has not yet been taken to the Board almost two years after originally envisioned. The Government cannot build donor budget support into its proposed budgetary expenditures, unless they are certain they will receive it. The DPs on the other hand are supporting various ministries with TA and investment projects, with much of that support benefiting NSDP processes. The fact that the PRGO monitoring system was built on Government's pre-existing JMI's and existing sectoral TWGs was highly relevant, even though the quality of monitoring was uneven across these groups (with the PFM TWG having the most structured and regular monitoring process). 28 3.4 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development The horizon of PRGO 1 was too short for the operation to have an identifiable impact, growth, poverty, gender, or social development. The fact that rapid growth continued during the PRGO 1 implementation was overwhelmingly due to the underlying momentum. One could, of course, speculate about the medium to longer run impact of the PRGO series, and that should be positive since in all respects the ultimate aim was to foster broad-based growth (not least due to potential improvements in agricultural productivity, including through smallholder agriculture and protection of land rights) and to improve the volume and scope of service delivery. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) Much of the operation has been focused on strengthening institutional capacity and its various aspects have been discussed in Section 3.3 above, in particular the second pillar on PFM and CSR. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) None 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) Not applicable 4. Assessment of Risk to Development Outcome Risks that the outcomes achieved under PRGO 1 might be jeopardized at some point over the next few years are high, despite the mitigation measures built into the operation. These risks can be grouped into the following categories: (i) country risks; (ii) fiduciary risks; and (iii) implementation risks. Country Risks The main country risk is economic: (i) given the narrow economic base of the country, Cambodia is prone to exogenous shocks; (ii) rapid growth has generated some vulnerabilities, including in the financial sector; and (iii) the global financial turmoil could exacerbates some of these vulnerabilities. Risks include a sharp slowdown (or reversal) of capital inflows, a further degradation of terms of trade (from oil or food prices, for instance), intensified competition in the garment sector, increasing regional insecurity and global economic slowdown, ill effects of health-related problems such as avian flu or SARS, and natural disasters. All these could cause a widening of the external financial gap and disrupt macroeconomic stability as Cambodia depends heavily on exports. Macroeconomic stability could also be put at risk by poor and non-transparent management of oil, gas, and mining revenues, should they finally materialize. This risk is somewhat mitigated by the PRGO objectives to 29 raise revenues in the medium-term, the reform actions on fiscal transparency, and reforms aimed at diversifying the economy. There is also a risk that the World Bank and other `traditional' DPs could lose influence. The flow of revenue from extractive industries in a few years' time could alter the rules dramatically. This could mean that the role of the PRGO as a catalyst for reform would derive principally from TA in the form of analytical and advisory services from the DPs. Fiduciary Risks With respect to fiduciary risks, corruption and weak PFM systems are a critical constraint. They have a direct adverse impact on growth itself as well as on the implementation of the Government's development strategy. The PRGO series was helping build a stronger PFM system and progress has been good. But it is nowhere near complete and reversals are possible. Implementation Risks The first implementation risk relates to the difficulty in coordinating Government agencies. By supporting a number of cross-cutting issues, implementing the program supported by the PRGO requires a capacity for cooperation across agencies. This significant risk was apparent during the implementation of PRGO 1 and can be partly mitigated by supporting MEF in its coordinating role. Intensive field-based supervision can also help reduce this risk The second implementation risk relates to a possible wavering commitment to reform. The Government's ownership of the reform program is the key to its successful implementation. While there is strong ownership in MEF, the commitment in some of the other agencies involved has been more diffused in part because of the relative weight of the PRGO support program ­ and the uncertain benefits for those ministries ­ in comparison to large TA programs under implementation in these ministries. Third, implementation could be stalled due to capacity constraints in individual ministries. This has been largely mitigated through complementary TA programs, albeit with the risks highlighted in the previous paragraph. Finally, implementation of the reform program could fail to generate the expected impact. This risk is particularly apparent for a complex sector like L&NRM, where progress in improving the legal and regulatory framework can often be insufficient to impact outcomes on the ground. This needs to be mitigated through broader efforts at monitoring sector developments. 