The document summarizes the progress and issues regarding decentralization and deconcentration reforms in Cambodia. It discusses several key points: 1) The reforms aim to redefine powers and responsibilities at the provincial, district, and municipal levels but have focused more on deconcentration than fiscal decentralization. 2) There are inconsistencies between laws governing sub-national administration and public finance that need to be resolved. 3) While expenditures are decentralized, budgeting remains centralized, and the reforms have focused more on deconcentration than decentralization of service delivery. Revising expenditure and revenue assignments according to responsibility transfers is still needed.

1. DECENTRALIZATION AND DECONCENTRATION IN CAMBODIA:
PROGRESS AND ISSUES, August 2011
By: Jean-Marc Lepain
Public Finance Specialist
1. Background and scope
Decentralization and Deconcentration (D&D) is one of the three main high priority reforms
undertaken by the Government. It stems from the realization that improvement in public service
delivery cannot take place unless local issues and local preferences are taken into consideration and
it aims at redefining powers and responsibilities of provinces, districts and municipalities. So far, the
reform is conceived more in terms of deconcentration of the Government authority rather than in
terms of fiscal decentralization; although everyone agrees that success of the reform will require a
complete 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 Commune
Law and to the election in 2002 of commune councils in every province. New council activities have
been monitored and supported by the National Committee to Support the Communes (NCSC) that
deployed 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 municipal
administration was a long term task. Participation, transparency and accountability are still
considered very low. Actions of the municipalities remain constrained by insufficient funding
considering their new scope of responsibility. Lack of funding has often induced communes to resort
to 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 that
started with the approval of the Strategic Framework for Decentralization and Deconcentration
Reforms that became the basis for the preparation of the ‘Organic Law on the Management of
Provinces, Districts, Municipalities and the Capital’ passed in April 2008’ and led to the preparation
and implementation of a number of policy papers and guidelines such as the ‘Orientation on key
principles 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 a
significant step in providing the legal framework for implementing the vision laid out in the Strategic
Framework, and represents a major innovation having the potential to change governance
arrangements such as the reallocation of power and decision making over service delivery.

2. 2. Coordination between D&D and PFMRP
There are significant inconsistencies between the 2008 Organic Law and the Law on Public Finance
System. 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 budget
procedures for districts, communes, sangkats and khans and represents basically a two level
approach of national and sub-national administration against the three-level approach of the Organic
Law. No mention is made of sub-national administration assets; revenues of provinces and
municipalities belong to the state budget and cannot be managed directly by sub-national
administrations. On the other hand, the Organic Law seems to undermine the principle of the Single
Treasury Accounts by giving authority to the Governors for opening various banking accounts. The
two laws provide different visions of what D&D should be and their harmonization will represent a
serious challenge. This situation should be remedied through a new Sub-national Administration
Finance Law under discussion. However, revision of the Law on Public Finance System appears
inevitable and MEF will need to clarify its position and determine the scope of that revision. The
management of finances and assets of sub-national administration will be the subject of a separate
law. A draft of that law was published in May 2009 but is likely to undergo further revision as there
are again some clear inconsistencies with the Organic Law and the Law on Public Finance System.
3. Deconcentration and Decentralization of public service delivery
Almost all significant government expenditures at the sub-national level occur through the
deconcentrated expenditures of the central line-ministries, which have exerted considerable effort to
redeploy staff and resources at the provincial level. 80 percent of civil servants are in decentralized
locations. However, current budget practices do not allow separation of government expenditures at
the central and provincial levels, as many expenses occurring at the provincial level are recorded at
the central level. Between 75 and 80 percent of expenditures are recorded centrally.
The disproportionate centralization of service delivery leads to a fragmented approach of urban
development with the near impossibility of coordinating the different sector policies and
infrastructure planning. It also deprives provinces, districts, communes and sangkats in playing a role
in local development or poverty reduction strategies, and in addressing local social issues. Despite
the name of the reform, the current and successful policy has only been devised to be a
deconcentration policy with almost no room for decentralization. It seems apparent that in the very
near future, a more balanced approach must be created between deconcentration and
decentralization and that a number of public services like health services require more local
autonomy.
4. Revision of the expenditure assignment
Reform of service delivery should logically lead to a reform of the expenditure assignment for each
sector in which the Government is engaged. Taken together, the taxing powers assigned to

3. provinces, communes and sangkats are potentially significant, although implementation
performance and collection yields have remained low.
Total outlay of all communes and sangkats have been relatively small, representing in 2007 only 1.5
percent of general government expenditures, whereas 24.2 percent is allocated to salaries and
allowances; 17.4 percent to administrative and service expenditures, split almost equally between
development 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 economic
and social intervention.
Transfer of responsibilities towards communes and sangkats remains delayed due to the lack of
capacity. Communes and sangkats already undergo difficulties managing their small budget tied into
the 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 more
funding integrated with a gradual build-up of commune capacity.
5. Revision of the revenue assignment
A revision of the expenditure assignment should lead to a parallel revision of the revenue
assignment, not so much between the center and the sub-national level but rather between the
different levels of provincial administration.
During the period 2002-2007, 23.5 percent of total sub-national revenues came from general
administration transfers (after exclusion of the reserve funds), 51.3 percent from local transfers, and
13.3 percent from development partners.
6. System of intergovernmental transfers
In the present system, intergovernmental transfers remain very limited, leading to vertical imbalance
between provinces and districts on one hand and on the other hand, creating horizontal imbalance
between provinces as well as between municipalities within the same province. Although the RGC
has put in place various budget norms formulae for transfers to provinces, these formulae lack in
transparency and do not amount to a clear system of intergovernmental transfers based on
conditional and unconditional grants. The RGC should not lose the opportunity offered by the
drafting of Sub-national Administration Finance Law to include within it a system of
intergovernmental transfers. Without such a system it will be impossible to bring clarity to
intergovernmental fiscal relations, resulting in a significant aspect of PFM reforms being jeopardized.

4. 7. Linkage between D&D and broader Government objectives
The IFAPER underlines that “public administration reforms should be viewed as part of a wider
reform process to ensure that policy making, budgeting, service delivery and accountability are
aligned to achieve the strategic national development goals”. D&D and PFMRP are two essential
elements amongst others which will contribute to creating the mechanisms that can improve
government service and deliver economic growth. Coordination between these different reforms
will play an important role in determining the Government’s success and will require unified vision of
how the state should operate at all administrative levels. Complexity of this task should not be
underestimated.