Public Financial Management Reform Programme (PFMRP) in Cambodia

The Royal Government has started to embark on reform in all sectors since the end of the 80s especially a comprehensive macroeconomic policy and structural reform program and integration of Cambodia's economy into the region and the world. The Royal Government of Cambodia has continuously achieved remarkable outcomes especially in the area of liberalization and stabilization of its economy. During the early 1990s, average annual growth has been about 6 to 7 percent with a significant drop in inflation rate to below 5 percent per annum. Moreover, numerous measures has set out and implemented to strengthen economic and public financial management while establishing good governance systems, including: (i) macroeconomic policy framework management, (ii) improving the budget system and public procurement, (iii) modernization of the tax system, (iv) improving the public accounting system, (v) developing the audit system and inspection, (vi) privatizing public enterprises, and as well as (vii) strengthening state property management.

The Government sees the public financial management and improvement program as a central plank underlying the general administrative reform program. Achievement of the 2015 vision is underpinned by the Government’s commitment to establishing the framework for a professional civil service, in which officials will be able to maintain PFM standards without depending on continuous external advice. Public financial management reform and the transformation of the civil service will have to become increasingly linked and mutually supportive in the progress towards the vision of installing much higher standards of management of and accountability, transparency, and responsibility for mobilizing all government resources and effectiveness and efficiency in their application to the Government’s National Poverty Reduction Strategy and priority programs.

Vision

The reform strategy developed by the Ministry of economy and finance and endorsed by the Prime Minister on 30th June, 2004 set an overarching framework for the reform of public financial management systems in Cambodia. Part of that strategy was a statement of the characteristics of the public financial management system that the Royal Government of Cambodia aims to introduce. These characteristics were:

Budget Formulation Characteristics

• The PFM system is designed to seek performance, both in the use of public resources and in the achievement of policy results through sound public finance management. It seeks maximum value for money over time from the use of government resources. Good performance is rewarded and offences are detected and prosecuted.
• There is clear legal separation of functions and fiscal powers for the national and sub-national levels, yet within a unified budget system that covers all government offices, functions, programs and projects.
• A consistent analytical framework across all sectors, with budget transactions classified on an administrative, economic, and functional or programmatic basis which identifies poverty-related spending and which supports a general orientation of public expenditure management towards the achievement of policy results.
• The budget is set within a realistic and sustainable multi-year framework that governs multi-year programming.
• The budget is comprehensive and covers all aspects of government operations, including longer term budget financing and debt management planning, and resourcing plans which include all of the government sector’s financial, fixed and other assets with its liabilities.
• Budget formulation is responsive to the government’s policies and programs which could have the implication on the composition, incentives, size, training, deployment and other staffing implications of the government’s policies and programs. The budget system also ensures that post-budget supplementary expenditure credits are fully financed.

Budget Execution Characteristics

Monitoring and Review Characteristics

Strategy

• The strategy for moving towards this vision set out in the 2004 document reflected three key elements.
• Firstly, the leadership of the strategy development and implementation process within RGC was firmly established. This importance of both political support and leadership arrangements within the administration were clearly recognised. Attention was paid to coordination arrangements and the assignment of responsibilities within the administration for implementation of the different activities. Furthermore, steps were taken to establish clear, positive and efficient arrangements with the development partners that would support the reform process with both resources and advice.
• Secondly, attention was paid to the sequencing of reforms. It was recognised that not everything can be done at once, but also that some basic and core activities need to be done before others can work effectively. Sequencing cannot be planned based on the importance of individual technical improvements alone. To guide this sequencing, potential activities were grouped into a series of Platforms with each Platform representing a real and measurable improvement in the performance of the public financial management system, but also being a step to the next Platform. The series of Platforms decided upon at that time are shown in the diagram below:

• Thirdly, it was considered important that the plans to implement each Platform should encompass not just technical and process developments, but also complementary organisational, capacity and motivational developments. It was recognised that without attention to all these different dimensions each Platform would not be a robust step to the next. Reforms would be shallow and subject to degradation during the reform process unless these aspects of reform support each other.

It was also decided not to try and produce detailed activity plans for the whole reform programme all at once. Given the long time scales that it was recognised would be required to implement the programme as a whole (probably running up to at least the middle of the next decade) to attempt such planning would be impractical and introduce rigidities into the development process that would not be helpful. Instead, detailed activity planning within the framework of the overall strategy would focus on the first Platform. Furthermore, it was considered important to achieve engagement of staff at all levels in the reform process. This was achieved by combining a ‘top down’ approach in identifying broad activities with the ‘bottom up’ development of specific action plans to implement those activities prepared by the operational departments most involved.
However, it was also recognised that the lead time on some activities necessary under later Platforms would be long. Therefore, some strategic development, preparatory work or piloting would take place with regards to such later Platform activities that could be identified now. Work on Platform 1 plus activities in support of this work for later Platforms would, together, constitute Stage 1 of the reform programme and would be managed and monitored alongside each other.
In addition, efforts were made by Development Partners to co-ordinate their financing and cooperation arrangements efforts around the overall RGC PFMRP. A PFM SWAp arrangement was agreed with RGC supported by coordinated multi-lateral and bilateral financing.
This revised strategy for the next stage of the PFMRP is based on a thorough review of progress to date under stage 1 and an assessment of the needs for achievement of Platform 2 objectives as well as preparatory work for later Platforms. The revised strategy represents a refinement of the existing approach based on the lessons learned to date, the current PFM context and emerging trends for future developing PFM.