5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Moderately Satisfactory 30 The PRGO program was designed well. As argued earlier, it was aligned well with the various strategic documents of the Government and the Bank. It was by and large selective in the areas chosen for support. It kept its focus fairly narrow, emphasizing the building of technical and institutional capacities that would improve governance. This in turn would lead to better allocation of a strengthened resource base, a better business environment, and sustainable improvements in the use of land and other natural resources. Most of the potential future triggers for second and third phase of the PRGO series were sensible (a few actions for PRGO 2 were either insufficiently defined at the outset or were technically too stretched targets). The likely problem areas were identified (and a couple of them came to pass, resulting in repeated delays in the PRGO 2 operation), but they were and are important and it made sense to include them, even at the risk of future delays. Although risks were high going in, and remain high with respect to the likelihood that the satisfactory outcomes of PRGO 1 will stick in the years to come, the PRGO series built into it various mechanisms that had the potential to mitigate many of the risks involved. Nevertheless, the number of challenging reforms that were covered under PRGO (including for instance risk management in trade, transparency in extractive industry revenues, civil service reform, state land management, protection of indigenous people's land rights) was very high for a new instrument. The approach in some areas ­ such as the MBPI ­ was risky and, with hindsight, had important limits (see above). (b) Quality of Supervision (including M&E arrangements) Rating: Satisfactory Supervision was good. There was a mission to review the situation and look towards the preparation of PRGO 2 in November of 2007. The pre-appraisal mission of March 2008 for PRGO 2 assessed progress further and designed the "one pagers" (discussed earlier) that helped the Government and DPs focus on what has been achieved and what remained to be done. The missions also provided a useful paper trail for this review. A challenge for supervision, however, was that sector engagement was still dominated by the supporting TA projects, weakening the role of the PRGO policy dialog. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory Government agencies engaged in the PRGO dialog include the various Ministries, or departments within Ministries, involved in the three main reform areas supported by the PRGO program: PSD, PFM/MBPI, and LMNR. The PSD policy agenda was carried out mostly in a satisfactory fashion, in part because it was largely concentrated in two fairly self-contained 31 Ministries (MOC and CDC) and in part because the policy actions in facilitating trade and creating an enabling environment for private investment have been tried in many countries and the components of success were well known. Implementation picked up momentum over time and the results became increasingly encouraging, particularly later in 2008 and 2009. The PFM reform program, run by MEF, made good progress, with some weakness in improving the auditing functions. The MBPI at first showed promise but it was a controversial program to implement in ministries beyond MEF and was, in the end, stopped in January 2010 for a variety of reasons. The LMNR was probably the area with the hardest challenges. Implementation involved handling potentially conflicting situations, and had to be coordinated across several ministries. Solutions to the issues, not least because they involved many stakeholders, were complicated and took time. There was also uneven ownership of the reform program across the ministries involved in the LMNR area. On balance, the Government performance is judged to have been moderately satisfactory. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The implementing agency was the Ministry of Economy and Finance (MEF). The MEF was the "champion" of the PRGO program. It was committed to piloting a budget support operation and coordinating the agreed policy agenda that was spread across a half a dozen other Ministries. It was a challenging task, particularly since it was the first operation of its kind in Cambodia. It also coordinated its work with the four co-financing DPs of PRGO 1 as well as with other DPs, particularly those involved in TA projects relevant to the implementation of the PRGO series. In addition, the MEF was in charge of two other important components of the policy agenda: ensuring a continued enabling macro-economic environment and implementing the PFM reform program. It carried both of these tasks out ably. The monitoring aspect of the two areas was strong. The MEF piloted the MBPI, the outcome of which was not satisfactory, but for reasons beyond MEF's control. Its performance was therefore satisfactory. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Guidelines for ICR specify that in cases where one of the components is moderately satisfactory (Government Performance) while the other is satisfactory (MEF Performance), the overall rating has to be moderately satisfactory 6. Lessons Learned (both operation-specific and of wide general application) Ownership. One of the principles of effective aid is ownership of an operation on the part of the Government. The impression in the case of PRGO 1 was that it was strong in the MEF, but not as clear elsewhere. However, in every case, the government officials interviewed were aware of the TA projects in their ministry. The TA part is not surprising since it brings resources to the ministry in question. But so does the budget. However, it is likely that the benefits of the TA project are more obvious, whereas those from potential budget increases are more remote. It is not clear that this can be remedied in the short run. Over time, however, it might help if the designers were to build a "budget education" component into budget support operations and its monitoring processes (as has 32 been done during PRGO 2 discussions to finance the implementation of activities supporting indigenous community registration), in order to help line ministries learn how to bid more effectively for budget resources for their ministries in each annual cycle. Capacity Constraints. Capacity constraints make it imperative to run complementary TA projects alongside budget support operations. In the PSD area, for instance, technical support to implement the risk management strategy was critical given that the concept of risk management was new. Beyond technical capacity, support to institutional capacity turned out to be critical as well. Slow progress in some areas ­ such as the protection of indigenous people's land rights ­ can be partly accounted for by the gaps in inter-ministerial coordination mechanisms. The PRGO dialogue in TWGs and other fora proved a good opportunity to make progress in some of these areas. Scope of the PRGO program. Despite the selectivity of reform areas to be supported when the PRGO series were being designed, the scope may in the end have still been too broad for a first budget support operation in Cambodia. The MBPI scheme, for example, could have been left out and the civil service reform pursued through other channels. Other areas where vested interests were likely to be strong and/or were process-intensive might also have been put on a less ambitious schedule. Monitoring. While the quality of monitoring is good in the PFM area, the other sectors have not reached the same level. Monitoring remains weak in general, and is in particular not integrated across the various sub-themes of each sector. The situation is improving as various sectors develop Sector- Wide Approaches (as in PFM). A budget-support instrument could be used even more strategically as a catalyst for faster improvement in reform monitoring. This would also require a further investment in monitoring higher-level outcomes. This would mitigate the risk that a narrative of progress emerges from reform monitoring while the broader trajectory is more ambiguous, for instance reflecting that reforms focus on the legal and regulatory framework, with implementation lagging behind. One Pagers. These were discussed in Section 3.3 above. At the time of the pre-appraisal mission for PRGO 2, the Task Team Leader prepared a set of one page assessments for each of the 10 Prior Actions (triggers) and 20 milestones. Each note stated what the action or the milestone was, how it would be measured, what evidence would be needed for the government and the DPs to be satisfied that the action was indeed taken and/or the milestone passed, and a brief comment as to the likelihood and timing of achieving the Prior Action/milestone. It is an interesting tool both from the point of view of monitoring and for fostering dialogue. It could sharpen the focus in discussions by keeping everyone on the same page. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies The Government has reviewed a draft implementation complementation report and most of the comments have been incorporated. The Government's view is that progress in all public financial management outcomes was satisfactory, as was progress on state land management. This would lead to an overall rating of satisfactory. This position is grounded on the fact that all prior actions were met and momentum was apparent at the time of approving PRGO 1 and until its closing in early 2008. 33 While recognizing the challenges of the longer-term development trajectory, the Government considers this as evidence that outcomes should be rated satisfactorily. While Bank staff agree with the Government's view that prior actions were met, Bank staff took a different approach in the ICR, factoring in developments beyond the PRGO 1 approval, including areas where the reform program has accelerated, slowed down, or being reversed. The evaluation reviews progress in performance indicators beyond the closing of the project because the PRGO 1 was designed in the context of a multi-operation program. (b) Cofinanciers The draft ICR has been discussed with the three development agencies partnering with the World Bank to finance the PRGO. