11

Dr. Hang Chuon NaronDr. Hang Chuon NaronSecretary GeneralSecretary General

Ministry of Economy and FinanceMinistry of Economy and Finance

CAMBODIACAMBODIACAMBODIACAMBODIA

A Macro View of 2007 to the medium-termA Macro View of 2007 to the medium-termKey Indicators for Growth, Development and Key Indicators for Growth, Development and

Shared ProsperityShared Prosperity

22

OutlineOutline

Macroeconomic Performance, 2006-Macroeconomic Performance, 2006-20152015

Fiscal DevelopmentsFiscal Developments Financial Sector PerformanceFinancial Sector Performance Overall Economic Growth Outlook for Overall Economic Growth Outlook for

2007-20152007-2015

33

Macroeconomic Macroeconomic Performance 2006-2015Performance 2006-2015

44

Medium Term Growth OutlookMedium Term Growth Outlook

On average GDP grew 8.7% per year during the last On average GDP grew 8.7% per year during the last decade;decade;

Economic Growth Rate 2002-2010

6.2%

8.6%10.0%

13.4%

10.4%9.0%

7.5% 7.3%

10.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2002r 2003r 2004r 2005 2006e 2007p 2008p 2009p 2010p

55

Economic Growth in 2006-2010Economic Growth in 2006-2010

GDP growth in 2006 was GDP growth in 2006 was 10.4%, and 10.4%, and estimated at 9.0% in 2007;estimated at 9.0% in 2007;

The Cambodian economy is expected to grow The Cambodian economy is expected to grow at 7-8% in 2008-2009;at 7-8% in 2008-2009;

The economy will be led by tourism, garment The economy will be led by tourism, garment industry, and construction, with agriculture industry, and construction, with agriculture supporting this growth;supporting this growth;

The bottlenecks should be unshackled to The bottlenecks should be unshackled to ensure sustainable growth;ensure sustainable growth;

The challenges will be strong competition The challenges will be strong competition from Vietnam;from Vietnam;

66

Economic Growth in 2009-2015Economic Growth in 2009-2015 The Cambodian economy is expected to grow at The Cambodian economy is expected to grow at

9-10% in 2010-2015, growth will be sustained;9-10% in 2010-2015, growth will be sustained; 2010 will be the first year of oil production;2010 will be the first year of oil production; Cambodia will maintain sustained, high growth Cambodia will maintain sustained, high growth

rate, when sufficient volume of oil will be rate, when sufficient volume of oil will be produced;produced;

While garment, tourism and construction will While garment, tourism and construction will continue to drive growth, diversifying the sources continue to drive growth, diversifying the sources of growth to new industries: electronics, IT, food of growth to new industries: electronics, IT, food processing will make growth more broad-based;processing will make growth more broad-based;

77

CambodiaCambodia’s’s Garment Exports (million US$) Garment Exports (million US$)

Increase in Exports mainly attributed to the Garment Exports which represent over 80% of the total exports in 2006.

Garment Exports 2000-2006(f.o.b., in millions of dollars)

9861,156

1,3421,601

1,9862,206

2,630

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006e

88

Garment SectorGarment Sector

Garment sector in 2006:Garment sector in 2006:• Employment - 334,000, a 19% increase;Employment - 334,000, a 19% increase;• Garment workers’ salaries - $292 million a year; Garment workers’ salaries - $292 million a year; • $100 million in tax exemption;$100 million in tax exemption;• Number of garment factories – 398, an increase of Number of garment factories – 398, an increase of

53, compared to 2005;53, compared to 2005;• Garment exports – $2.5 billion, a 20% increase;Garment exports – $2.5 billion, a 20% increase;• Destination: US – 71%; EU – 23% and Canada – Destination: US – 71%; EU – 23% and Canada –

4%;4%;

99

Economic Growth in 2006Economic Growth in 2006

Tourism development:Tourism development:• 1.7 million tourist arrivals;1.7 million tourist arrivals;• The 2 million benchmark will be reached in 2007;The 2 million benchmark will be reached in 2007;

Construction activities:Construction activities:• 8,000 – 10,000 apartments built a year;8,000 – 10,000 apartments built a year;• Korean New Town Project at Boeung Pong Peay;Korean New Town Project at Boeung Pong Peay;

11,584 companies registered at the Ministry of 11,584 companies registered at the Ministry of Commerce, of which 1,600 newly registered in Commerce, of which 1,600 newly registered in 2006.2006.

