Study on intergovernmental fiscal architecture

1. Official Use
Cambodia Intergovernmental Fiscal
Architecture Study
Draft Report January 2021

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Acknowledgments
This Policy Note was prepared by a World Bank team comprising Serdar Yilmaz, Lead Public Sector
Specialist (co-task team leader); Sokbunthoeun So, Senior Public Sector Specialist (co-task team
leader); Sodeth Ly, Senior Economist; Kimchoeun Pak, Consultant; Marong Chea, Consultant; and
Lachlan McDonald, Consultant with inputs from Kimsun Tong, Economist; Benjamin Burckhart, Senior
Social Development Specialist; Claire Honore Hollweg, Senior Economist.
This work program was conducted under the overall guidance of Fily Sissoko (Practice Manager);
Inguna Dobraja (Country Manager, Cambodia); Hans Anand Beck, Program Leader; Hassan Zaman
(Regional Director); and Mariam Sherman (Country Director, Cambodia, Lao PDR and Myanmar).
The team would like to thank the Ministry of Economy and Finance (MEF); Ministry of Interior (MOI);
and all other relevant stakeholders for their support and contributions. Specifically, the team would
like to thank H.E. Ros Seilava, Secretary of State of MEF; H.E. Dr. Dy Sovann, Deputy Director General
of MEF; Mr. Hoy Vicheth, Department Deputy Director of MEF, and Mr. Chey Sambath Phalla of
National Committee for Subnational Democratic Development. The team is also grateful to Socheat
Ath, Program Assistant, for her support during team missions.
A multi-donor trust fund contributed by the European Union and the Government of Australia, which
financed this study, is gratefully acknowledged.

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Contents
Acknowledgments................................................................................................................................... ii
List of Figures, Boxes and Tables ........................................................................................................... iv
List of Abbreviations ............................................................................................................................... v
Executive Summary............................................................................................................................... vii
1. Introduction ........................................................................................................................................1
2. An Overview of Subnational Governance...........................................................................................3
2.1. The RGC’s Decentralization Reforms ...........................................................................................3
2.2 The Policy Focus of Decentralizing Reforms .................................................................................5
2.3 A Broader Public Sector Reforms Agenda.....................................................................................7
2.4 Implementation Challenges..........................................................................................................9
3. Macro-Fiscal Challenges for Decentralization Associated with COVID-19 .......................................12
4. Fiscal Decentralization ......................................................................................................................15
4.1. Deconcentrated Expenditure of Central Line Ministries ...........................................................15
4.2. Expenditure of SNAs ..................................................................................................................18
4.3. Subnational Financing................................................................................................................20
4.3.1. Central Transfers.................................................................................................................21
4.3.2. Shared Taxes and other Own-source Revenues of SNAs....................................................25
5. A rapid review of the subnational PFM system................................................................................28
6. The Fiscal Architecture at the DM level............................................................................................34
6.1. The Reform Process ...................................................................................................................34
6.2. The Small Fiscal Footprint of the DMK Level .............................................................................36
6.3. PFM Processes at the DMK Level...............................................................................................39
6.4. The Role of ICT in supporting reforms at the DMK level ...........................................................42
References ............................................................................................................................................44
Annexes.................................................................................................................................................46
Annex 1: Key stakeholders met ........................................................................................................46
Annex 2: Key policies and legal documents for SNA and D&D Reforms in Cambodia: ....................47
Annex 3: Key players in decentralization reform in Cambodia.........................................................48
Annex 4: OWSO in Cambodia – a brief history .................................................................................49
Annex 5: Key progress in the functional transfer as of the end of 2019 ..........................................50
Annex 6: Key Tables ..........................................................................................................................51
Annex 7: Per capita spending across CPs..........................................................................................53
Annex 8: An overview of the SNIF.....................................................................................................54
Annex 9 Staff transfers to the DMK SNA ..........................................................................................55

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List of Figures, Boxes and Tables
Figure 1: Administrative Structure in Cambodia.....................................................................................3
Figure 2: Functional transfer and accountability shifts ..........................................................................6
Figure 3: Cambodia’s economic growth; percent.................................................................................12
Figure 4: Government finance; percent of GDP....................................................................................12
Figure 5: Sub-national expenditure in Cambodia .................................................................................15
Figure 6: Budget allocation by line ministries; 2019, USD millions ......................................................16
Figure 7: Central and Provincial shares of LM recurrent budgets*; 2019 ............................................16
Figure 8: Civil servants employed at different levels within selected LMs; Number and share of the
total, 2020.............................................................................................................................................17
Figure 9: Wage allocation at central and deconcentrated offices; Selected LMs, 2019 ......................17
Figure 10: Expenditure by SNA; 2018 and 2019, USD millions .............................................................18
Figure 11: Expenditure by SNA; share of total, 2018 and 2019............................................................19
Figure 12: Expenditure by provincial administrations and PNH; share of total, 2018 and 2019 .........19
Figure 13: Financing mix of SNA levels; share of total revenue, 2019..................................................21
Figure 14: National transfer for SNA; 2017-2020, USD millions...........................................................22
Figure 15: Subnational tax handles nation-wide and Phnom Penh; 2018 and 2019, USD millions......25
Figure 16: Non-tax revenue for CP and DMK SNAs; 2018 and 2019, USD millions ..............................26
Figure 17: The new DM administrative structure.................................................................................35
Figure 18: Monthly budget execution for DM; share of total budget, by budget items, 2019 ............40
Box 1: The COVID-19 pandemic and its effect on the study...................................................................2
Box 2: Administrative structure at CP and DMK levels...........................................................................4
Box 3: The role of local governments during a pandemic ....................................................................13
Box 4: Key legal provisions on conditional transfers ............................................................................22
Box 5: Planning and budgeting and spending shared SNA taxes............. Error! Bookmark not defined.
Box 6: The different planning and budgeting tools for SNAs................... Error! Bookmark not defined.
Box 7: A summary of key recommendations from ADB (2018)............... Error! Bookmark not defined.
Table 1: Cross-cutting reforms and their focus.......................................................................................7
Table 2: Decentralization in Southeast Asia ...........................................................................................9
Table 3: Subnational Expenditure in Southeast Asia ............................................................................15
Table 4: Per capita spending at the CP level; 2019...............................................................................19
Table 5: Subnational Fiscal Structure of Selected Southeast Asian Countries .....................................20
Table 6: Revenue sources of SNAs........................................................................................................20
Table 7: Shared tax from provincial admin to DM and CS; Excluding PNH, US dollars.........................26
Table 8: Overview of Budgetary and PFM process for SNA..................................................................28
Table 9: Inclusion of different budget transfers in the budget-planning stage....................................29
Table 10: Specific issues on the execution of CP subsidy; 2018 and 2019, US dollars .........................30
Table 11: Specific issues with the use of CoA codes and recording .....................................................30
Table 12: Execution rate for selected SNA tax revenue for 2019.........................................................31
Table 13: Functional transfers to the DMK level in 2020......................................................................34
Table 14: Comparing DMK spending with CP and CS levels; share of total expenditure, 2017-2020..36
Table 15: Key PFM procedures and activities at the DM level .............................................................39
Table 16: Key PFM reform activities for the DMK level........................................................................41