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 34 Annex 1. Bank Lending and Implementation Support/Supervision Processes Project ID: P071103 (a) Task Team members Names Title Unit Responsibility/Specialty Lending Robert Taliercio Sr. Country Economist/ex-TTL EASPR Stephane Guimbert Senior Economist EASPR Albert G. Zeufack Senior Economist Peter Murphy Sr Public Sector Mgmt. Spec. EASPR Peter Jipp Sr Natural Resources Mgmt. Spec. EASTS Chinnakorn Chantra Procurement Specialist EAPCO Donald Herrings Mphande Sr Financial Management Specialist AFTFM Kannathee Danaisawat Financial Management Specialist EAPCO Qhobela Cyprian Selebalo Consultant EASTS Huot Chea Economist EASPR Senior Rural Development Chamroeun Mudita EASTS Specialist Bunlong Leng Environmental Spec. EASTS Sophorn Kith Program Assistant EACSF Supervision/ICR Stephane Guimbert Senior Economist EASPR ICR Team Leader Robert Taliercio Sr. Country Economist/ex-TTL EASPR Julian Clarke Trade Economist EASPR Huot Chea Economist EASPR Sr. Financial Management Jennifer Thomson SARFM Specialist Sr. Financial Management Donald Mphande AFTFM Specialist Chamroeun Mudita Rural Development Officer EASTS Steven Schonberger Lead Operations Officer AFTAR Ashan Ali Senior Procurement Specialist EAPCO Sokunthea Sok Procurement Specialist EAPCO Sodeth Ly PFM specialist EASPR Daniel Adhler Governance Specialist EASTS Peter Miovic Consultant ICR Author Rebecca Louis Carter Consultant EACSF Sophorn Kith Program Assistant EACSF Amara Khiev Program Assistant EACSF 35 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY04 1.28 8.39 FY05 11.87 70.48 FY06 40.30 159.53 FY07 33.63 149.70 FY08 6.55 52.01 FY09 0.40 0.30 Total: 94.03 440.41 Supervision/ICR FY10 - 24.46 FY11 - - Total: - 24.46 36 Annex 2. Cambodia: PRGO Policy Matrix PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) MACROECONOMIC MANAGEMENT High growth, accelerated poverty Maintain a Maintain a Maintain a GDP growth rate of at least 7.0% per reduction, and macroeconomic macroeconomic policy macroeconomic policy macroeconomic policy annum stability framework that is framework that is framework that is (Baseline: 8.3% annual average, appropriate and appropriate and appropriate and 1994-2006) sustainable for high sustainable for high sustainable for high growth, accelerated growth, accelerated growth, accelerated Maintain debt sustainability and poverty reduction, and poverty reduction, and poverty reduction, and moderate risk of debt distress stability stability stability according to key DSA indicators (Baseline: moderate risk in 2007) Accelerate poverty reduction in accordance with the CMDGs PRIVATE SECTOR DEVELOPMENT Facilitate trade, and improve Issuance of Prime Use of SAD mandatory ASYCUDA fully 80% of declarations are processed transparency and accountability of all Ministerial Order and applied throughout implemented and in online through ASYCUDA trade-related procedures: requiring Cambodia based on use in the 5 Customs (Baseline: 0% in 2006) all relevant agencies to Prakas (in the third Offices (by mid-2008) 1. Trade facilitation agencies reduce define their critical data quarter of 2007) Reduce the number of documentary clearance times and costs to traders. needs for the adoption of requirements to clear imports to 3 a single administrative ASYCUDA fully (Baseline: 16 in 2005) document (SAD) implemented and in use in the Port of Sihanoukville Reduce the time required to clear (by end of 2007) imports to 2 days (Baseline: 4 in 2005) Reduce the number of documentary requirements to clear exports to 3 (Baseline: 13 in 2005) Reduce the time required to clear exports to 1 day 37 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) (Baseline: 3 days in 2005) Automatic issuance of statistics and revenue reports in GDCE automated (Baseline: None in 2006) Issue a sub-decree and Signing and Review implementation Inspection rate reduced to below implementing implementation of of risk management and 25% (total of inspections by any regulations on trade service-level agreements, act accordingly to agency as a share of declarations) facilitation through a attaching agreed-upon reduce inspection rate to (Baseline: 100% in 2006) risk management lists of prohibited goods, 25 percent (total of approach to inspections between trade-related inspections by any and clearance of imports agencies agency as a share of and exports of goods declarations) Review implementation of risk management and act accordingly to reduce inspection rate to 50 percent (total of inspections by any agency as a share of declarations) Draft Law on Customs National Assembly adopts submitted to the National Law on Customs Assembly, and all associated implementing rules and regulations (IRR) are drafted 38 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) 2. Transparency of trade-related Streamlining of processes Publication of