News Brief: IMF Completes Second Review of Cambodia's PRGF Arrangement and Approves in Principle US$11 Million Credit

January 19, 2001

The Executive Board of the International Monetary Fund (IMF) today completed in principle the second review of Cambodia's performance under the program supported by a three-year, SDR 58.5 million (about US$81.6 million) Poverty Reduction and Growth Facility (PRGF)1 credit (see Press Release No. 99/51). The Board also approved in principle the release of a further SDR 8.36 million (about US$11 million) from the PRGF arrangement, which would bring total disbursements under the IMF-supported program to SDR 25.1 million (about US$33 million).

A final decision by the IMF Executive Board is pending discussion of Cambodia's interim Poverty Reduction Strategy Paper by the Executive Board of the World Bank. The World Bank Board discussion is expected to take place on January 23, 2001.

After the IMF Executive Board's discussion on Cambodia, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following statement:

"Cambodia has made a good start in the implementation of economic reforms under its PRGF-supported program. The authorities have achieved progress in economic growth and kept inflation low despite the adverse impact of the floods in 2000. However, the reform agenda remains large, and further strong efforts are needed in the period ahead to build basic economic institutions, protect macroeconomic stability, improve governance, and make progress in reducing poverty.

"The authorities are commended for preparing a comprehensive interim PRSP, which presents a full discussion of the government's poverty reduction strategy. The interim PRSP has involved a broad range of government agencies and external partners, has set a clear agenda for a participatory process for the full PRSP, and provides a sound basis for Fund concessional assistance. The authorities, however, will need to strengthen coordination among government ministries, and with domestic and external development partners, to ensure the preparation of a high quality PRSP by end-2001.

"To build on the progress achieved so far, the program for 2001 provides a coherent framework to consolidate macroeconomic stability, deepen structural reforms, and enhance investor confidence. These are all essential for Cambodia to achieve more durable broad-based economic growth and sustained reductions in poverty.

"To attain the program objectives, it will be important for the authorities to further increase government revenue and improve expenditure composition and budget management. It will also be necessary to continue bank restructuring and deepen other structural reforms that are key to macroeconomic stability and poverty reduction-including civil service reform and military demobilization. Prudent monetary and exchange rate policies will continue to be needed, supported by the avoidance of domestic financing of the budget.

"The authorities are also urged to make good use of technical assistance that has been programmed in key areas to support macroeconomic stability and poverty reduction objectives, and to take the necessary steps to ensure that the envisaged improvements in local capacity will be made to support a sustained implementation of reforms. Continued successful implementation of the program will require close monitoring and further donor support," Mr. Sugisaki said.

1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Cambodia, pending the completion of a PRSP, a preliminary framework has been set out in an interim PRSP (I-PRSP), and a participatory process is underway. It is understood that all policy understandings in the I-PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future review under this PRGF arrangement. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.


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