After many funds for Cambodia were frozen because of the land conflict at Boeung Kak lake, the World Bank now has a new fund of $130 million for four new projects – road maintenance, issues involving fisheries in the Mekong Delta, sustainable livelihoods and health equity funds to make sure the poor have access to good-quality health services.
Last week Victoria Kwakwa, the World Bank Vice-President for East Asia and the Pacific, made an official visit to Cambodia in a bid to improve relations between the bank, the government and civil society. Ms. Kwakwa sat down with Khmer Times to talk about the purpose of her visit to Cambodia and what global changes are affecting the country’s prospects.
KT: Could you tell me about your objective of visiting Cambodia?
Ms. Kwakwa: This is my first visit to Cambodia in my new capacity as the World Bank’s Vice-President for East Asia and the Pacific. I am delighted to be able to see the progress Cambodia has made, to better understand the challenges the country still faces and to learn how the World Bank might continue to contribute to addressing these challenges.
My visit is also to affirm the World Bank’s strong commitment to full engagement in Cambodia. We are eager to do all we can to make our Cambodia-World Bank Group partnership mutually beneficial.
KT: I learned that you met a wide range of stakeholders. Would you mind sharing with us what types of issues you discussed?
Ms. Kwakwa: I’m delighted that I had the chance to meet with several different stakeholder groups, including government counterparts, civil society representatives and the private sector. We discussed a broad range of economic and social issues.
On economic issues, we discussed how to increase productivity to position Cambodia for success as a middle-income country, as well as how Cambodia can rejuvenate the agriculture sector and improve the environment for the private sector. The government mentioned its industrialization development plan, which we see as a platform for moving Cambodia to high value-added activities.
We also discussed concerns about the global environment, increased uncertainty with the recent Brexit referendum result and what that means for Cambodia. There was also acknowledgement in our talks that the current decline in oil prices is good for Cambodia and needs to be acted on for maximum advantage. We agreed on the importance of building economic resilience through both strengthening macroeconomic buffers and diversifying sources of growth to allow Cambodia to respond and adjust well to any unforeseen shocks from external or domestic factors.
On social issues, we discussed the inclusion agenda, particularly access to health services for the poor and land access for all Cambodians, including land tenure security. We also discussed a more integrated approach in agriculture that organizes farmers as cooperatives and brings in critical inputs such as technology, irrigation and access to electricity to help them improve their livelihoods.
KT: How about Boeung Kak lake issues? Has the World Bank forgotten? What was your recommendation to the government for resolving on-going land disputes in Cambodia?
Ms. Kwakwa: We strongly believe that fair and peaceful resolution of land conflicts is really critical for Cambodia’s long-term economic and social development. Access to land and land tenure security is very important for all Cambodians, including the poor.
On the BKL issue, we understand from the municipality of Phnom Penh that agreement has been reached with almost all households, and several households are still in negotiations with the authorities.
KT: World Bank froze funds to Cambodia for many years, but this year you decided to give back the funds. Could you tell me the reason why?
Ms. Kwakwa: At the World Bank, we believe we can make a contribution to Cambodia’s development. Under our new Country Engagement Note (CEN) for Cambodia, our Board of Executive Directors approved four projects that provide support in areas designated as important by the government and the Cambodian people. This includes road maintenance and issues involving fisheries in the Mekong Delta, sustainable livelihoods and health equity funds to make sure that the poor have access to good-quality health services.
We believe that through all of these approaches we can bring value to Cambodia’s development. At the same time, the issues involving BKL are being resolved. As a development partner that cares deeply about helping countries such as Cambodia fight poverty and ensure a better standard of living for all, we want to have full engagement.
KT: Climate change is a major concern affecting the world, especially the agricultural sector, leading to slow growth of economies. Thousands of hectares of farming land were hit by drought last year and hundreds more hectares in the last few months of this year. What is the World Bank’s outlook for Cambodia this year in comparison to your projection earlier this year?
Ms. Kwakwa: The drought has affected Cambodia and other countries in the region, including Thailand, Vietnam and even countries in South Asia such as India. It is a combination of the continued impact of climate change, as well as the El Nino effect that began in 2015.
Our estimation of Cambodia’s growth is robust at around 6.9 percent this year, based on strong garment exports as well as good progress in the construction sector, which is largely financed through foreign direct investment. We believe such growth will continue to increase to help mitigate the adverse impact of the drought on agricultural performance.