1010

Cambodia’s Performance (cont…)Cambodia’s Performance (cont…)

During 1999-2006, the average rate of inflation has been During 1999-2006, the average rate of inflation has been 2.2%2.2%;;

Avarage Rate of Inflation: 1996-2006

7.18.1

14.7

4.0

-0.8 -0.9-0.1

1.15

3.9

5.84.7

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006e

%

1111

Fiscal DevelopmentsFiscal Developments

1212

Public Financial Management ReformPublic Financial Management Reform

The Public Financial Management Reform The Public Financial Management Reform has produced early results: has produced early results: • Budget discipline;Budget discipline;• Increase in revenue collection;Increase in revenue collection;• Improved expenditure management;Improved expenditure management;• Drastic reduction in arrears;Drastic reduction in arrears;• Better incentives for government officials Better incentives for government officials

through Merit-Based Pay Initiative (MBPI); through Merit-Based Pay Initiative (MBPI);

1313

PFM-The Way ForwardPFM-The Way Forward PFM Reform is crucial for Cambodia’s PFM Reform is crucial for Cambodia’s

development:development:

• Program budgeting linking policies to Program budgeting linking policies to financing;financing;

• Public accounting reform;Public accounting reform;• State enterprise reform – performance;State enterprise reform – performance;• Performance based management;Performance based management;• Mainstreaming Meritocracy to improve Mainstreaming Meritocracy to improve

government bureaucracy;government bureaucracy;

1414

Revenue collection in 2006Revenue collection in 2006 Fiscal performance has been good, with Fiscal performance has been good, with

improved revenue mobilization and expenditure improved revenue mobilization and expenditure rationalization;rationalization;

Total revenue increased from $660 millions in Total revenue increased from $660 millions in 2005 to $832 million in 2006 or 11,5% du PIB;2005 to $832 million in 2006 or 11,5% du PIB;

The 26% increased was due to the growth in tax The 26% increased was due to the growth in tax revenue from $464 million to $559 million; revenue from $464 million to $559 million;

Taxes collected by the Tax Department increased Taxes collected by the Tax Department increased 38% compared to 2005, amounting to $189 38% compared to 2005, amounting to $189 million, revenue collected by Customs million, revenue collected by Customs Department increased by 11% to $370 million; Department increased by 11% to $370 million;

Non tax revenue increased from $137 million in Non tax revenue increased from $137 million in 2005 to $150 million.2005 to $150 million.

1515

Government Revenue: 1994-2006(in billions of Riels)

590 643 749 846 9391,330 1,423 1,564 1,786 1,821

2,2202,719

3,380

365 446 534 597 679963 1,040 1,131 1,269 1,267

1,6561,911

2,270

0500

1000150020002500300035004000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Total Domestic Revenue Tax Revenue

1616

Budget Expenditure in 2006Budget Expenditure in 2006

Total expenditure increased by 12% from $853 Total expenditure increased by 12% from $853 million in 2005 to $959 million in 2006; million in 2005 to $959 million in 2006;

Current expenditure increased to $584 million or 8% Current expenditure increased to $584 million or 8% of GDP. Payroll amounted to $202 million, of GDP. Payroll amounted to $202 million, accounting for 34% of current expenditure or 2.8% of accounting for 34% of current expenditure or 2.8% of GDP.GDP.

Capital expenditure increased to $374 million or Capital expenditure increased to $374 million or 5.2% of GDP. 5.2% of GDP.

Current budget surplus increased to 1.8% of GDP, Current budget surplus increased to 1.8% of GDP, while overall budget deficit reduced to 1.7% of GDP.while overall budget deficit reduced to 1.7% of GDP.

1717

Government Expenditure: 1994-2007(in billions of Riels)

998 1,248 1,320 1,2741,569 1,834 2,049

2,5252,972 3,045 3,006

3,514 3,724

4,622

662 737 790 811 929 1,096 1,215 1,416 1,575 1,758 1,746 1,967 2,152

2,837

0

1000

2000

3000

4000

5000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007b

Total Expenditure Current Expenditure

1818

Spending on InfrastructureSpending on Infrastructure

Infrastructure development is priority area;Infrastructure development is priority area; Decreasing the distance from the village due to good Decreasing the distance from the village due to good

road by one kilometer will enhance productivity by road by one kilometer will enhance productivity by about 30 thousand Riel per hectare;about 30 thousand Riel per hectare;

Land with access to irrigation facilities during the dry Land with access to irrigation facilities during the dry season has 15 percent greater rental value and 10 season has 15 percent greater rental value and 10 percent higher sale value than land without irrigation;percent higher sale value than land without irrigation;

From 2000-2005 the disbursement for infrastructure From 2000-2005 the disbursement for infrastructure and its maintenance amounted to about 1,324 billion and its maintenance amounted to about 1,324 billion riels.riels.