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List of Abbreviations
ADB Asian Development Bank
AWPB Annual Work Plan and Budget
BoG Board of Governor
BSP Budget Strategic Plan
BSRS Budget System Reform Strategy
CDB Commune Database
CoA Chart of Accounts
CoM Council of Ministers
CP Capital and provinces
CS Commune and Sangkat
CSF Commune and Sangkat Fund
D&D Decentralization and de-concentration
DM District and Municipality
DMF District and Municipality Fund
DMK District, Municipality, and Khan
DO District Ombudsman
FMIS Financial Management Information System
GDNT General Department of National Treasury
GDSNAF General Department of Sub-National Administration Finance
ICT Information and Communication Technology
IP3 3 Year Implementation Plan
LMs Line ministries
M&E Monitoring and evaluation
MAFF Ministry of Agriculture, Forestry and Fishery
MCS Ministry of Civil Service
MEF Ministry of Economy and Finance
MoE Ministry of Environment
MoEYS Ministry of Education, Youth and Sport
MoH Ministry of Health
MOI Ministry of Interior
MOP Ministry of Planning
MoSVY Ministry of Social Affairs, Veterans and Youth Rehabilitation
MRD Ministry of Rural Development
NCDD National Committee for Democratic Development (NCDD)
NCDD-S National Committee for Democratic Development (NCDD) Secretariat
NGOs Non-government organizations
NPAR National Public Administrative Reform
NP-SNDD National Program for Sub-National Democratic Development
NSDP National Development Strategic Plan
OWSO One Window Service Office
PB Program based budget
PDCS Provincial Department of Civil Service
PDEF Provincial Department of Economy and Finance
PEFA Public Expenditure and Financial Accountability
PFM Public Financial Management
PFMRP Public Financial Management Reform Program
PHD Provincial Health Department
PNH Phnom Penh Capital
PT Provincial Treasury

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SNA Sub-national administrations
SNIF Sub-National Investment Facility
SOP Standard Operating Procedure

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Executive Summary
Since 2001, the Royal Government of Cambodia (RGC) has pursued an agenda of decentralization
reform. This has reflected the government’s desire to improve the efficiency and effectiveness of
governance by better calibrating core governance functions and public service delivery to the needs
of a rapidly developing private sector – the country’s engine of economic growth. A three-tiered
hierarchical system of subnational administration (SNA) has ensued: the capital and provinces (CP) at
the highest level; districts, municipalities and khan (DMK) at the intermediate level; and communes
and Sangkat (CS) as the lowest level of administration in rural and urban regions, respectively.
Separate designations in this hierarchical system are given to the capital Phnom Penh and the
remaining provinces.
All three tiers of SNA now operate as a separate level within the system of subnational public
administration. Political decentralization has been most significant at the lowest level, with each
commune / sangkat controlled by a democratically elected council. The higher-level CP and DMK levels
function like deconcentrated administrative bodies, each with an indirectly elected council and a
centrally appointed executive. All SNAs are assigned two types of functions: permissive (optional)
functions, which includes a general mandate for the welfare of citizens in their constituencies; and
obligatory functions, which are defined in law.
Concurrently, the RGC is also pursuing wide-ranging reforms to public financial management (PFM)
and public administration. The three reforms are interdependent and are mutually reinforcing.
Decentralization, which involves a major rebalancing of the state apparatus, provides the backdrop to
the other two reforms, which are more focused on reforming specific functions of government
(financing and human resources management). PFM reforms, which is headlined by the Public Finance
Management Reform Program (PFMRP) and includes the 2019-2025 Budget System Reform Strategy
for SNAs (SNA-BSRS), may be considered as a means to an end, which is to achieve the objectives
under decentralization and administrative reforms.
This study reviews and analyses Cambodia’s intergovernmental fiscal architecture within this
administrative structure. An initial focus is on examining Cambodia’s pathway to more decentralized
governance before diving more deeply into the specifics of the subnational fiscal architecture. A strong
emphasis is placed on detailing the myriad rules and regulations that underpin the intergovernmental
fiscal system. Specific attention is given to identifying issues at the District and Municipality (DM) level,
which has not been the focus of previous analytical work and is presently at the forefront of the RGC’s
reform agenda. The findings are used to frame recommendations at the institutional and operational
level to help guide the direction and implementation of future reform. They complement the
forthcoming Public Expenditure and Financial Accountability (PEFA) Assessment, due to be released
later this year, which covers the national and sub-national levels (specifically, Phnom Penh). They also
provide timely inputs into the development of the second National Program for Sub-National
Democratic Development (NP-SNDD).
The analysis is based on extensive policy and document review and fieldwork. This includes analysis
of official budget data, key informant interviews at the national level, and fieldwork conducted in
March 2020 in Battambang Province alongside representatives of the National Committee for
Democratic Development Secretariat and the Ministry of Economy and Finance. Notably, this study
commenced before the COVID-19 pandemic. Accordingly, much of the analysis of fiscal data and of
the progress of reform uses pre-pandemic information. Where possible, post-pandemic information
and forecasts – in particular for the macro-fiscal context – have been used. Consideration is also given
to how the pandemic and its aftermath may influence the substance and style of reforms

