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Press Release No. 04/198
September 22, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Executive Board Reviews Progress Report on Cambodia's Poverty Reduction Strategy Paper

The Executive Board of the International Monetary Fund (IMF) on September 13, 2004 reviewed the Annual Progress Report on Cambodia's National Poverty Reduction Strategy (NPRS) and welcomed Cambodia's NPRS.

At the conclusion of the Executive Board's discussion based on the Joint Staff Assessment of Cambodia's Annual Progress Report, which was prepared jointly by the staffs of the IMF and the World Bank, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"Cambodia has come a long way in rebuilding its economy from the ruins of the decades-long civil strife. Macroeconomic performance of the past few years reflects prudent fiscal policy as well as favorable external developments. However, growth has been narrowly based and poverty has not fallen. It is therefore important to press ahead with efforts to broaden the base of economic activity and reduce poverty by increasing the pace of reforms, and in particular, nurturing the agricultural sector, and strengthening the legal and judicial system. These measures are all the more important in view of the difficulties Cambodia will face in competing in the garment sector after the elimination of the quota system in early 2005.

"The government is committed to poverty reduction as discussed in the first annual progress report of Cambodia's National Poverty Reduction Strategy (NPRS) Paper, which provides a sound basis for continued access to Fund concessional financial assistance. To achieve this goal, Cambodia needs to intensify efforts to attract foreign investment in order to promote diversified growth. There is considerable scope for improving the business climate in the short run by cutting cumbersome red tape and high informal fees, and by allowing greater wage flexibility.

"The authorities also need to accelerate judicial reform to address governance problems that are deeply rooted in all aspects of economic activities. The ratification by the National Assembly of Cambodia's entry to the WTO is welcome.

"Strengthening revenue mobilization is critical in order to attain the government's medium-term fiscal objectives. The government will need to take additional tax policy measures and strengthen tax and customs administration to meet the 2004 revenue and medium-term NPRS targets. Another key component of fiscal reform is improving public expenditure management and reforming the civil service.

"The opportunity to review Cambodia's performance under Fund arrangements since the early 1990s is welcome and demonstrates that Fund involvement has been effective in helping maintain macroeconomic stability. Nonetheless, poverty remains pervasive and governance problems widespread. A new arrangement with the Fund could help strengthen Cambodia's economy, underpin a framework for donor coordination, and encourage domestic reform efforts," Mr. Carstens said.




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