1919

Infrastructure Spending(in millions of Riels)

217,870201,620

232,946204,834

145,137 148,109

183,575

0

50,000

100,000

150,000

200,000

250,000

2000 2001 2002 2003 2004 2005 2006p

2020

Road Maintenance Fund(in millions of Riels)

15,374

48,086 50,533

59,988

70,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2002 2003 2004 2005 2006p

2121

Irrigation Expenditure(in millions of Riels)

1,3865,280

18,000

40,000

05,000

10,00015,00020,00025,00030,00035,00040,00045,000

2003 2004 2005 2006p

2222

Education SpendingEducation Spending

From 1994 to 2007, spending on education From 1994 to 2007, spending on education has increased more than five times in has increased more than five times in nominal terms, from 102 billion to 546 nominal terms, from 102 billion to 546 billion CRs ($134 million) respectively; billion CRs ($134 million) respectively;

Net enrollment rates at primary level Net enrollment rates at primary level increased from 65% in 2000 to 76% in increased from 65% in 2000 to 76% in 2004;2004;

Lower secondary (grades 7-9) net Lower secondary (grades 7-9) net enrollment has more than doubled since enrollment has more than doubled since 1997, increasing from 7.6% to 16.4%;1997, increasing from 7.6% to 16.4%;

Improvements in literacy, repetition rates. Improvements in literacy, repetition rates.

2323

Spending for the Ministry of Education: 1994-2007(in billions of Riels)

61.6 73.8 80.6 83.4 102.0149.8 165.8

212.3289.7 300.5 325.9 350.8

391.2

546.0

0

100

200

300

400

500

600

2424

Health SpendingHealth Spending Health spending rose from more than Health spending rose from more than

sevenfolds from 44 billion CRs in 1994 to sevenfolds from 44 billion CRs in 1994 to 337 billion CRs ($82 million) in 2005;337 billion CRs ($82 million) in 2005;

Infant Mortality Rate (IMR) declined from Infant Mortality Rate (IMR) declined from 95 per 1,000 live births in 1998 to 65 in 95 per 1,000 live births in 1998 to 65 in 2004;2004;

Under 5 Mortality Rate declined from 124 to Under 5 Mortality Rate declined from 124 to 83 for the same period;83 for the same period;

However, Maternal Mortality Rate (MMR) However, Maternal Mortality Rate (MMR) remains stagnant; suggesting that remains stagnant; suggesting that improvement in hospital care is needed;improvement in hospital care is needed;

2525

Spending for the Ministry of Health: 1994-2007(in billions of Riels)

30.0 26.1 42.6 45.3 43.875.4

101.8130.3

164.4 173.0192.1

224.5 229.1

336.9

0

50

100

150

200

250

300

350

400

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007b

2626

Financial Sector Financial Sector PerformancePerformance

2727

Monetary DevelopmentsMonetary Developments

Banking reform will continue (18 banks Banking reform will continue (18 banks and 36 MFIs);and 36 MFIs);

GreaterGreater confidence in the banking system confidence in the banking system leads to broad money recording a robust leads to broad money recording a robust growth of 38 percent in 2006, due to the growth of 38 percent in 2006, due to the 45-% increase in foreign currency 45-% increase in foreign currency deposits; deposits;

Credit to private sector rose by 51%, Credit to private sector rose by 51%, driven by the construction of hotels and driven by the construction of hotels and real estate.real estate.

2828

Foreign InvestmentForeign Investment FDI inflows are projected at $394 million in FDI inflows are projected at $394 million in

2006, compared to $381 million in 2005;2006, compared to $381 million in 2005; The CDC approved investment projects totaling The CDC approved investment projects totaling

$3.8 billion, of which :$2.9 billion for the $3.8 billion, of which :$2.9 billion for the services sector (77% of the approved services sector (77% of the approved investments), $498 million in the agricultural investments), $498 million in the agricultural sector, of which $351 million in agro-business; sector, of which $351 million in agro-business; and $366 million in the services sector, of which and $366 million in the services sector, of which $330 million in tourism. $330 million in tourism.

These 88 projects are expected to create 154.000 These 88 projects are expected to create 154.000 employments. employments.

2929

During 1999 to 2006, the international reserves on average During 1999 to 2006, the international reserves on average annually increased by 14%;annually increased by 14%;Gross international reserve maintained at 3 months of import.Gross international reserve maintained at 3 months of import.

Gross International Reserves 1999-2010(in millons of dollars)

422 482 548663 737 806

9151080

12001370

1551

1804

0200400600800

100012001400160018002000

3030

In 2006, M2 grew at 38.1%, foreign currency deposits of residents remained the most important counterpart to monetary expansion, accounting for around 70% of the annual increase in broad money.

Growth of Broad Money: 2000-2006(percent change; end of period)

26.9

20.4

31.1

15.0

30.4

16.1

38.1

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006e

3131

•The trend steadily increasing, but the ratio remain at low level, possibly reflecting the week performance of financial system.