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Until recently, the transfer of functions from the central to subnational levels has been
piecemeal and slow.
Relative to other countries in Southeast Asia, Cambodia has been somewhat of a cautious mover in
its path to decentralized governance. Significant elements of decentralization have been established
at the formal policy and legislative levels, but limited progress has been made with implementation.
The 2008 Organic Law, which frames decentralization policy, prioritizes a LM-driven process of
decentralization. LMs are required to undertake detailed functional mapping to identify which
deconcentrated functions could be transferred to SNA control. However, many of the key details of
the decentralization process are left undefined. Accordingly, to coordinate between relevant
stakeholders and create the framework, policies and activity plans for reform, the RGC established a
high-level inter-ministerial National Committee for Democratic Development (NCDD) as well as the
National Program for Sub-National Democratic Development (NP-SNDD). The NCDD is meant to align
its activities with the strategic priorities of the NP-SNDD.
As per the NP-SNDD strategy, the DMK level is envisaged to become the fulcrum of public service
delivery and regulating local economic development, with the CP level playing a coordination role.
However, until recently, transfers to the DMK level were limited in scale and scope; restricted to
smaller administrative functions. In 2019, the RGC instigated a strong top-down push to catalyze
further progress. In response, 21 functions, across five LMs, were transferred to SNAs (albeit mainly
to the capital/provincial level). In late 2019, two further reforms were initiated. The first involves the
transfer of all the functions currently performed by Provincial Health Department (PHD) to the
capital/provinces, with subsequent delegations to the constituent sub-provincial levels, plus a pilot
conditional transfer mechanism. The second involves the integration all of the 13 deconcentrated line
offices, along with their 55 functions and nearly 20,000 staff members, into the DMK system of
administration. This transfer, which is a substantial undertaking given the DMK level’s presently small
fiscal footprint, has been accompanied by administrative restructuring and changes to fiscal
arrangements. To date, the CS level has not been assigned any mandatory sectoral functions.
The implementation of decentralization reforms has been hindered by a raft of strategic and
operational challenges. Despite a voluminous body of legislation and rules, there is no clear and
consistent strategic guidance to facilitate reform. This is evident in the lack of a common goal to the
cross-cutting public sector reforms as well the lack of a shared strategic vision among key actors at
the national level regarding functional transfers. Key guidance is, at times, missing from legislation
and there are inconsistencies between sub-decrees. Moreover, the guiding principles in the Organic
Law and relevant sub-decrees are often nebulous and process-oriented. In this environment, space
has been created for inconsistencies to emerge between LMs and for LMs to resist change to protect
their bureaucratic interests. In addition, it has led to confusion among line ministry officials, who are
expected to undertake administratively burdensome functional mapping and review exercises as a
prelude to transferring functions without a common shared understanding of key conceptual issues:
such as the types of functions that ought to be performed by SNAs; whether functions are better being
assigned or delegated; whether they become obligatory or permissive once transferred; and the
associated processes around resource transfers for each different arrangement. Occasionally, reforms
have also run at cross-purposes: a notable example being that the absorption of civil servants into the
SNA fiscal architecture, plus the increases in civil servants’ pay as part of PA reforms have severely
crimped the fiscal space for development spending within SNAs. There are no formal mechanisms for
the resolution of disputes around decentralization.

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To improve the management of the reform process, this paper recommends that the RGC
In the short term:
• Focuses on improving the strategic orientation and implementation of the decentralization agenda in the next
phase of the NP-SNDD: For example:
• by providing more precise and consistent strategic guidance to key stakeholders, including,
the expected roles of each SNA tier, the types of functions that are best suited to each tier of
SNA and the criteria upon which transfers should be based (e.g., economic development
priorities, the realities of service delivery in Cambodia (especially in the post-COVID-19
period), accepted principles of equity and efficiency (such as subsidiarity), and best available
international practices).
• by providing greater clarity on the transfer process, including defining obligatory versus
permissive functions; articulating when functions are best assigned or delegated; and what
budgets should be used to finance different transfer arrangements, and how. A list of ‘de facto
functions’ could be used as a benchmark for the types of functions to be transferred to each
level of SNA.
• Aligns the objective of PFM reforms to be more responsive/supportive to improving service delivery at the
central and subnational levels (e.g., line ministries and SNAs).
• Improves specific aspects of coordination between MEF, NCDD and MOI to better coordinate cross-cutting
reforms starting with: i) consultation on the preparation of annual circulars, ii) sharing of data on planned and
executed budget; and iii) joint M&E exercises especially on the recent functional transfer in the health sector
and to DMK level.
• Introduces agreed fiscal decentralization action plans with LMs and SNAs including expenditure management,
revenue collection, and personnel administration (human resource management) with a clear timeline and
targets.
In the longer term:
• Begins implementing fiscal decentralization action plans; including, providing SNA with more control over
revenue collection and expenditure management. This could specifically involve coordination between MOI
and MEF on the amount of funds DMK administrations require and the source of those funds.
• Establishes a mechanism for the resolution of disputes around decentralization.
• Considers clarifying and promoting the roles of CS administration beyond just ‘implementing agencies’ of
higher administrations; this should include the CS’ role in local economic development, pandemic prevention
and recovery.
More recently, a separate, but significant, challenge for the implementation of decentralizing
reforms has been the COVID-19 pandemic. It is not yet clear what impacts the COVID-19 pandemic
might have on the implementation of the decentralization and related reforms, though the significant
challenges of pandemic response, and the sharp slowdown in growth are likely to further complicate
the reform pathway, as resources get redirected and priorities of the RGC change. On the flip side, the
need for rapid and responsive service delivery during the pandemic, and in its wake, means there may
be an opportunity to leverage the SNAs to build back better and improve the resilience despite the
fiscal constraints.
To manage the effects of the COVID-19 pandemic and strengthen the RGC’s s capacity to manage similar
shocks in the future, this paper recommends that the RGC:
In the short term:
• Ensures that the requirements of decentralization and other public sector reforms do not interfere with the
demands of the pandemic response. Consider aspects of policy and implementation that can be postponed
until a later time. Though care should be taken to ensure that high priority spending is not adversely affected.

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• Conversely, where possible, in the rush fund pandemic response, minimize disturbances to PFM systems that
may have lasting adverse effects of the SNA level (e.g., fragmented funding flows, additional reporting
requirements).
• Looks for ways to widen the available fiscal space at the SNA level; potentially by reprioritizing spending and
identifying cost savings, where possible. For instance, cost savings and improved coordination may be possible
through the greater use of ICT in training.
In the longer term:
• Considers ways to leverage the strengths of the SNA levels to improve the efficiency and accountability of the
RGC’s emergency response during shocks. Current decision-making and spending roles, which are presently
implemented in an ad hoc way, could be institutionalized and strengthened.
The slow pace of reform is also evident in the fact that Cambodia’s intergovernmental fiscal
architecture is highly centralized relative to its regional peers.
Relative to other countries in Southeast Asia, Cambodia is less decentralized across the political and
administrative dimensions of governance, and much more centralized on the fiscal dimension. While
the level of SNA expenditure has increased nearly three-fold between 2013 and 2019, from 760 billion
riel (US $190 million) to 2,200 billion riel (US $ 550 million), 91.9 percent of total general government
expenditure is still controlled by the center. While decentralization of authority over spending should
not be a policy objective, per se, the highly centralized starting point, and the RGC’s desire to reassign
decision-making authority closer to citizens, indicates that further deconcentration, particularly
among still-highly centralized ministries, is possible. Central agencies account for 94 percent of all
expenditure on wages and salaries, 85 percent of non-wage expenditure, and 89 percent of capital
expenditures. Most line ministries still execute a majority of wage and non-wage spending at the
central level. The exceptions are sectors with large cadres of front-line service providers, such as
education and health, in which the subnational share of workers, and thus of the wage bill, is
considerably higher (97 percent for education and 80 percent for health) – though health and
education workers are still recruited at the national level.
Subnational spending is also highly skewed toward the capital city Phnom Penh. The
capital/provincial level presently accounts for the vast majority of funds spent by SNAs (around
71 percent in 2019), being the only SNA level that presently spends on capital and social interventions
and with much larger development spending than lower levels. Conversely, the DMK level – the SNA
level upon which the NCDD is placing its greatest emphasis – has the smallest fiscal footprint among
the SNAs, with total spending dominated by wages. In 2019, per capita expenditure in Phnom Penh
was 13.7 times larger than the median per capita spending of all other provinces, with severe
inequities reflected at each level of SNA: the khans of Phnom Penh receive, on average, twice the per
capita funding of the five next-largest urban centers in the country combined.
With all major tax revenue components accruing to the central government, SNAs rely on up a host
of fiscal transfers to finance their expenditure. For the sub-provincial level, the most important
transfer is the unconditional block transfer from the national level (known as the DM Fund and CS
Fund), which funds the vast majority of expenditure at the DM and CS levels, respectively. The size of
the divisible pool for these funds is based on a share of the previous years’ revenue performance with
greater prioritization so far placed on the CS level (1.1 percent for the DM Fund and 3 percent for the
CS Fund in 2019). For each fund, resources are allocated between jurisdictions based on a formula
that weighs up equal share, population size and poverty rate. In recent years, the RGC has increased
the funds flowing to the DM Fund and CS Fund – albeit from a low base – due to the improved revenue
mobilization performance of the government and policy decisions to increase the rate applied to
national and subnational transfers. Notably, there is a similar mechanism in place for transferring

