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PUBLIC FINANCIAL MANAGEMENT REFORM IN CAMBODIA Hang Chuon Naron Secretary General

PUBLIC FINANCIAL MANAGEMENT REFORM IN CAMBODIA Hang Chuon Naron Secretary General Ministry of Economy and Finance. Senate Conference on Legal and Judicial Reforms 27 May 2008. Stages of Reforms.

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PUBLIC FINANCIAL MANAGEMENT REFORM IN CAMBODIA Hang Chuon Naron Secretary General

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  1. PUBLIC FINANCIAL MANAGEMENT REFORM IN CAMBODIA Hang ChuonNaron Secretary General Ministry of Economy and Finance Senate Conference on Legal and Judicial Reforms 27 May 2008

  2. Stages of Reforms • In Cambodia, political and economic reforms toward market economy started since the mid-1980s, reaching the point of no-return in 1989; • The Royal Government of Cambodia of the first legislature commenced the implementation of comprehensive macroeconomic and structural reforms. Peace and territorial unity was fully restored in 1998.

  3. Reform Actionsa • Public Finance Systems Law adopted; • Sub-decree No 81 on Financial Control; • Sub-decree No 82 on the General Regulations Related to Public Accounting; • Law on the General Statute of Public Enterprises; • Sub-decree No 60 on Public Procurement; • Law on Taxation.

  4. Triangular Strategy • Strengthening governance; • Ensuring macroeconomic stability; • Strengthening the banking and financial system; • Implementing fiscal reform; • Improving the management of state assets; • Establishing infrastructure for the development of financial system; • Integrating Cambodia into the region and the world.

  5. Rectangular Strategy and the PFM • The Public Financial Management (PFM) was launched on 5 December 2004; • Experiences gained from the evaluation of the Integrated Fiduciary Assessment and Public Expenditure Review- IFAPER; • Technical Cooperation Assistance Program- TCAP

  6. The PFM • The PFM receives technical and financial support from 10 development partners, namely the ADB, AusAID, DFID, EC, France, IMF, Japan, SIDA, UNDP and the WB; • Ensuring harmonization and alignment with the government, which ensures ownership in accordance with the Paris Declaration of March 2005 on Aid Effectiveness;

  7. The PFM • Firstly, developing and adopting a clear and realistic vision for long-term system of public financial management; • Secondly, developing and adopting phased strategies; • Thirdly, elaborating a phased, realistic and comprehensive Action Plan with the participation of public finance operators;

  8. The PFM • Fourthly, providing effective capacity building and human resource development, including the introduction of behavior change, improvement in management, as well as IT equipment; • Fifthly, introduction of the Merit Based Pay Initiative (MBPI) to provide incentives to highly qualified officials and; • Sixthly, establishing a framework for joint management and monitoring between the government and the development partners based on a SWAP approach.

  9. Strategic Objectives of the PFM • The strategic objectives of the PFM are as follows: • Firstly, ensuring a credible budget; • Secondly, improving financial efficiency and accountability; • Thirdly, linking budget to government policies; and • Fourthly, holding budget managers accountable for the results.

  10. Platform 1 of PFM Reform • In 2005-2008, the Royal Government of Cambodia has implemented Platform 1 of the PFM reform; • Actions and activities have been implemented to achieve the objectives of Platform 1: • Increasing the credibility of the budget; and • Implementing actions to prepare for Platform 2, notably improving financial efficiency and accountability.

  11. The Five Objectives of Platform 1 • Firstly, streamlining budget procedures to ensure that the budget can be implemented as planned; • Secondly, increasing the reliability and sustainability of the budget so that the budget can be implemented as planned; • Thirdly, integrating both current and investment budget to ensure comprehensiveness and facilitate budget management;

  12. The Five Objectives of Platform 1 • Fourthly, increasing the efficiency and effectiveness of policies and revenue collection by strengthening policy formulation, management and collection of customs, tax and non-tax revenues; • Fifthly, strengthening and improving internal audit by decentralizing financial controllers to all line ministries and establishing Internal Audit Units in all line ministries.

  13. Performance of Platform 1 • Revenue increased from 2,719 billions Riels in 2005 to 4,233 billions Riels in 2007, an annual increase of 23%; • Tax revenues increased by 27.6%; and • Non-tax revenue increased by 19.3%, • Expenditure has also increased by from 3,388 billions Riels in 2005 to 5,286 billions Riels in 2007, or a 20% average increase per year;1313 • Budget arrears were eliminated; • Cash at the treasury increased by 250 times compare to 2003 to 1,000 billions Riels.

  14. Preparation for Platform 2 • Firstly, strengthening budget preparation by improving budget procedures and the timetable for budget preparation; • Secondly, improving the management of state assets by establishing the inventory of state assets, ensuring monitoring and regular valuation of state property.

  15. Preparation for Platform 2 • Thirdly, strengthening the system of recording, financial reports and accounting by introducing a new chart of accounts and a new budget nomenclature; and • Fourthly, developing and introducing, on a pilot basis, the Financial Management Information System (FMIS) and preparing plan for sustainable and efficient implementation of the PFM reforms.

  16. Strengthening the Budget System in 2007 • Firstly, budget preparation will be divided into three stages: • The first stage: development of a strategic plan; • The second stage: establishing budget needs; and • The third stage: the adoption of the budget. • Secondly, preparation and introduction of the Medium Term Expenditure Framework (MTEF); • Thirdly, improving the preparation and implementation of the Priority Action Program (PAP) in order to shift to program budgeting; • Fourthly, introducing a new chart of accounts and budget nomenclature.

  17. Amendment to the Law on Budget System • Ensuring consistency with the Law on Decentralization and Deconcentration; • Defining penalties for violating the Law on Budget System; • Introducing major technical changes: • Firstly, improving budget procedures and timetable for budget preparation; • Secondly, shifting from line-item budgeting to program budgeting; • Thirdly, introducing the Medium Term Expenditure Framework; • Fourthly, decentralizing financial control and public procurement and strengthening internal audit.

  18. Strategic Objectives of the Reform • Firstly, introducing gradual and sectoral improvement based on a pilot basis, while ensuring the sustainability of daily budget execution. This could result in two systems operating at the same time during the pilot phase; • Secondly, introducing the change in institutional structures and management to support the new system; • Thirdly, training people to work with the new system in an efficient manner; and • Fourthly, providing appropriate salaries to qualified officials to ensure productivity and sustainability.

  19. Thank You

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