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Implementation Completion Report (ICR) Review - KH - Cambodia Sac


  
1. Project Data:   
ES Date Posted:
09/08/2004   
PROJ ID:
P058544
Appraisal
Actual
Project Name:
KH - Cambodia Sac
Project Costs(US $M)
 30.00  30.00
Country:
Cambodia
Loan/Credit (US $M)
 30.00  30.00
Sector, Major Sect.:
Forestry, Central government administration, Other social services, General industry and trade sector,
Agriculture fishing and forestry; Law and justice and public administration; Health and other social services; Industry and trade
Cofinancing (US $M)
 5.00  5.00
L/C Number:
C3323      
   
Board Approval (FY)
  0
Partners involved
Sweden 
Closing Date
06/30/2002 12/31/2003
         
Prepared by: Reviewed by: Group Manager: Group:  
Pierre M. De Raet
Fareed M. A. Hassan Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives

The overall objective of the project was to support the Government 's reform program, with the following specific objectives:

1) to assist in improving public resource management, including: (i) resource mobilization and (ii) forestry management;
2) to assist in enhancing public sector management, including (i) expenditure rationalization and (ii) preparatory steps for military demobilization and administrative reform; and
3) to assist in formulating a strategy on enhancing governance and fighting corruption in economic management and implementing it.

b. Components

There were five components:

1) Revenue mobilization: (i) improvements in taxation, notably in the VATsystem; (ii) modifications to the Law on Investments (LOI) to ensure a better level playing field; and (iii) improvements in tax and customs administration;

2) Forestry management: (i) establishment of a forest crime monitoring system and other related actions to improve forestry management; (ii) review of the concession management system; and (iii) submission of a new forest law to the National Assembly;

3) Expenditure rationalization: (i) expenditure reorientation, notably towards the social sectors; (ii) improvements in expenditure management, including issuing spending plans to line ministries on a monthly basis; and (iii) strengthening of the central ministries and initiating the preparation of a Medium Term Expenditure Framework (MTEF) in the ministry of health as a pilot;

4) Military demobilization and administrative reform: (i) implementation and review of the pilot phase of the Government's demobilization and reinsertion program; and (ii) on the basis of the said review, development of a proposal for the implementation of the full program; and (iii) preparation of a comprehensive action plan for rationalizing the size and functions of the civil service; and

5) Governance: (i) conducting surveys on governance and corruption; (ii) preparation of a diagnosis of the problems based on the results of the surveys; (iii) preparation of an action plan to enhance governance and fight corruption; (iv) dissemination of the findings of the surveys; and (v) begin implementation of the action plan. Other measures in the governance area were: (i) preparation of a new Commercial Code and (ii) submission to the National Assembly of the ratification act related to the Convention on the Recognition and Enforcement of Foreign Awards and its related implementing regulations.

c. Comments on Project Cost, Financing and Dates

The project was approved in February 2000, on the basis of actions taken prior to negotiations. It consisted of three tranches, the first one disbursed upon effectiveness in March 2000, the second one disbursed in December 2003, before Credit closing, and the third one, a floating tranche, disbursed in September 2001, after submission of evidence on the demobilization component.

The Credit closing date was postponed five times to December 31, 2003, 18 months after the original date, to allow for meeting the second tranche release conditions and for making more progress in implementing the program. With respect to the second tranche, Cambodia was not able to meet two of the eight conditions for release and two waivers were granted by the Board in December 2003. One waiver related to the length of the tax holiday period under the revised LOI: the condition was to limit the tax holiday period to three years while the amended law provides for three years plus a possible extension after evaluation by the Government. The second waiver related to the requirement that the ratio of disbursements for the priority sectors combined (health, education, agriculture and rural development) to their allocation in the FY 2000 budget year be at par with the ratio for all the other sectors combined. In 2000, the ratio was slightly lower due to emergency post-flood rehabilitation needs which had required diversion of some funds from the social sectors, and to weak absorptive capacity, especially in the health sector, aggravated by the new procedures put in place, precisely to accelerate disbursements to the health and education sectors.


3. Achievement of Relevant Objectives:


1) The objective of improving public resource management was partially achieved. In the area of revenue mobilization, progress was fairly substantial, as reflected in the data from 2000 to 2002. However, a small decline in the revenue/GDP ratio was expected for 2003. The VATsystem was more widely applied and extended to the provinces and the refund system strengthened with refund lags reduced to reach 15 days at most. The LOI was revised in 2003, providing for more rational tax incentives and the removal of exemptions. Finally, an improved pre-shipment inspection system was adopted tightening customs duties collection and speeding up shipments. Little progress was achieved in tax administration due to weak capacity. In forestry management, a crucial issue in Cambodia, progress was achieved but with many difficulties and much delay in reaching program expectations. The Government pursued its policy of cracking down on illegal logging and of reporting forest crimes on a quarterly basis. Concession areas were reduced from 6.4 million ha to 2.5 million ha and several areas were declared protected. Concession logging was suspended to allow for preparing strategic forest management plans and a review of all contracts. A draft model contract was prepared and will be finalized once the strategic plans are completed. Finally, a new Forest Law and Sub-Decrees on Community Forestry and Forest Concession Management were adopted. However, the complexities in reforming the sector make any progress necessarily slow.