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national funds to the CP level as the DM and CS levels, though it is not defined in law. The
capital/provincial level has a broader funding base, also relying on shared revenues from several
smaller tax handles (a small share of which is then shared with constituent DMK and CS levels). While
the unconditional transfer is an equalizing transfer, shared taxes (which are shared based on the
derivation principle) are pro-cyclical and skewed strongly in favor of the growth pole Phnom Penh.
Since 2018, the central government has sought to redress horizontal inequities at the CP level by
reallocating part of Phnom Penh’s revenue to other provinces where revenue-generating capacity is
weaker, though the formula for this re-allocation is not stated in any sub-decree and prakas and is not
well known. Other earmarked transfers include the Sub-National Investment Facility (SNIF) and the
environmental service budget.
Conditional transfers presently play a small role in intergovernmental fiscal relations, though they
are likely to grow in significance alongside transferred line ministry functions. Though the example
of the pilot conditional transfer associated with the reassignment of PHD functions to the
capital/provinces suggests that they are operating more like a hybrid: in which the function is
decentralized but the budget is only de-concentrated, with the parent LM (the MOH in this instance),
continuing to exert considerable de facto influence over subnational spending.
To improve the system of fiscal transfers, this paper recommends that the RGC:
In the short term:
• Reviews the transfer system to ensure that it adequately addresses vertical and horizontal fiscal imbalances
and that SNAs are not left with unfunded functional mandates, nor an unfunded development mandate.
• Institutionalizes fiscal transfers to the CP level as well as horizontal reallocations at the CP level (especially
from Phnom Penh to other provinces) by ensuring they are consistent with transparent rules and formulas.
• Ensures that the level of national funding for the SNIF complies with Sub-decree #32 (2016).
In the longer term
• Follows the target set on expenditure management under fiscal decentralization action plans to increase fiscal
transfers while considering the options to address vertical and horizontal fiscal imbalances.
• Ensures that conditional transfers complement the objectives of functional transfers.
A rapid review of Cambodia’s subnational PFM system reveals a number of issues that affect
intergovernmental fiscal relations.
From the perspective of SNAs, the transfer system is fragmented. Each type of transfer has its own
budgeting process, compliance requirements and calendars. At times, SNAs must undertake budgeting
and planning without information on a host of forthcoming transfers. Only the information on the DM
and CS Funds are available to the DMK and CS levels, respectively, at the planning stage. These critical
information gaps undermine the credibility and reliability of budget estimates and weakens the link
between budget and policy.
There were also points for consideration in the management and recording of other fiscal flows,
particularly at the CP level. There is little knowledge, for instance, on how horizontal reallocations of
budget (especially from Phnom Penh to other provinces) occurs or indeed whether the approach is
consistent from year-to-year; transparent and consistent rules and formula should there be
established and widely communicated. Inconsistencies were also observed in the use of the Chart of
Accounts and the recording of key flows (in particular, capital spending and carried-forward
surpluses). While there are also issues with budget discipline with large misses in forecasting revenues
and some expenditures. This raft of outstanding issues with budgeting and transfers – that not even

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MEF could shed light on in every case – suggests that a detailed and comprehensive review of PFM
processes at the capital/provincial level is warranted. On a positive note, building on the 2020 PEFA
assessment conducted in Phnom Penh, the review team observed improvements in budget execution
(notwithstanding some execution issues at the DMK level and with CP-level revenue forecasting) and
some improvements in allocative efficiency of SNA spending.
To strengthen subnational PFM systems, this paper recommends that the RGC:
In the short term: Addresses identified budget issues in the rapid review of the subnational PFM, including:
• institutionalizing a consistent budgeting system at the CP level for the management and
record of national subsidy, horizontal budget re-allocation and carried-forward surplus;
• addressing inconsistencies in the use of specific Chart Accounts codes (particularly: Ch61,
Ch21, Ch7506, Ch7510, and Ch7520);
• better aligning and coordinating external support with existing PFM systems;
• introducing new budget line items to record, track and distinct between i) conditional transfer
for delegated functions; and ii) conditional transfer for assigned functions.
Longer term
• Implements the SNA-BSRS, especially as it relates to improving the link between planning and budgeting. The
alignment of SNA’s existing five-year and three-year plan and the Budget Strategic Plans (BSP) and program-
based budgets (PB) in the SNA-BSRS will require higher institutional coordination among MEF, MOI, MOP and
NCDD.
• Closely reviews the current PFM system within CP administrations, especially as it relates to the way that the
CP interacts with sub-provincial SNAs.
More generally, it was observed that while the process of transferring functions to the DMK
level had already started, key implementation challenges remain.
Key informants within DMKs and line ministries indicate that there is little in the way of detailed
instructions regarding implementation of functional transfers – particularly as it relates to everyday
work, budget, and personnel. Procedural guidance in sub-decrees remains at a high level, is
ambiguous and can be open to interpretation. There is a lack of clear and consistent guidance on
managing the human resources associated with transferred functions and accounting for transferred
funds. Current guidelines and circulars on budget preparation and execution at the subnational level
are, at times, missing key information or are tailored to SNAs but instead relate to the national level.
Additionally, several PFM issues specific to the DMK level were identified. Most of these reflected
issues observed at other SNA levels, plus restrictive cash management and other resourcing rules that
limited the capacity and flexibility of the DMK administrations. These issues have the effect of causing
inefficiencies and delays in the planning and budgeting process and weakened control over
expenditures and revenues.
More fundamentally, there is a risk that transferred functions may not be adequately funded under
current financing arrangements. Budgets of centralized line ministries tend not to be deconcentrated
below the CP level (outside of salaries), which means a simple horizontal reassignment of budgeting
authority from line offices at the DMK level to DMK administrations is not possible. Rather, separate
fiscal transfers for new operational and functional expenditures will also be needed. At present, there
is no clear or systematized way of determining operational and functional costs, which in turn means
that transfers are not being determined based on actual need (and may well be underestimated). This
heightens the risk of interruptions in essential service delivery. Clearer, consistent and more detailed
instructions on implementing transfers and managing functions, targeted at the DMK level, will ensure
more consistent implementation of the laws and sub-decrees and systematized management.
Moreover, with conditional transfers primed to play a larger role in financing delegated (and even