Establishment of a Electronic submission of 85% of the processes and accountability of civil in the Ministry of regulations, procedures, Trade Information volume of trade-related required servants in trade-related functions are Commerce and reduction fee schedules, penalties, Gateway virtually forms, including Certificates of improved. in firm registration fees, and necessary forms on linking content of Origin, company registrations, and introduction of an websites of all trade- relevant government trademark registrations, Camcontrol internal time tracking related ministries and websites Certificates, and export licenses, system agencies and 10 of the through the Trade Information Ministry of Commerce's Electronic submission Gateway provincial offices of 75% of permits and (Baseline: 0% in 2006) licenses required by Undertake analysis on the the Ministry of design and Commerce implementation of the Flat Fee for Services Increase volume of exports and Adopt sub-decrees Adopt and make fully Review the Growth of 5% per annum in exports, diversify export base establishing Special operational the "one-stop implementation excluding garments and oil Economic Zones (SEZs) service" (OSS) in all experience of the sub- and an SEZ Board in established Special decree on SEZs by end- CDC Economic Zones (SEZs) 2008 with a view to submit a law on SEZs to 80% of transactions handled by OSSs NA or issue revisions to in SEZs are processed electronically the sub-decree by April (Baseline: 0% in 2006) 2009 Automating One Stop Services (OSS) in SEZs, in line with ASYCUDA and risk management All company registrations at MOC principles provincial offices completed electronically within 4 days Strengthen the (Baseline: 10 days in 2006) capacity of MOC provincial offices to deliver electronic trademark and company registration 39 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) services to the local business community Increase domestic and foreign private Issue sub-decree on Reform of CIB is Response time of CIB to investor investment, including in infrastructure: implementing regulations completed and CIB fully enquiries is reduced by 35 percent for the Law on operates as an (Baseline: 28 days in 2006) 1. Reduced uncertainty over Investment, including investment facilitation investment procedures and approval redefining the role of the and promotion agency processes, and enhance confidence in Cambodia Investment Cambodia as a destination for FDI Board (CIB) 2. Greater private participation in Council of Ministers National Assembly adopts All concessions are infrastructure (PPI) in the public approves draft Law on Law on Concessions issued in accordance interest through fair, transparent, and Concessions and submits with the Law on competitive procedures. to NA Concessions Law on Commercial Adoption of a ministry- Issuance of at least 2 judgments by a Arbitration passed by the wide PPI Governance recognized arbitration center National Assembly Framework to (Baseline: 0 in 2006) effectively manage, deliver, and implement PPI transactions conducted fairly, transparently, competitively, and in the public interest 40 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) PUBLIC FINANCIAL MANAGEMENT Ensure budget is realistic and Improve tax Develop an overarching Annual increase in tax and non-tax implemented as intended in a administration by issuing resource mobilization revenue: 5% above real GDP growth predictable manner: prakas to reorganize the policy including tax, non and inflation (target of 20% in 2006) Tax Department along tax, and debt sources (Baseline: 19% for tax revenue and 1. Budget holders commit expenditure functional lines 8.5% for non-tax revenue in 2006) in line with budgets and cash flow Inter-ministerial EITI RGC begins plans working group under implementation of PFMRP makes a EITI as per the MOU 2. Reduced procurement delays in the recommendation to between the RGC and context of a more efficient and RGC on the the World Bank transparent system endorsement of EITI, and the RGC and World COM submits to the 3. Oil revenue management Bank sign an MOU on National Assembly a framework, including endorsement of EITI design and draft law on institutional Extractive Industries Transparency implementation arrangements for oil Initiative (EITI), put in place revenue management MEF prepares a paper on oil revenue management options, including oil funds, for discussion at the COM Issue Prakas to initiate Strengthen MEF capacity COM submits draft Post review carried out of a sample deconcentration of to monitor public procurement law to of at least 20% of the total number of procurement in ministries, procurement outcomes, National Assembly contracts subject to post review in at provinces, and SOEs including through use of least 50% of all procuring agencies in performance Establish procurement all provinces by 2009 Fortify deconcentralized measurement tools website for advertising (Baseline: 5% in 2007 in some procurement by bidding opportunities agencies and provinces) strengthening the 1995 and publication of procurement sub-decree contract award 50% of contracts with award and the 1998 information, information