Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 104843 – KH INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION Public Disclosure Authorized MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY ENGAGEMENT NOTE FOR THE KINGDOM OF CAMBODIA FOR THE PERIOD FY2016 - 2017 Public Disclosure Authorized April 27, 2016 Southeast Asia Country Management Unit East Asia and Pacific Region International Development Association International Finance Corporation Multilateral Investment Guarantee Agency Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective as of December 23, 2015) Currency Unit = Cambodian Riel (KHR) KHR 4,048 = US$1 GOVERNMENT FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities IEG Independent Evaluation Group ASA Advisory Services and Analytics IFAPER Integrated Fiduciary Assessment and Public Expenditure Review ADB Asian Development Bank IFC International Finance Corporation ILO International Labor Organization ASEAN Association of Southeast Asian Nations IPA Independent Procurement Agency CAS Country Assistance Strategy IMF International Monetary Fund IP Inspection Panel CDC Council for the Development of JICA Japan International Cooperation Agency Cambodia CDCF Cambodia Development Cooperation JMI Joint Monitoring Indicator Forum JSDF Japanese Social Development Fund CEN Country Engagement Note LMAP Land Management and Administration Project CMDGs Cambodia Millennium Development MBPI Merit-Based Payment Incentive Goals MEF Ministry of Economy and Finance MIGA Multilateral Investment Guarantee Agency CPF Country Partnership Framework NGO Non-Government Organization CPP Cambodian People’s Party DFID UK Department for International NPAR National Program for Administrative Development Reform DSA Debt Sustainability Analysis NPL Non-Performing Loan FDI Foreign Direct Investment NSDP National Strategic Development Plan ODA Official Development Assistance FM Financial Management PEFA Public Expenditure and Financial Accountability FSAP Financial Sector Assessment Program PFM Public Financial Management PFMRP Public Financial Management Reform Program FY Fiscal Year PRGO Poverty Reduction and Growth Operation RGC Royal Government of Cambodia GDCCs Government Donor Coordination SCD Systematic Country Diagnosis Committees GDP Gross Domestic Product TF Trust Fund GGF Good Governance Framework TPP Trans-Pacific Partnership GMS Greater Mekong Sub-region TWG Technical Working Group HEF Health Equity Fund WBG World Bank Group IDA International Development Association WTO World Trade Organization IDP Industrial Development Policy IDA/IBRD IFC MIGA Vice President: Victoria Kwakwa Country Director: Ulrich Zachau Vivek Pathak Dan Biller Country Alassane Sow Kyle F. Kelhofer Paul A. Barbour Manager/TTLs: Louise F. Scura Sarak Duong FY2016 – 2017 COUNTRY ENGAGEMENT NOTE FOR THE KINGDOM OF CAMBODIA TABLE OF CONTENTS EXECUTIVE SUMMARY ------------------------------------------------------------------------------ ii Introduction --------------------------------------------------------------------------------------- ii Cambodia’s Development Story -------------------------------------------------------------- iii Cambodia’s National Strategic Development Plan (NSDP) 2014-2018 ------------------ v Cambodia-WBG Partnership and Lessons Learned ----------------------------------------- v Towards Renewed Full WBG Engagement ------------------------------------------------- vi I. INTRODUCTION ---------------------------------------------------------------------------------- 1 II. COUNTRY CONTEXT ---------------------------------------------------------------------------- 2 A. Cambodia’s Development Story --------------------------------------------------------------- 2 Political Development, Peace and Stability -------------------------------------------------- 2 High Economic Growth ------------------------------------------------------------------------- 2 Significant Poverty Reduction and Rapid Human Development -------------------------- 3 Recent Macroeconomic Developments ------------------------------------------------------- 6 Growth Outlook ---------------------------------------------------------------------------------- 8 B. Opportunities and Challenges for Sustaining Development Results ---------------------- 8 Shifting Gears ------------------------------------------------------------------------------------ 8 Trade ---------------------------------------------------------------------------------------------- 8 Manufacturing ------------------------------------------------------------------------------------ 9 Tourism ------------------------------------------------------------------------------------------- 9 Agriculture ---------------------------------------------------------------------------------------- 9 Construction and Real Estate ------------------------------------------------------------------ 10 Cross Cutting Areas ---------------------------------------------------------------------------- 10 C. Containing Risks to Vulnerable Populations while Reducing Poverty Further. -------- 12 Governance and Public Service Delivery ---------------------------------------------------- 12 Social Services ---------------------------------------------------------------------------------- 13 Climate Change and Disaster Risk Management ------------------------------------------- 13 Rural Infrastructure ----------------------------------------------------------------------------- 14 Social Protection -------------------------------------------------------------------------------- 14 Community Fishery, Social Land Concessions, and Income Opportunities for the Poor ---------------------------------------------------------------------------------------------------- 15 III. GOVERNANCE, WBG CAMBODIA PARTNERSHIP, AND LESSONS LEARNED 15 A. Governance in Cambodia ---------------------------------------------------------------------- 15 Public Financial Management, Public Administrative Reform, and Decentralization & De-concentration -------------------------------------------------------------------------------- 16 The challenge of addressing fiduciary risks ------------------------------------------------- 17 Land Issues in Cambodia and the Boeung Kak Lake (BKL) ----------------------------- 18 B. Cambodia – WBG Partnership: implementation experience ------------------------------ 20 Implementation of the CAS ------------------------------------------------------------------- 20 The 2012 – 2015 Post CAS Period ----------------------------------------------------------- 21 Lessons Learned -------------------------------------------------------------------------------- 21 IV. GOVERNMENT DEVELOPMENT PLAN --------------------------------------------------- 22 V. WORLD BANK GROUP ENGAGEMENT --------------------------------------------------- 23 A. Stakeholder Consultations and Country Survey -------------------------------------------- 23 B. Planned WBG Program ------------------------------------------------------------------------ 24 VI. REALIZING OPPORTUNITIES FOR RESULTS AND MANAGING RISKS ---------- 26 Tables: Table 1: Contribution to real GDP Growth (in percent) ..................................................................3 Table 2: Progress toward the Cambodia Millennium Development Goals .....................................5 Table 3: Systematic Operations Risk-Rating Tool (SORT) ..........................................................27 Boxes: Box 1: Trade and Competitiveness ................................................................................................11 Box 2: Addressing Governance and Anti-Corruption in Cambodia – The PFMRP ......................16 Figures: Figures 1: Poverty Headcount Rates Cambodia: 2004-2012 ...........................................................4 Figure 2: Average ODA Disbursement by Sector (2000-2015) ....................................................23 Annexes: Annex 1: Key Economic Indicators 2012 – 2018 ..........................................................................28 Annex 2: Planned World Bank Group CEN Program – Indicative Activities and Milestones (FY2016-2017) ..............................................................................................................................29 Annex 3: Completion and Learning Review for Cambodia for 2005-2015 ..................................36 Annex 4: Cambodia Country Map IBRD 33381……………………………………………...74 EXECUTIVE SUMMARY INTRODUCTION i. This Country Engagement Note (CEN) presents the World Bank Group (WBG) partnership with Cambodia for the period FY2016-2017, aimed at supporting the country’s efforts to sustain inclusive and resilient growth and to continue reducing poverty and enhancing shared prosperity. The CEN caps a decade that started with a comprehensive program of WBG support under the 2005-2008 Country Assistance Strategy, which was extended to 2011. Then followed a pause in new IDA financing from 20111, resulting from differences between the Royal Government of Cambodia (RGC) and the World Bank over the findings of the World Bank Inspection Panel (IP) on the application of safeguards in the IDA-supported Land Management and Administration Project (LMAP)2. ii. The preparation of the CEN