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assigned) functions, improving the clarity and consistency of guidance around conditional transfers
and building a common understanding of how to apply these guidelines will be essential. As part of
this, the government may want to consider adding new sub-accounts to record conditional transfers
and by separating those for assigned functions and those for delegated functions.
Finding ways to increase the resource envelope for the district, municipality and Khan level will also
be necessary. It is not realistic to expect that the DMK level will be assigned tax revenue any time
soon. Accordingly, in the near term, opportunities to increase fiscal space will need to come through
improvements in the transfer system and own-source revenues, plus cost savings through better use
of technology and rationalizations – e.g., via training. Some issues identified with the current system
of fees collected from administrative services could be addressed with modest and immediate
changes, though none will likely lead to large increases in funding. Over the longer term, the RGC
should open the prospects of providing some initial modest but growing own-source revenues to the
SNAs. These may include collecting fees from services such as solid waste management and better
managing revenues from rent/use of state property and land. However, each of these will require
higher-level guidance as it is still legally ambiguous whether the DMK level has the authority to collect
such revenues.
To improve the smooth transition of functions to the SNAs, in particular at the DMK level, this paper
recommends that the RGC:
In the short and medium term:
• Issues guidelines in the next phase of the NP-SNDD that clarifies the roles between staff of DMK administration
and technical line offices.
• Reviews the guidelines on the management of non-tax revenues to help improve flexibility and efficiency. To
begin, with this could focus on improving the management of non-tax revenue from One Window Service
Offices (OWSOs) including: i) expand the use of ICT into the daily functioning of OWSOs and the management
of non-tax revenue in general; ii) retention of sufficient revenues for administrative expense; and ii)
better/more fair incentive sharing.
• Establishes and implements a consistent approach to costing operational and functional expenditures
associated with newly transferred functions (most likely beginning with simple administrative functions).
• Better coordinates the current practices of capacity building through face-to-face training and increasingly
replacing it with online material and training.
In the longer term:
• Considers delegating the necessary authority to SNAs to manage human resources and collect revenue as
agreed to in fiscal decentralization action plans. This may include providing guidance on collecting managing
revenues from services (such as the roles of DMKs may play with entering into /managing contracts with
private solid waste management companies) and the rent/use of state property.
• Considers ways to alleviate capacity constraints on technical resources at the DMK level (e.g. by using external
contractors to evaluate annual procurement plans) which presently delay the procurement process.
• Invests in stronger, more interconnected and harmonized digital information systems, beyond the FMIS, to
manage administrative paperwork, recording and reporting.
• Reviews the legal consistencies on the budgetary process around conditional transfer (potentially considering
new sub-accounts for assigned and delegated functions).

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1. Introduction
1. Since 2001 the Royal Government of Cambodia (RGC) has been pursuing a strategy of
decentralizing aspects of governance to three separate levels of subnational administration (SNA).
Primarily driven from above, the strategic aim of the RGC’s decentralization reform agenda is to
relocate decision-making and service delivery closer to citizens, to improve the quality and
responsiveness of service delivery, elicit greater citizen participation and strengthen downward
accountability, consistent with one of the four priority areas of the RGC’s Rectangular Strategy.
2. While the centralized model of public administration and public financial management was
well suited in the past, decentralization efforts are now considered necessary, given the need to
improve the efficiency of public service delivery – a main task of the public sector which should keep
pace with rapid development of the private sector, the engine of the economic growth. Underpinning
factors in this regard should include adequate political and institutional environments together with
expenditure decentralization which needs to be accompanied by adequate, stable and predictable
sources of revenue (IMF 2015). Cambodia is not alone to consider further decentralization, prompted
by concerns about slowing productivity growth and a rising concentration of income in many
countries. One important channel for addressing these concerns is through improved
intergovernmental fiscal relations between central and subnational administrations. By providing
incentives and improving rules and practices in policymaking, these institutions can shape fiscal policy
and multidimensional outcomes at all government levels (OECD 2018).
3. This note reviews and analyses Cambodia’s intergovernmental fiscal architecture and
provides recommendations at the institutional and operational level to help guide the direction and
implementation of future reform. Two important analytical gaps justify the need for this study. First,
there has, as yet, not been a holistic study of Cambodia’s subnational governance and PFM systems.
Second, with the recent push by the RGC to accelerate reform, the intergovernmental fiscal system
has undergone a significant change. Accordingly, this analysis provides a timely snapshot of the various
moving parts as well as an update on the recent progress and challenges in implementing reform. A
strong emphasis is placed on detailing the myriad rules and regulations that underpin the
intergovernmental fiscal system. Specific attention also is given to identifying issues at the District and
Municipality (DM) level, which has not been the focus of previous analytical work and is presently at
the forefront of the RGC’s reform agenda.1
The findings complement the forthcoming Public
Expenditure and Financial Accountability (PEFA) Assessment, due to be released later this year, which
covers the national and sub-national levels (specifically, Phnom Penh) (RGC, 2020b). They also provide
timely inputs into the development of the second National Program for Sub-National Democratic
Development (NP-SNDD).
4. The analysis draws on information from a range of sources. In addition to a detailed review
of previous studies in Cambodia and internationally, World Bank researchers (e.g. Yilmaz et. al., 2010;
World Bank, 2010) World Bank researchers undertook an extensive review of legal instruments and
policy documents, budget and expenditure information and fiscal data was also undertaken.
Interviews were held with key informants at the national level from key ministries and agencies (see
1
The study focuses more on the districts and municipalities (DMs) and less on khan, mainly beause khan are
subject to different arrangments being constituent units under Phnom Penh Capital. Nonetheless, many of the
discussions on DM level is also relevant to Khan, except for some specific areas as provided in the law.
Accordingly, the acronyms DMK and DM are used interchangably.