In terms of the drought itself, the UN World Food Program is closely monitoring the situation, and we work with them to determine the crucial issues and how we can be helpful in addressing them.
In terms of the larger climate change agenda, we are focusing on disaster risk management by trying to ensure greater resilience to likely impacts in all the infrastructure that we support. We also have mechanisms in several projects that allow for fast access to funding in the case of emergencies created by powerful storms and other adverse weather conditions related to climate change.
We are also looking at policies needed to strengthen climate resilience, particularly in agriculture, to help the country and its people adapt to impacts such as drought and stronger storms. These include making agriculture more climate-smart, strengthening early warning systems for potential disasters and improving preparations for dealing with the aftermath of disasters.
KT: On July 1, the World Bank revised Cambodia’s gross national income (GNI) per capita from a low-income country to a lower-middle income status. Will that affect Cambodia’s ability to seek grants from development partners or multilateral lending agencies?
Ms. Kwakwa: Let me first offer my congratulations to the government and the people of Cambodia for reaching this important milestone. Cambodia’s income per capita is estimated at $1,070, which puts Cambodia into the bracket of lower-middle income countries. If you look at where Cambodia started from – not so long ago – I think this is evidence that the country’s rapid growth has been broadly shared. Cambodia not only increased its income, but also reduced the poverty rate. This is a remarkable achievement.
Now what does this mean for accessing concessional funding from the World Bank? As you know, development is a continuing process. It does not mean that everything changes for Cambodia now that income per capita moved to exceed $1,000. Development challenges continue to exist. We see the need in water sanitation, healthcare and education, etc.
So Cambodia will continue to need grant and concessional resources from bilateral partners and the World Bank. The income per capita number shows progress, but there are still significant challenges that must be addressed to help Cambodia and its people develop in a sustainable way and avoid the risk of sliding back to low-income status.
At the World Bank, when countries reach lower-middle income status, we begin to look at when graduation from the International Development Association (IDA), the bank’s fund for the poorest countries, might occur. For now, Cambodia does not meet the criteria for graduation and will continue to benefit from IDA resources for the foreseeable future.
KT: Cambodia remains one of the least developed countries in Asia, mainly relying on the export of garments and textiles and a few agricultural products to the EU and the United States. Their economies are slow now. How is this going to affect countries like Cambodia?
Ms. Kwakwa: This is an important and pertinent question. As you said, Cambodia exports a lot to European markets and to the United States. Over time, changes in these economies might have some effect on Cambodia. But data over the last few years shows that Cambodia’s exports to Europe have kept growing despite the slowdown abroad. This indicates that Cambodia’s exports are competitive and can remain robust despite a slowdown in the EU.
But having said that, Cambodia needs to monitor the situation carefully and continue to strengthen its competitiveness, so that even if there is a slowdown in demand, its exports remain strong and continue to link up with global value chains.
It is important to keep doing the right thing to maintain Cambodia’s position in these markets.
KT: The EU market represents more than 40 percent of Cambodia’s total exports. Will Brexit affect Cambodia’s exports? Do you think they will change their trade policy in giving the EBA to least developed countries?
Ms. Kwakwa: The referendum vote for Britain to leave the EU just happened a couple of weeks ago, so it is still very early days. We monitor this situation very closely and we understand that the government is doing some analysis on how Brexit might eventually impact Cambodia.
I think one of the lessons from this uncertain or volatile global context is that all countries, including Cambodia, need to build their resilience to shocks, wherever the shock comes from domestic or external matters. Countries can build resilience on the macroeconomic front by strengthening macroeconomic buffers such as foreign exchange reserves or fiscal space through maintaining a low fiscal deficit.
They can also build resilience in real sectors by diversifying the economy to develop a robust set of drivers of growth. Then, if the shock hits one sector of economy, there are other potential sources of growth to fall back on.
KT: Do you have any other new projects for Cambodia in the year to come? If so, what are those projects?
Ms. Kwakwa: As part of our engagement for the two year period FY16 and FY17, we will provide IDA financing for seven projects.
Four of them were approved by our Board of Executive Directors in May and we expect the other three projects will be presented to our board between now and June 30, 2017. The three areas are a disaster management project, a secondary education project and a Livelihood Enhancement and Association of the Poor (LEAP) project.
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