Knowledge Note

Cambodia has achieved impressive economic growth, with an average annual GDP growth rate of 8.1 percent over the period 2000-10, and a dramatic reduction in poverty from 53.0 percent in 2004 to 20.5 percent in 2011. Notwithstanding these achievements, further progress is needed to raise living standards of those living just above the national poverty line, and help the more than 2 million people who are still poor. The critical challenge ahead for Cambodia is to ensure sustained high growth without social exclusion. Sustained strong inclusive growth will require both public investment in physical infrastructure and human capital (including health and education), and assuring equal access to quality public services. The need for increased investment, coupled with the expected decline in Overseas Development Aid (ODA), will mean greater dependence on domestic revenues. This will require improved standards in the ways in which the Royal Government of Cambodia manages its public finances. Increasing fiscal space by reducing tax exemptions and improving collection should provide larger allocations. This is one side of improved public financial management (PFM). In addition, on the expenditure side, this should be accompanied by more efficient and effective spending, together with more transparent rule-based governance. Improving both aspects of PFM will promote strong, inclusive growth and better quality services for citizens.