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Annex 1 for a list). Fieldwork was also undertaken alongside representatives of the National
Committee for Democratic Development Secretariat (NCDD-S) and the General Department of Sub-
National Administration Finance (GDSNAF) of MEF in one province, one rural district, one municipality,
and one sangkat in Battambang Province in late March 2020. Notably, the study was disrupted by the
COVID-19 pandemic. This significantly shaped the methodology (see Box 1) and will likely have long-
lasting influences over the shape of reforms.
Box 1: The COVID-19 pandemic and its effect on the study
This study commenced before the COVID-19 pandemic. Accordingly, much of the analysis of fiscal data and
of the progress of reform utilized pre-pandemic information. Where possible, post-pandemic information and
forecasts – in particular for the macro-fiscal context – have been used. Moreover, consideration is given to
how the pandemic and its aftermath may influence the substance and style of reforms. The possible role of
local government during and after a pandemic is also discussed. Additionally, the pandemic limited the scope
of fieldwork, which could only be done in one province (covering four separate line departments, one
municipal administration, one district, five-line ministry offices and one sangkat). However, this case study
should provide adequate key information that reflects the big picture of subnational governance in Cambodia.
5. The note is structured across six chapters, with analytical work divided into two broad parts.
The first analytical part of the note (Chapters 2 and 3) examines Cambodia’s pathway to more
decentralized governance. Chapter 2 provides an overview of the legal and institutional framework of
decentralization, evaluates progress on transferring functions from the central to subnational levels,
locates decentralization the RGC’s broader public sector reform agenda and details some of the key
challenges have hindered progress to date. Chapter 3 then looks forward to examine some of the
specific macro-fiscal challenges that COVID-19 may bring and how these may affect reforms. The
second part (Chapters 4, 5 and 6) dives more deeply into the subnational fiscal architecture. Chapter 4
takes stock of subnational expenditures and revenues, including the system of intergovernmental
transfers. Chapter 5 undertakes a rapid review of the subnational fiscal PFM system. Chapter 6 drills
down to focus specifically on the crucial DM level; in particular, focusing on the reform process at that
level and some of the challenges of implementation identified during fieldwork. Each chapter
concludes with a set of short- and long-term recommendations

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2. An Overview of Subnational Governance
2.1. The RGC’s Decentralization Reforms
6. A series of structural reforms have established a three-tiered system of subnational
administration in Cambodia, with distinct governance arrangements (Figure 1). The Law on the
Management of Commune/Sangkat Administration in 2001 established Communes and Sangkat (CS)
as the lowest level of administration in rural and urban regions, respectively, with democratically
elected councils.1
Following this, the 2008 Law on the Management of CP and DMK administrations
(hereafter referred to as the Organic Law) established a legal framework for two new higher levels of
SNA: districts, municipalities, and khan (DMK) at the intermediate level; and capital and provinces (CP)
at the highest level. A new three-tiered hierarchical SNA structure was the result, with separate
designations given to the capital city Phnom Penh and the remaining provinces and their constituent
units, reflecting their unique characteristics.
Figure 1: Administrative Structure in Cambodia
Source: (RGC , 2020a)
7. Decentralization reforms built on a movement toward vertically deconcentrating
expenditure and administrative functions that began in the 1990s (Niazi, 2011). Decentralization
reforms have wrapped formalized governance arrangements around the existing administrative
divisions of the country. Of the 39 line ministries (LMs) at the national level, 28 have subordinate
departments at the CP level, and 13 also have line offices at the DMK level. Offices at the grassroots
CS level, to the extent that they exist, tend to be organized around the last mile of service delivery,
including schools, health centers/health posts, and national police posts.
8. All three tiers of SNAs in Cambodia are assigned two types of functions: permissive and
obligatory functions – both of which can be transferred. There are two types of permissive functions:
i) those transferred to SNAs by a line ministry; and ii) those that fall under the general mandate of an
SNA for the welfare of citizens in their constituencies. The latter include local infrastructure, and
addressing gaps in central government service delivery, among others and involve managing human,
financial and physical resources.2
Obligatory functions are those defined by law, royal decree, sub-
decree or legal instruments based on the request of the National Committee for Democratic
Development (NCDD) or line ministries (LMs). Obligatory functions need to be performed by receiving
SNAs once they are transferred, whether through assignment or delegation.
9. According to the Organic Law (Art. 242), each SNA council is entitled to receive appropriate
fiscal and human resources to perform its core administrative and development functions. With few
revenue sources of their own, and what revenues that are assigned to SNAs highly skewed toward

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Phnom Penh, a great deal of responsibility is placed on higher levels to adequately fund lower levels,
via transfers (discussed further in Section 4.2).
10. SNAs also have limited responsibilities over human resource management functions,
including the ability to recruit locally and manage some aspects of performance. However, the
capital/provincial level has some additional delegated authority over line ministry staff working within
their jurisdiction. While establishment is a centralized function, SNAs are responsible for recruiting
their own staff, except for those serving in the education and health sectors, which are recruited at
the national level.3
Personnel management of SNA staff is generally in line with the existing national
laws and standards. However, SNAs can directly supervise activities and have some scope for setting
local financial incentives.4
Notably, at the CP level, there are provisions for the respective governors
to be formally involved in the posting and performance evaluation of key personnel working in line
departments within their jurisdictions.5
11. Political decentralization has been most significant at the lowest-level communes and
sangkat (CS), which now operate as an independent and democratic level of SNA (World Bank,
2018a; 2018b). Each CS is controlled by a democratically elected council, comprised of between five
and eleven councilors who are directly elected via competitive multiparty elections. The elected
councilors have formal authority for commune administration under the leadership of the chief, who
is drawn from the party that receives the most votes. Commune councils are assigned a general
mandate over the welfare of citizens in their constituencies as well as acting as the delegated agents
of the national government (RGC, 2001).
12. In contrast, the CP and DMK levels function more like deconcentrated administrative
entities of the central government, albeit with their own budgets and spending authority. Broadly,
the CP and DMK levels are subject to the same laws, which are distinct from the CS level (Annex 2
provides a list of relevant laws and regulations for each level of SNA ).6
They also have analogous
administrative structures – or “unified administration” as per the Organic Law.7
Each CP and DMK
comprises an indirectly elected council with some legislative authority council, a Board of Governors
(BoG), which acts as the executive branch, and a host of committees and operational units. Notably,
councils at DMK and CP councils are not directly elected by local citizens but rather by commune
councilors (Box 2). The council is accountable to the local citizens and the national government per
the Constitution and other laws. The Governor in charge of the BoG is appointed by the Prime Minister
and is jointly accountable to the central government and the Council.8
Consequently, while the
concept of unified administration is not clearly defined, in effect it appears to embody the oversight
and coordination functions of government within a council’s defined territory though without the
downward accountability of a genuinely independent local authority (World Bank, 2018a).
Box 2: Administrative structure at CP and DMK levels
CP and DMK councils serve as the respective legislative body of the SNA and shall have at most 21 members
(for CP), 15 members (for a municipality) and 19 members (for a district). The councilors in office receive
remuneration for which provision is made in the annual budget.9
The council has the authority to make
legislative and executive decisions and can issue by-laws (known as deika). The council has three mandatory
committees, including i) Technical Facilitation Committee (TFC); ii) Procurement Committee (PC); and iii)
Women and Children Consultative Committee (WCCC). The TFC is in charge of coordinating with
deconcentrated provincial line departments of central ministries.
The BoG functions as the executive body within the CP and DMK administration. The BoG is chaired by a
Governor and his/her deputies (at most six for CP and at most 4 for DMK). The Governor is appointed by a