published (above agreed implementing procurement policies, threshold) by 2009 regulations to promote and standard documents (Baseline: 0% in 2007) economy, efficiency, and transparency 41 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) Develop and implement Based on evaluation of Continue to strengthen Quarterly cumulative expenditure first phase of new new processes, implement transparency, efficiency, commitment profile: Q1 15%, Q2 transaction processes second/final phase of and oversight of budget 45%, Q3 67%, Q4 96% from budget release to streamlining reform, in execution processes, (Baseline: Q1 16%, Q2 48%, Q3 commitment in order to light of FMIS including in the line 72%, Q4 95% in 2006) streamline budget requirements ministries execution Execution rate to budget: salaries 98%, goods/services 95%, capital Increase reliance on the 80% banking system for tax Increase reliance on (Baseline: salaries 104%, and customs payments, banking system use for goods/services 108%, capital 82% in and for RGC payments payment of civil service 2006) to creditors and civil salaries and GDCE servants via transfer obligations by expanding Payments to creditors made by and/or check to additional provinces check: 85% by 2008 --NT paying all creditors (Baseline: 41% at end-2006) by check/transfer in Phnom Penh and Payments to civil servants made Sihanoukville through the banking system: 20% by --NT paying civil servants 2009 (Baseline: 0% in 2006) via bank transfers in MEF and MOH at director level GDCE obligations paid by and above in Phnom Penh check/transfer at NBC: 85% by 2009 --GDCE obligations paid (Baseline: 0% in 2005) by check at the NBC in Phnom Penh and at NT in MEF's processing time for Sihanoukville commitment and payment order approvals for procurement items reduced to an average of 15 working days by 2009 (Baseline: 46 working days in 2007) Policy agenda implemented through a Develop and implement Develop and implement Review and adjust PB Number of ministries using program comprehensive, orderly and program budget (PB) pilot establishment pilot as necessary and budgets: 7 in 2007 and 12 in 2009 transparent budget process, including pilots in priority line control arrangements in expand to other (Baseline: 0 in 2006) better control of the civil service ministries, including MEF to improve budget ministries establishment MOEYS, MOH, MOJ, comprehensiveness 42 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) and MOWA Improved accountability and internal Initial design of FMIS Implement FMIS pilot Continue rollout of core FMIS-generated budget execution control systems result in strengthened system requirements of core purchase, FMIS modules to reports prepared quarterly and issued compliance and transparency in the completed and approved payables, and general ministries and provinces within 1 week of the end of quarter mobilization and use of public by MEF Management ledger modules in MEF and commence by 2009 resources: and in two line implementation of (Baseline: manual reports issued 4-6 ministries and two budget module weeks after end of quarter in 2007) provinces 1. More reliable data produced and it Establish Internal Audit MEF develops a strategic Ministry IADs produce Internal audit reports issued regularly is more effectively reported Departments (IADs) in plan for internal audit annual risk assessments, by at least 10 IADs to the line ministries and encompassing roles and internal audit plans, and management of the ministry, with 2. Government budget managers are agencies responsibilities, quarterly audit reports copies to the MEF and the NAA by held accountable for their management coordination with for review and 2009 of public funds GID/NAA, development discussion by MEF (Baseline: 0 in 2006) of IA methodologies and a code of conduct CIVIL SERVICE REFORM Civil servants are motivated by an Introduce an official Design and implement The COM approves a 1,500 civil servants in 4 ministries effective incentive system and are merit-based pay and MBPIs in the Ministries phased medium-term incorporated into the MBPI by 2009 managed according to meritocratic employment reform of Health and civil service (Baseline: 300 in 2006) principles and procedures: pilot in MEF in support Commerce remuneration plan to of the PFMRP improve civil service 1. Civil service pay is increasingly COM adopts a pay selectively to adequate to attract and retain the meritocratic human appropriate levels requisite skills resource policy with a detailed and sequenced Continue expansion of 2. Civil servants are increasingly implementation plan MBPIs to additional line managed according to merit- and ministries performance-based criteria 43 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) LAND AND NATURAL RESOURCES MANAGEMENT Ensure an environment conducive to Issuance of 300,000 land 30 systematic registration Continued expansion of Cumulative total of 1 million titles private sector participation in titles in 2006 teams in 11 provinces systematic registration surveyed and adjudicated; of these agricultural sector enterprises: issuing an overall average program and protective 800,000 titles