Domestic Credit to Private Sector: 2000-2006(In millions of USD)

310.2238.2 268.8

335.9450.6

581.5

893.3

0

200

400

600

800

1000

2000 2001 2002 2003 2004 2005 2006e

3232

Development of Microfinance, Development of Microfinance, insurance and capital marketsinsurance and capital markets

Microfinance has transformed former Microfinance has transformed former Khmer strongholds into prosperous farms. Khmer strongholds into prosperous farms. MF loan grew by 40% to $56 million in MF loan grew by 40% to $56 million in 2005;2005;

The government will introduced life The government will introduced life insurance;insurance;

Accounting and auditing standards were Accounting and auditing standards were introduced;introduced;

Laws on securities approved; bond markets Laws on securities approved; bond markets and stock exchange – in 2009;and stock exchange – in 2009;

3333

Overall Economic Overall Economic Growth Outlook for Growth Outlook for

2007-20152007-2015

3434

New sources of growthNew sources of growth

Comprehensive policy reforms should be Comprehensive policy reforms should be implemented to boost Cambodia’s implemented to boost Cambodia’s competitiveness;competitiveness;

Over the medium term, reduction of major Over the medium term, reduction of major costs – infrastructure, electricity, port costs – infrastructure, electricity, port handling, informal fees – should be addressed;handling, informal fees – should be addressed;

Economic Processing Zones (EPZ) should Economic Processing Zones (EPZ) should attract new investments into new sectors of attract new investments into new sectors of growth – electronics, assembly, growth – electronics, assembly,

3535

Agricultural developmentAgricultural development

Reform of the idle economic concessions;Reform of the idle economic concessions; Increase agricultural productivity;Increase agricultural productivity; Land reform – prevent encroachment on the land of Land reform – prevent encroachment on the land of

ethnic minorities (30% lost their land); ethnic minorities (30% lost their land); Increase access to extension, good seeds & Increase access to extension, good seeds &

microfinance;microfinance; Expansion of electrification, irrigation facilities and Expansion of electrification, irrigation facilities and

reduction of power costs to promote SMEs;reduction of power costs to promote SMEs; Increased use of Labor-Appropriate Technology Increased use of Labor-Appropriate Technology

(LOBAT) in public works construction;(LOBAT) in public works construction;

3636

Agricultural developmentAgricultural development

Diversifying agricultural production from rice Diversifying agricultural production from rice to increase exports: rubber, fisheries, fresh to increase exports: rubber, fisheries, fresh water and marine aquaculture (fish & water and marine aquaculture (fish & crustaceans), tapioca, palm oil;crustaceans), tapioca, palm oil;

Promoting outsourcing in certain categories of Promoting outsourcing in certain categories of machinery products and services (back office machinery products and services (back office operations in banking, accounting etc.);operations in banking, accounting etc.);

Encouraging agricultural processing plants;Encouraging agricultural processing plants; Farmer organizations.Farmer organizations.

3737

Tourism developmentTourism development

Liking tourism to agriculture:Liking tourism to agriculture:• Creating a green belt around Siem Reap;Creating a green belt around Siem Reap;• Organizing farmers for contract farming;Organizing farmers for contract farming;

Sustainable tourism development:Sustainable tourism development:• Feasibility study on tourism to ensure long-term Feasibility study on tourism to ensure long-term

sustainability;sustainability; Promotion of eco-tourism:Promotion of eco-tourism:

• Tonle Sap eco-tourism;Tonle Sap eco-tourism;• Sihanoukville and the North-East;Sihanoukville and the North-East;

3838

FDI and New IndustriesFDI and New Industries

Promoting new technologies through FDI – Promoting new technologies through FDI – structural reforms;structural reforms;

Higher education reform and Human Resource Higher education reform and Human Resource Development Policies;Development Policies;• Linking higher education and vocational training Linking higher education and vocational training

to labor market and industrial planning;to labor market and industrial planning; Infrastructure development: roads, ports, Infrastructure development: roads, ports,

transport, electricity, utilities, transport, electricity, utilities, telecommunications;telecommunications;

Industrial planning: specific conditions;Industrial planning: specific conditions;

3939

Oil & GasOil & Gas

Some $100 – 300 million in additional revenue Some $100 – 300 million in additional revenue from oil and gas; from oil and gas;

An oil fund should be established and An oil fund should be established and professionally managed;professionally managed;

The income from fund management can be The income from fund management can be used to enhance infrastructure and social used to enhance infrastructure and social development;development;

Communities and vulnerable groups should Communities and vulnerable groups should benefit from oil and gas revenue;benefit from oil and gas revenue;

4040

THANK YOU !!!THANK YOU !!!