Phases of Economic Growth

Since 1989 Cambodia has embarked on a series of reforms to replace central planning with the fundamentals of a market economy. These include the introduction of private ownership of property, rapid price and trade liberalization, current account convertibility, the opening of domestic markets to entry by private businesses, privatization of state- owned companies, demonopolization of industries and services, and the reform of accounting standards, the tax system, the legal system and the financial sector.

Economic development in Cambodia can be divided into three distinct phases:

1. • The rehabilitation phase, 1989-1998;

2. • The reconstruction phase, 1999-2003;

3. • The economic take-off phase, 2004-2008;

The rehabilitation phase, 1989-1998: The rudiments of a market economy were established, with the introduction of private property, privatization of state-owned companies and decollectivization of agriculture, thus paving the way for national reconciliation and the general elections in 1993. However, efforts to implement market reforms were undermined by macroeconomic imbalances caused by the following factors (World Bank, 1992):

• Economic liberalization starting in 1989 acted to hinder revenue mobilization. Privatization of State-Owned Enterprises (SOEs) and enterprise reform combined with price and trade liberalization slashed economic rents formerly captured by the public sector enterprises. This loss of revenue was not made up by fiscal revenues mobilized from the emerging private sector. The contribution made by public enterprises to budget revenues fell from 36% of total expenditure in 1989 to 22% in 1991. The introduction of new taxes made only a small contribution to the budget. Non-tax revenue declined from 5.5% of budget expenditure in 1989 to less than 1% in 1991.

1. • Fiscal policy discipline to avoid inflationary pressure and flight of capital.

2. • Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward the broad-based provision of key pro-growth, pro-poor services (primary education, primary health care, and infrastructure investment).[…]