are issued, and of these Delegation of signature of 20,000 titles per month measures for indigenous 760,000 titles are delivered to 1. Extension of tenure security by plot authority to 11 provinces community lands beneficiaries; at an average cost of registration and land titling with for systematic registration Implement interim less than US$30 per title greater community participation protective measures to Delegation of signature (Baseline: 350,000 in 2006) Initiate three pilots of safeguard indigenous authority for systematic 2. Resolution of land disputes quickly communal indigenous community lands registration to 3 and transparently titling additional provinces 3. Commune based social land Cadastral commissions Adoption of RGC's Communal titles issued for concessions (SLCs) leading to titling established at district, policy on registration indigenous communities in 3 pilot integrated into majority of standard province, and national of indigenous peoples' villages commune/sangkat development plans level nationwide communal land rights (Baseline: 0 in 2006) and issuance of Two provinces initiate 10,000 hectares of land, corresponding sub- Interim protective measures for implementation of SLC including from cancelled decree indigenous lands implemented in 2 guidelines, State Land or reduced ELCs, provinces Management Sub-decree, registered as state private Assessment of (Baseline: 0 provinces in 2006) and Prakas 42 on state land and made available experience with SLCs, land management to for SLCs according to including evaluations, 25,000 hectares of land, including identify land for SLCs procedures set out in the made available for 40% released from ELCs, are SLC Sub-Decree public discussion registered as state private land and Provincial Land Use made available for SLCs Allocation Committees (Baseline: 0 has. in 2006) trained in implementation of guidelines, particularly Minimum of 2,000 poor families are identification of land for settled on SLCs SLCs (Baseline: 0 families in 2006) Management of state lands through COM adopts Sub-decree State land mapping Remaining ELCs over 5 state land maps and databases transparent, participatory mechanisms, on State Land conducted in five districts 10,000 hectares plus established including review and check on Management including and results placed in a additional concessions (Baseline: 0 in 2006) commercial contracts and concession participation of local publicly accessible state reviewed with 44 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) agreements on natural resources and communities in mapping land database appropriate follow-up Review of all ELCs greater than state assets: and land use planning, action 10,000 has. completed, including any as well as open public Establish and make cancellations or reductions required 1. Legal framework defining access at provincial level public log book of ELCs, Forest and PA by law, and results reported to public procedures for mapping, allocating, to register of state land including those issued at boundaries every 6 months and managing state lands in place use information and provincial level, and demarcated in five (Baseline: 0 in 2006) issues implementing review a minimum of 5 provinces 2. Greater public access to information regulations economic land Technical Secretariat for ELCs on location and use of state lands concessions over 10,000 reports publicly and regularly on COM adopts Sub-decree hectares, taking outcomes of concession review 3. Improve forest management through on Economic Land appropriate action process increased transparency, participatory Concessions (ELCs) that consistent with Chapter demarcation of forest boundaries, includes provisions for 6 of the Sub-Decree on strengthened PA management and resolution with local ELCs improved/expanded community communities of issues of forestry prior occupancy/use of Clearly define lands and classification operational procedures of land to exclude forests for forest boundary and PAs demarcation that are fully consistent with Establish a mechanism state land management and periodically and demarcation sub- disseminate information decrees publicly on ELCs Disclosure of the location, 100% of communities managing legal status, and process forest areas have approved for termination of mining Community Forest Agreements and concessions, Military 25% have approved Community Development Zones, Forest Management Plans ELCs, and other (Baseline: 0 Agreements in 2006; 0 development Management Plans in 2006) arrangements situated on forest land or in PAs and inconsistent with law Information on PAs and forests is governing management of available to the public and updated on these areas a regular basis 45 PRGO-1 Actions PRGO-2 Actions PRGO-3 Actions Completed Completed Completed Reform Program Outcomes Performance Indicators (March 2007) (by March 2008) (by March 2009) (Prior Actions in Bold) (Triggers in Bold) (Triggers in Bold) Expand use of collaborative approaches to forest management consistent with sub-decree on community forestry and Prakas on community PAs Develop and implement an information sharing and access policy to guide dissemination of key information sources and datasets related to PAs and protected forests 46 Annex 3. Summary of Borrower's Comments on draft ICR The draft ICR has been discussed with the government and its comments have been incorporated in the final version. 