2) The objective of strengthening public sector management was partially achieved. Significant progress was achieved in increasing budget allocations to the priority sectors, from 2 percent of GDP in 1999 to 3.6 percent in 2002, but cash management problems prevented release of the funds until late in the fiscal year, thereby reducing the expected impact of increased allocations (see Section 2 c above re the waiver). On the other hand, the specific objective of improving expenditure management and effectiveness was not achieved, due to the weaknesses in the budgetary data systems. To remedy this situation, some initial steps were taken: (i) an expenditure tracking study was launched to trace actual spending on health and education from the center down to the local level; and (ii) preliminary steps were taken in initiating MTEFs by linking sectoral policies with budget allocations. In the area of demobilization, budget allocations for defense and security were reduced from 3.9 percent of GDP in 1999 to 2.8 percent in 2002 (and to 2.3 percent in the preliminary 2003 budget), and the pilot phase of the demobilization and reinsertion program was completed. But, as of closing of the Credit, the second phase of the program had been postponed due to mis-procurement under the IDA-financed Demobilization and Reintegration Project. No progress was achieved in the public administration area.

3) The objective of strengthening governance and fighting corruption was partially achieved. Surveys on governance were carried out, and on the basis of their findings and of those of other studies, some conducted by donors, a draft Governance Action Plan (GAP) was prepared and presented at the May 2000 CG meeting. After extensive discussions within Cambodia, the Plan was approved by the Council of Ministers in March 2001. In December 2001, the Plan was presented at a national forum where it was disseminated, together with the diagnostic report on governance and corruption published on the basis of the above-mentioned surveys. The Government started implementing the GAP, for instance in the area of public finance, but very little progress was achieved in the legal and judicial reform area. There was no progress in initiating the revision of the Commercial Code.

4. Significant Outcomes/Impacts:


1) The macro-economic framework was kept on track.
2) The main impact of the project has probably been a much greater awareness among politicians and Government officials of the complexity in tackling a wide range of reforms. In the case of Cambodia, isolated for three decades, increased exposure to the policies, practices and procedures of multilateral and bilateral donors is a very important learning process.
3) Initial steps were taken in raising transparency and in bringing public opinion exposed to the issues of corruption and lack of governance in public sector management and in the forestry sector.
4) Budgetary allocations to the social sectors were increased to match the Government's strategy on poverty reduction.

5. Significant Shortcomings (include non-compliance with safeguard features):


1) Despite increases in allocations, there was no or little impact on improving the effectiveness and equity of public expenditure in the social sectors.
2) No or little progress was achieved in moving on broader and/or medium-term fronts of the program, the Government being too much absorbed by the necessity to meet the conditions for tranche release.
3) In addition to its low capacity, the Cambodian administration is very vulnerable to pressure, whether from the political arena or from vested interests.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactoryModerately SatisfactoryOED notes that the region's rating is in fact moderately satisfactory.
Institutional Dev.:
ModestModest
Sustainability:
LikelyNon-evaluableOED notes that the region's rating is in fact moderately likely. The rating of non-evaluable is based on the extremely weak capacity of the Cambodian administration, continued political uncertainty, and unclear commitment to some of the reforms supported under this operation.
Bank Performance:
SatisfactorySatisfactory
Borrower Perf.:
SatisfactorySatisfactory
Quality of ICR:
Satisfactory

7. Lessons of Broad Applicablity:

One-tranche operations are better suited to borrowers with very low institutional and administrative capacity as they allow more flexibility during preparation and supervision and avoid the embarrassment of multiple extensions of the closing date.

8. Audit Recommended?  Yes

          Why?  As part of the expected series of PRSC projects.

9. Comments on Quality of ICR:

The ICR is broadly satisfactory in providing the information to make an assessment of performance under the project. The following should be noted, however. First, the ICR should rate each component and the information/evidence presented should explain and justify the rating in each case. Second, there are too many repetitions concerning the conditions for Board presentation and tranche release, in the text and again in annexes. Third, by concentrating on the SAC-specific conditions, there is little discussion of the status of and/or progress in the accompanying policy actions (column 5 of the PR matrix), which could have provided a broader picture. Finally, the ICR would have benefited from editing.

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