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Integrated Fiduciary Assessment and Public Expenditure Review: Executive Summary IFAPER Dissemination Workshop The World Bank/Asian Development Bank October 20, 2003 Main Messages Strengthening resource mobilization Reducing fiduciary risk to public funds Rationalizing public expenditure policy and management Accelerating pay and employment reform in the civil service 2 Improving Resource Mobilization to Ensure Aggregate Fiscal Sustainability Cambodia has made good progress, as revenue/GDP ratio has increased from 8.3% in 1998 to 11.7 in 2001 Continued improvement, on the order of what has already been accomplished, is necessary to retain public debt sustainability and to finance higher levels of public spending Government plans to raise revenues to 14 to 15 percent of GDP by 2007 will require tax administration reform that addresses key structural constraints 3 Reducing Fiduciary Risk to Public Funds It has become increasingly apparent that weaknesses in the public expenditure and financial management system (PEFM) not only have high costs in terms of allocative and operational efficiency but also create unacceptably high levels of fiduciary risk to public funds – Weaknesses include cash management, budget execution, and deficient accounting and reporting systems 4 Reducing Fiduciary Risk to Public Funds The system suffers from a weak control (e.g., internal and external audit) environment Compared to other low income countries the PEFM system is below average, indicating the need for substantial upgrading The Government can address these concerns by focusing on improving budget execution, cash management, and the control environment Some progress has been made with the support of TCAP—building on and accelerating this reform is necessary 5 Rationalizing Public Expenditure Policy and Management Since 1998, the Government has significantly improved the alignment of resources with its developmental objectives by increasing allocations for priority sectors, notably education and health However, to implement the SEDP-II/NPRS and meet the localized MDGs reallocation of resources away from non-priority sectors and programs toward higher priorities will be necessary In order to reach the stated poverty reduction goals, it is necessary to improve the effectiveness of spending by linking it more closely to priority outcomes 6 Rationalizing Public Expenditure Policy and Management Expenditures are targeted to the poor in education, but less so in health and agriculture Difficulties linking policy and expenditure have resulted in significant sectoral differences in the effectiveness of expenditures in improving social welfare outcomes Weaknesses in formal and informal accountability mechanisms have a negative impact on the efficiency and effectiveness of public sector spending Improving the management of external assistance to ensure greater alignment with Government priorities is also critical 7 Strengthening Procurement There is a need for a new procurement law or strengthened procurement sub-decree Institutional changes needed to improve procurement are: – A comprehensive procurement training program to be introduced – One agency to have sole responsibility for procurement monitoring and training – Line agencies to be fully responsible for all their own procurement The Country Procurement Assessment Report was submitted to the Government in June 2003 and will be finalized shortly. 8 Pay and Employment Reform in the Cambodian Civil Service Given the serious problems afflicting the civil service— low pay, low skills, and thus low capacity—an accelerated and sequenced civil service reform will need to be initiated in the short term and carried out over the medium term if the Government’s vision of poverty reduction is to become reality The World Bank’s CPIA ranks Cambodia below average among fellow low income countries on issues pertaining to public sector management and institutions, indicating significant room for improvement 9 Pay and Employment Reform in the Cambodian Civil Service The most pressing issue facing the Cambodian civil service is undoubtedly the low level of pay for most civil servants, in relation not only to wage levels outside the service, but also to the cost of living There is also room to improve civil service deployment to and within the priority sectors 10 Conclusion The challenges to Cambodia over the medium and long terms are great, and the reform agenda is daunting However, Cambodia has undertaken a number of important reforms over the past several years, and reformers confronting the challenges ahead have a foundation on which to build 11 Conclusion In order to carry this program forward the IFAPER finds that it will be necessary to speed up the pace and extend the scope of reform in four key areas: strengthened resource mobilization comprehensive public expenditure and financial management reform further rationalization of public expenditure policy comprehensive and accelerated civil service reform 12 Next Steps Preparation of the Economic Action Agenda Preparation of strategy and annual action plan with development partners (including capacity building strategy and performance monitoring framework) Coordinated development partner support/TA for the Government’s reform agenda 13 Thank you The World Bank/Asian Development Bank IFAPER team, as well as our partners from the IMF, DFID, and SIDA, would like to very warmly thank the Royal Government of Cambodia for its support and close cooperation in this work, especially the MEF counterpart team, and looks forward to continuing to work together and to supporting the Government in its reform program 14