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Royal Decree based on the request of the Prime Minister as proposed by the Minister of Interior. He or she
has a role to provide comments and advise to the council, report to the council and implement decisions of
the council.10
The detailed roles and relationships between the councils and the BoG are provided in Sub-
decree #215 and #216 both dated 14 December 2009 (RGC, 2009). The detailed roles and responsibilities of
the deputy and his/her deputies for CP and DMK are provided in Ministry of Interior (MOI) Guideline #034,
#036, and #036, all dated 28 December 2010 (MOI, 2010).
The BoG has one Administrative Director who is appointed by MoI to be in charge of the daily administrative
operation of the Council and the BoG.11
In the case of the CP, the Administrative Director oversees six main
units (administration, planning and investment, finance, personnel, inter-sectoral coordination, and
procurement) and four units for DMK (administration and finance, planning and CS support, inter-sectoral
coordination, and procurement).
Provincial administrative structure
13. The Organic Law originally prioritized a line ministry-driven process of decentralization.
According to Articles 215-221 of the Organic Law, LMs are required to undertake a detailed functional
mapping and review processes in preparation for the transfer of responsibilities to the unified
administrations at the SNA level.12
To coordinate various stakeholders in decentralization reform, in
2008 the RGC established, via Royal Decree, the National Committee for Democratic Development
(NCDD) as a high-level inter-ministerial agency.13
Originally comprised of 15 ministries, it now
encompasses 22 participating ministers, including the core ministries of Interior (MOI), Economy and
Finance (MEF) Civil Service (MCS) and Planning (MoP). The Deputy Prime Minister (Minister of Interior)
is the chair (RGC, 2020c).14
Details on the core ministries and their roles are provided in Annex 3. The
NCDD “board” sets out the RGC's agenda for the implementation of the decentralization reforms via
the Organic Laws.15
Coordination and day-to-day management of the reform process are provided by
the secretariat to the NCDD (NCDD-S) and supported by several technical working groups. LMs are
required by the NCDD to establish their own working groups on deconcentration and decentralization
(directly led by the minister or a secretary of state) to support the development of policy and to
implement agreed reforms.
2.2 The Policy Focus of Decentralizing Reforms
14. While the initial focus of decentralization reform was on enacting independent governance
of the lowest level, the RGC has since reoriented its reform efforts toward transferring functions to
SNAs, in particular the DMK administrations. As per the NP-SNDD envisaged strategy, the DMK level
is envisaged to become the fulcrum of service delivery and local economic development, with the CP
level playing a coordination role. To date, the CS level has not been assigned any mandatory sectoral
functions; with key informant interviews suggesting many perceive the CS level as implementing
agents of the CP or DMK level for transferred functions.

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15. In addition to the distinction between obligatory and permissive functions of SNA, functions
can be either “assigned” or “delegated” by central LMs to SNA level – though the distinction is not
consistently interpreted or understood.16
On the face of it, an assignment of functions appears to
equate to the concept of “devolution” (in conventional terminology), where authority for decision-
making, finance, and management is transferred from an LM to a receiving SNA. However, unlike a
full devolution, the SNAs that receive functions are expected to be accountable to the parent ministry
at the central level for the management of the transferred functions (RGC, 2019f). A delegation of
functions, in contrast, is where responsibility for decision-making and administration of public
functions and resources are transferred by an LM to an SNA to perform the functions on its behalf. In
this instance, ownership over the function is maintained by the delegating LM.17
Assignments and
delegations, therefore, appear to have similar implications for accountability relationships following
the transfer (Figure 2). Regardless of whether a function is assigned or delegated, in each case
following the transfer local office becomes primarily accountable to the respective SNA council, which
in turn is accountable to both their constituents and the transferring LM.
Figure 2: Functional transfer and accountability shifts
16. Overall progress in transferring technical and specialized functions has generally been
piecemeal and slow. Several efforts to transfer functions to the SNA level have fallen short. Between
2010 and 2015, with the support from development partners, detailed and administratively
burdensome functional mapping and reviews were conducted within key sectors (e.g. education,
health, social affairs, agriculture, etc.). However, these did not result in substantive or well-
coordinated decisions either by the NCDD or LMs concerned; many of which were reluctant to give up
power and resources. In 2015, based on Sub-decree #285 (2014) (RGC, 2014), the RGC pushed for all
three tiers of SNAs to identify and manage specific permissive functions selected from their general
mandate. This effort, however, had little influence because the limited size of unconditional transfers
made available to SNAs meant that there were insufficient funds available (ADB, 2018). The functional
transfer process has also been inconsistent across ministries. Priority ministries such as MOEYS, MOH
and MOSVY have been pushed to assign functions, while others have only focused on delegating
functions.
17. Until 2019, transfers had been mostly limited to smaller administrative functions. Most
notably, this includes the One Window Service Offices (OWSOs) and the District Ombudsman (DO)
office (for more details see Annex 4). The aim of the OWSO, which were first introduced in 2001, was
to consolidate services commonly required by citizens and small businesses at the local level under
one roof to improve the quality, reliability and accountability of service delivery, improve compliance
as well as enhance efficiency by streamline back-office processes (World Bank, 2013). The DO is
responsible for hearing and, if possible, resolving, citizen complaints.18
As of 2019, all 25 CP

