Press Release: IMF Approves Second Annual Loan for Cambodia under ESAF

IMF News, September 15, 1995

Source details

Canonical URL: Press Release: IMF Approves Second Annual Loan for Cambodia under ESAF

The IMF approved the second annual loan for Cambodia under the enhanced structural adjustment facility (ESAF) equivalent to SDR 28.0 million (about $41 million).
The loan is in support of the Government's 1995-96 macroeconomic and structural adjustment program.
The loan will be disbursed in two equal semi-annual installments, the first of which is available immediately.
ESAF terms: interest rate of 0.5 percent; repayable over 10 years, with a 5-1/2-year grace period.

Cambodia is gradually emerging from years of internal strife; international community efforts, including IMF involvement, have helped bring a measure of stability.
Output growth in 1994: 4 percent, lower and less balanced than expected due to a sharp weather-related drop in rice production.
Consumer prices rose 18 percent during 1994 (double the program target), largely because of a sharp rise in food prices.
Inflation subsided to an annual rate of less than 10 percent in early 1995 following partial stabilization of food prices and continued fiscal and monetary restraint.
Fiscal results for 1994:
- Current fiscal deficit: 1-1/2 percent of GDP in 1994.
- Strong revenue performance and tight controls over nondefense spending offset significant overruns in security and defense spending.
Exchange rate: stability evident after wide fluctuations of previous years.

Main goals:
- Raise output growth to an annual rate of about 7 percent between 1995-97.
- Reduce inflation to less than 8 percent by mid-1996 and to 5 percent by 1997.
- Increase official reserves to the equivalent of 2-1/4 months of imports by mid-1996.
Fiscal targets:
- Current fiscal deficit targeted at 1-1/2 percent of GDP in 1994, and 3/4 percent in 1996.
- Aim to broaden the tax base to durably increase the revenue-GDP ratio.
- Contain military spending at below 6 percent of GDP, with a further reduction expected for 1996 in the context of a military reform.
Monetary policy measures:
- Plans, with IMF technical assistance, for issuance of treasury bills in late 1995 to establish a market-determined interest rate for the riel.
- Rationale: high level of dollarization and very limited use of the national currency in the banking system.

Key reform areas: financial sector, civil service, military, and public enterprises.
Financial sector:
- Reinforce regulation and supervision with IMF technical assistance.
- Strengthen legal basis for regulation and supervision via a new central banking law.
Public administration and enterprises:
- Civil service reductions: number of civil service employees to be reduced by 10 percent by end-1996, with an additional 10 percent reduction by end-1997.
- Privatization: a privatization law adopted in December 1994; a review of activities of leased public enterprises is about to be completed to pave way for sale of assets to the private sector.
- Remaining public enterprises: individual rehabilitation programs in 1995 and 1996 to include elimination of public transfers and credit from the National Bank, and only limited availability of credit from commercial banks.

Social protection:
- Limited public resources constrain development of a broad social safety net.
- Government will prepare a poverty assessment program based on a recently completed socioeconomic survey to inform expenditure decisions affecting vulnerable groups.
Environmental measures:
- Authorities committed to avoiding an environmentally unsustainable rate of logging; working on a forest management code.
- Interim measure: ban on logging exports since May 1995.
- National Protected Areas System under development covering 3.3 million hectares designated for national parks, wildlife sanctuaries, protected areas, and multiple-use-management areas.

Consolidation of macroeconomic gains will require:
- Perseverance in maintaining financial discipline.
- Improving transparency in government transactions.
- Containing fiscal pressures, notably those arising from high levels of defense and security spending.
Security situation remains unstable and constrains reform implementation.

Cambodia joined the IMF on December 31, 1969.
Quota: SDR 65.0 million (about $96 million).
Outstanding financial obligations to the IMF: equivalent of SDR 34 million (about $50 million).

Real GDP growth:
- 1992: 7.0
- 1993: 4.1
- 1994: 4.0
- 1995*: 7.5
- 1996**: (projected) [no value provided in source beyond 1995* projection]
Consumer price index (percent change):
- 1992: 112.5
- 1993: 41.0
- 1994: 18.0
- 1995*: 8.7
- 1996**: 5.0
Current budget balance (deficit –) (percent of GDP):
- 1992: –4.3
- 1993: –1.4
- 1994: –1.5
- 1995*: –0.6
Gross official reserves (months of imports):
- 1992: 1.0
- 1993: 1.8
- 1994: 1.4
- 1995*: 2.1
- 1996**: 2.8
Sources noted in release: Cambodian authorities; and IMF staff estimates and projections.
*Program.
**Projected

Press Release No. 95/47 — September 15, 1995.