Cambodia, decentralization and deconcentration; progress and issues, august 2011
DECENTRALIZATION AND DECONCENTRATION IN CAMBODIA: PROGRESS AND ISSUES, August 2011By: Jean-Marc LepainPublic Finance Specialist 1. Background and scopeDecentralization and Deconcentration (D&D) is one of the three main high priority reformsundertaken by the Government. It stems from the realization that improvement in public servicedelivery cannot take place unless local issues and local preferences are taken into consideration andit aims at redefining powers and responsibilities of provinces, districts and municipalities. So far, thereform is conceived more in terms of deconcentration of the Government authority rather than interms of fiscal decentralization; although everyone agrees that success of the reform will require acomplete revision of the revenue and expenditure assignment framework.The first phase of the D&D reform was launched in 2000 and led to the passing of a new CommuneLaw and to the election in 2002 of commune councils in every province. New council activities havebeen monitored and supported by the National Committee to Support the Communes (NCSC) thatdeployed important efforts in training, facilitation, planning and implementation. The Commune /Sangkat Fund now receive part of the national budget to finance local affairs.Although considered a success, it was realized in this first phase that the strengthening of municipaladministration was a long term task. Participation, transparency and accountability are stillconsidered very low. Actions of the municipalities remain constrained by insufficient fundingconsidering their new scope of responsibility. Lack of funding has often induced communes to resortto all sorts of expedients undermining a weak culture of rule of law and accountability.These considerations led to the launching in 2005 of the second phase of the D&D reform thatstarted with the approval of the Strategic Framework for Decentralization and DeconcentrationReforms that became the basis for the preparation of the ‘Organic Law on the Management ofProvinces, Districts, Municipalities and the Capital’ passed in April 2008’ and led to the preparationand implementation of a number of policy papers and guidelines such as the ‘Orientation on keyprinciples of Sub-National Administration Management’ and the ‘Guidelines on transfer rights,responsibilities to provincial capital, cities, districts and khans’ (2009). The Organic Law of 2008 was asignificant step in providing the legal framework for implementing the vision laid out in the StrategicFramework, and represents a major innovation having the potential to change governancearrangements such as the reallocation of power and decision making over service delivery.
2. Coordination between D&D and PFMRPThere are significant inconsistencies between the 2008 Organic Law and the Law on Public FinanceSystem. The latter takes a more centralized approach to the preparation and approval of sub-national budgets and to PFM in general. The Law on Public Finance System fails to mention budgetprocedures for districts, communes, sangkats and khans and represents basically a two levelapproach of national and sub-national administration against the three-level approach of the OrganicLaw. No mention is made of sub-national administration assets; revenues of provinces andmunicipalities belong to the state budget and cannot be managed directly by sub-nationaladministrations. On the other hand, the Organic Law seems to undermine the principle of the SingleTreasury Accounts by giving authority to the Governors for opening various banking accounts. Thetwo laws provide different visions of what D&D should be and their harmonization will represent aserious challenge. This situation should be remedied through a new Sub-national AdministrationFinance Law under discussion. However, revision of the Law on Public Finance System appearsinevitable and MEF will need to clarify its position and determine the scope of that revision. Themanagement of finances and assets of sub-national administration will be the subject of a separatelaw. A draft of that law was published in May 2009 but is likely to undergo further revision as thereare again some clear inconsistencies with the Organic Law and the Law on Public Finance System. 3. Deconcentration and Decentralization of public service deliveryAlmost all significant government expenditures at the sub-national level occur through thedeconcentrated expenditures of the central line-ministries, which have exerted considerable effort toredeploy staff and resources at the provincial level. 80 percent of civil servants are in decentralizedlocations. However, current budget practices do not allow separation of government expenditures atthe central and provincial levels, as many expenses occurring at the provincial level are recorded atthe central level. Between 75 and 80 percent of expenditures are recorded centrally.The disproportionate centralization of service delivery leads to a fragmented approach of urbandevelopment with the near impossibility of coordinating the different sector policies andinfrastructure planning. It also deprives provinces, districts, communes and sangkats in playing a rolein local development or poverty reduction strategies, and in addressing local social issues. Despitethe name of the reform, the current and successful policy has only been devised to be adeconcentration policy with almost no room for decentralization. It seems apparent that in the verynear future, a more balanced approach must be created between deconcentration anddecentralization and that a number of public services like health services require more localautonomy. 4. Revision of the expenditure assignmentReform of service delivery should logically lead to a reform of the expenditure assignment for eachsector in which the Government is engaged. Taken together, the taxing powers assigned to
provinces, communes and sangkats are potentially significant, although implementationperformance and collection yields have remained low.Total outlay of all communes and sangkats have been relatively small, representing in 2007 only 1.5percent of general government expenditures, whereas 24.2 percent is allocated to salaries andallowances; 17.4 percent to administrative and service expenditures, split almost equally betweendevelopment and recurrent expenses; 56.5 percent is allocated to investment for local development,mainly related to small local infrastructure projects; and 2 percent is allocated to minor economicand social intervention.Transfer of responsibilities towards communes and sangkats remains delayed due to the lack ofcapacity. Communes and sangkats already undergo difficulties managing their small budget tied intothe build-up of reserves funds which are unspent funds rolled over from one budget to the other.The reserves funds amounted to 20.3 percent of resources spent during 2002-2007. However,improvement of urban infrastructure is essential for economic development and will require morefunding integrated with a gradual build-up of commune capacity. 5. Revision of the revenue assignmentA revision of the expenditure assignment should lead to a parallel revision of the revenueassignment, not so much between the center and the sub-national level but rather between thedifferent levels of provincial administration.During the period 2002-2007, 23.5 percent of total sub-national revenues came from generaladministration transfers (after exclusion of the reserve funds), 51.3 percent from local transfers, and13.3 percent from development partners. 6. System of intergovernmental transfersIn the present system, intergovernmental transfers remain very limited, leading to vertical imbalancebetween provinces and districts on one hand and on the other hand, creating horizontal imbalancebetween provinces as well as between municipalities within the same province. Although the RGChas put in place various budget norms formulae for transfers to provinces, these formulae lack intransparency and do not amount to a clear system of intergovernmental transfers based onconditional and unconditional grants. The RGC should not lose the opportunity offered by thedrafting of Sub-national Administration Finance Law to include within it a system ofintergovernmental transfers. Without such a system it will be impossible to bring clarity tointergovernmental fiscal relations, resulting in a significant aspect of PFM reforms being jeopardized.
7. Linkage between D&D and broader Government objectivesThe IFAPER underlines that “public administration reforms should be viewed as part of a widerreform process to ensure that policy making, budgeting, service delivery and accountability arealigned to achieve the strategic national development goals”. D&D and PFMRP are two essentialelements amongst others which will contribute to creating the mechanisms that can improvegovernment service and deliver economic growth. Coordination between these different reformswill play an important role in determining the Government’s success and will require unified vision ofhow the state should operate at all administrative levels. Complexity of this task should not beunderestimated.