47 Annex 4. Comments of Co-financiers and Other Partners/Stakeholders The draft ICR has been discussed with the co-financers, and their comments have been incorporated in the final version. 48 Annex 5. List of Persons Interviewed in Cambodia Government: Cambodian National Petroleum Authority: H.E. Ho Vichit and his team (on oil and gas) Council for Administrative Reform (COM): H. E. Ngo Hongly and his team (on MBPI and CSR) Council for the Development of Cambodia: H. E. Sok Chenda and his team (business environment, SEZs, FDI) Ministry of Agriculture, Fisheries and Forestry: H.E. Chheng Kimsun and his team (on forest demarcation) Ministry of Commerce: H.E. Pan Sorasak and his team (trade facilitation issues). Ministry of Economy and Finance: H. E. Hang Chuon Naron and his team (overview of PRPO and macroeconomy); Dr. Sok Saravuth (on budget and PRF Reform Program); H.E. Kun Nhem, GDCE (on SAD, ASYCUDA, Single Window) Ministry of Land Management, Urban Planning and Construction: H. E. Dr. Ou Vuddy and her team (on laws, land allocation, indigenous peoples); H. E. Ith Nody and his team (on ELCs); Dr. Seth Boramy (on SLCs and the LASEP projects) NGOs: Dr. Tom Evans, Wildlife Conservation Society (Land and Indigenous People issues) Mr. Bora Nuy (Indigenous People issues) Mr. E.V. Payuan, The Center for People and Forests (RECOFTC) and Capacity Building for Sustainable Forest and Land Management Project (on forestry issues) Mr. David Pred, Bridges Accross Borders Southeast Asia (Land and Indigenous People issues) DPs (co-financiers): Economic Commission: Ms. L. Liguori, Mr. K. Everaert and Y. Hadziyiannakis (consultant) DfID (UK): Mr. R. Endelbach and Mr. M. Mahama JICA (Japan): Ms. M. Terakado, Ms. K. Suzuki, and Mr. T. Nhean 49 Annex 6. List of Supporting Documents IMF (2006) Cambodia: Poverty Reduction Strategy Paper, IMF Country Report No. 06/266, July 2006. IMF/WB (2006) Cambodia: Poverty Reduction Strategy Paper ­ Joint Staff Advisory Note, IMF Country Report No. 06/267. IMF (2007) Cambodia: 2007 Article IV Consultations, IMF Country Report No. 07/290, August 2007. IMF (2007) Cambodia: Selected Issues and Statistical Appendix, IMF Country Report No. 07/291. IMF (2009) Cambodia: Article IV Consultation, Public Information Notice No. 09/131, December 8, 2009. RGC (2004) "Rectangular Strategy", as presented in the Letter of Development Policy (LDP) in Annex 1 of WB (2007) PRGO Program Document. RGC (2005) National Strategic Development Plan 2006-10, 22 December 2005. WB (2004-2006) Country Performance and Institutional Assessment (CPIA) ratings. WB (2005) Country Assistance Strategy (CAS) IDA/R2005-0070, endorsed by the Board in May 2005. WB (2006-10) PRGO Project Files -- covering (1) 1st monitoring mission in November 2007, (2) pre-appraisal mission for PRGO-2 in March 2008, (3) preliminary draft project document for PRGO-2 of October 31, 2008; (4) Joint review mission of December 2008; Report on PRGO Workshop of July 2009. WB (2007) Cambodia: Poverty Reduction and Growth Operation, Report No. 36553-KH, June 18, 2007. WB/IMF (2007) Joint Staff Assessment Note, IDA/SecM2007-0466, July 2007. WB (2009) Sustaining Rapid Growth in a Challenging Environment, Cambodia Country Economic Memorandum, February 2009, available at www.worldbank.org. 50 103° E 104° E 105° E 106° E 107° E 0 20 40 60 80 Kilometers THAILAND L A O P. D . R . To CAM BODIA 0 20 40 60 Miles To Pak Charang Khu Khan To SELECTED CITIES AND TOWNS Champasak Kon ODDAR To PROVINCE CAPITALS g Samraong Phiafai Cheom Ksan MEANCHEY Siem Pang Kompong Sralao NATIONAL CAPITAL ng Sre ng 14° N 14° N RATANAKIRI Ko RIVERS PREAH VIHEAR To To Buri BANTEAY Phum Kompadou Play Cu MAIN ROADS n Phnum Tbeng Sa MEANCHEY Meanchey Melouprey STUNG TRENG Bun RAILROADS Kralanh Long Sisophon PROVINCE BOUNDARIES SIEM REAP Stung Treng Srepok Lomphat Siem Reap INTERNATIONAL BOUNDARIES Rovieng Battambang Tonle Se n 13° N B AT TA M B A N G 13° N g ng Sap Kohnieh Mekon Poro Pailin Chas KAMPONG THOM MONDOL PA I L I N Kampong Thom K R AT I E K I R I Chbar Pursat Kratie Senmonorom Peam Ton le P U R S AT KAMPONG To KAMPONG CHAM Duc Lap Sap Kampong 12° N Ca Phnum CHHNANG Mekong Cham 12° N rd Aoral am (1,810 m) To om Ba Ra PHNOM PENH M Krong Koh Kong t KAMPONG PHNOM PENH s. . SPEU To Prey Veng KOH KONG Kampong Speu Ta Khmau SVAY Tay Ninh G ul f o f KANDAL PREY RIENG V I E TN AM Thailand VENG Ba k Chambak To Svay ssa Ho Chi Minh City Rieng Takeo 11° N 11° N Chhak Kampong CAMBODIA Saom TAKEO This map was produced by the Map Design Unit of The KAMPOT To Cao Lanh World Bank. The boundaries, Sihanoukville colors, denominations and Kampot any other information shown on this map do not imply, on SIHANOUK- Kep To IBRD 33381R the part of The World Bank VILLE Long Xuyen Group, any judgment on the To JUN E 2006 legal status of any territory, or any endorsement or Rach Gia acceptance of such KEP boundaries. 103° E 104° E 105° E 106° E 107° E