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administrations had established OWSOs which were providing services across 14 sectors that were
previously delegated from 12 LMs – equivalent to 559 individual services. At the DMK level, 83 OWSOs
were in operation, providing services across 14 sectors, as delegated from 10 ministries – equal to 211
individual government services. LMs have also delegated a few functions to the DMK level. In 2016,
the Ministry of Social Affairs issued a prakas to delegate state orphanage management to PCs,
oversight of non-governmental organization (NGO) managed childcare centers to CSs, and the
management of child victims and vulnerable children to CSs in Battambang province.
18. Progress had also been made on social accountability reforms, which has increased citizen
participation and enhanced the accountability of SNAs. The Implementation of Social Accountability
Framework (ISAF) aims to empower citizens, strengthen partnerships between SNAs and citizens, and
was introduced as a platform for coordinated action by government and civil society to operationalize
the Strategic Plan on Social Accountability for Sub-National Democratic Development adopted by the
government in 2013. ISAF is currently in Phase 2 operating with four areas of focus: i) access to
information and open budgets; ii) citizen monitoring; iii) capacity building and facilitation; and iv)
program management, learning and monitoring.
19. Amid the generally slow progress in transferring functions, a strong top-down push from
the highest levels of government has helped catalyze some further progress in 2019. Instigated by
an official decision by the Prime Minister, a further 21 functions across five LMs (including MoEYS,
MoE, MoSVY, MRD, and MoH – see Annex 5 for a detailed list) have been formally transferred to the
SNA level. Two further reforms have been initiated. The first involves the transfer of all the functions
currently performed by Provincial Health Department (PHD) to CP administration, along with about
20,000 health staff members and its US $166 million budget (discussed further in Section 4.3.1).
Additionally, steps are being taken to integrate all of the 13 deconcentrated line offices, along with
their 55 functions and nearly 20,000 staff members, into the DMK system of administration (NCDD,
2020) (discussed further in Section 5). These reforms are broad in scope and complicated in their
implementation.
2.3 A Broader Public Sector Reforms Agenda
20. The RGC is also concurrently pursuing wide-ranging reforms to public financial management
(PFM) and public administration (Table 1). The Ministry of Economy and Finance (MEF) launched the
Public Finance Management Reform Program (PFMRP) in 2004 to heighten standards of management
and accountability in the use of government resources. The National Public Administrative Reform
(NPAR) program, led by the Ministry of Civil Service (MCS) has also been underway since 2014 to
improve the quality and delivery of public services by addressing several weaknesses that cut across
the civil service.
Table 1: Cross-cutting reforms and their focus
D&D PFMRP NPAR
• Reform management
• Good governance
• HR management and
development
• Service delivery and local
development
• Fiscal decentralization
• Budget credibility
• Financial accountability
• Policy-budget linkages
• Readiness for next steps
(of the reform platform)
• Reform support
• Quality and effectiveness
of public service
• HR management and
development
• Pay and remuneration
reform
Source: (RGC, 2020b)

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21. The three reforms are highly interdependent and are mutually reinforcing (World Bank,
2018b). Ultimately, they center on reforming and devolving the 3Fs of governance – funds, functions
and functionaries to improve the quality and responsiveness of the public sector. Decentralization,
which involves a major rebalancing of the state apparatus, provides the backdrop to the other two
reforms, which are more focused on reforming specific functions of government (financing and human
resources management or staffing).
• Functional reassignments to SNAs will also result in the reassignment of budgeting and
expenditure functions. To work, SNAs require well-functioning planning and budgeting
systems that account for newly assigned budgeting powers and accountability mechanisms.
Under the PFMRP, the RGC has been able to make substantial progress in reforming
subnational fiscal arrangements (alongside improvements at the central level). In 2018, the
RGC adopted the Budget System Reform Strategy (BSRS) for 2018-2025 (RGC, 2018), which
was then used to guide the development of the BSRS for SNA (SNA-BSRS) for 2019-2025 (RGC,
2019). The SNA-BSRS seeks to significantly change the current structure and processes around
budgeting at the sub-national level, including:
o Strengthen the budget-policy linkage; in particular aligning the policy objectives of the
SNAs with the aims/priorities of the national policy, per the administrative
management structure that defines the roles, authority, and the responsibilities of
the SNAs.
o Expand the use of Budget Strategic Plan (BSP) and program-based budget (PB) in all
provincial administrations and Phnom Penh capital as medium-term (three-year)
planning and budget tools.
o Gradually change of the budget cycle of CP, DM, and CS administrations to align with
the national budget cycle; in particular, clearly define the authorities and
responsibilities of SNAs in the four stages of the budget cycle, and
o Align the financial accounting system and management with the national level by
using the same budget classification, chart of accounts and reporting formats.
• Similarly, transfers of functions to SNAs require a commensurate transfer of staff and
decision-making powers. A key part of this is the transfer of capable and incentivized staff to
implement new management responsibilities within the SNA and capacity within senior levels
of SNAs to supervise and support new service delivery functions. Under the broader NPAR
program several important steps have been taken in this regard:
o Considerable changes have been made in pay administration. Pay and pensions of civil
servants, mainly at the lower end of the pay scale, have been increased to improve
the competitiveness of remuneration. This included civil servant working at the
subnational level. Incentives (including location-based allowances to encourage
remote postings) for teachers and health care workers have also been improved
(World Bank, 2018b).
o The transfer of personnel, in particular administrative staff, to SNA has progressed
relatively smoothly, guided by coherent policies and laws.19
This includes the Law on
Separate Statute for Personnel at SNA (2016), which includes in the definition of SNA
personnel civil servants who have been transferred along with functional transfer
process appointed or assigned by the government to work with SNAs.20
Sub-decree
#240 (2017) has harmonized SNA authority over staff working at the CP and DMK
levels (not only their own staff but also those of line departments and offices).

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2.4 Implementation Challenges
22. Relative to other countries in Southeast Asia, Cambodia has been somewhat of a “cautious
mover” in its path to decentralized governance (Bhatti and McDonald, 2021). Significant elements
of decentralization have been established at the formal policy and legislative levels, but limited
progress has been made with implementation. Accordingly, relative to its regional peers, Cambodia’s
is less decentralized across the political and administrative dimensions of governance, and much more
centralized on the fiscal dimension (Table 2). The slow and disjointed progress with transferring
functions to SNAs has been due, at least in part, to a slew of implementation challenges. By and large,
the major challenges have existed at the strategic level; and mainly to do policy formulation or reform,
legislation and coordination across government. Many of these challenges, which remain
fundamentally unresolved, have shaped the direction and dynamics of reform.
Table 2: Decentralization in Southeast Asia
Country
Political
Decentralization
Decentralization of
Functions
Decentralization of
Funds
Decentralization of
Functionaries
Cambodia Low Moderate Very low Low
China None High Very high Moderate
Indonesia Moderate High High High
Lao PDR None Moderate Moderate Moderate
Malaysia High Low Very low High
Myanmar Low/ moderate Very Low Low Very low
Philippines Moderate High Low/moderate High
Thailand Low Moderate Moderate Low
Vietnam None High High Moderate
Source: Bhatti and McDonald (2021)
23. Overall, there has been a lack of a shared strategic vision for decentralization reform across
government. Despite the policy framework of the NP-SNDD, a common understanding, and
acceptance, of a shared strategic direction of decentralization reforms among key actors at the
national level has been limited. Two examples illustrate the contested nature of reforms. First, while
the NP-SNDD envisages the DMK administration as the main tier of SNA for service delivery, key
informant interviews suggest that the MEF and some line ministries have not shown strong buy-in to
the idea and have questioned the merit of transferring budget and powers to the DMK level. Second,
despite considerable efforts by MOI to coordinate meetings with LMs to come up with their
decentralization plans, there remains some resistance on the part of some LMs to commit themselves
to transfer functions (World Bank, 2018b).
24. There are no formal mechanisms for the resolution of disputes around decentralization. The
NCDD has neither the authority nor the tools to ensure that key ministries decentralize (World Bank,
2018b). It cannot, for instance, require that LMs transfer functions to SNAs, nor can it change funding
flows at the subnational level, regardless of the NP-SNDD or the Organic Law.
25. Compounding the lack of coherence on the strategic direction of decentralization reforms,
coordination issues between the major cross-cutting reforms have stymied reforms. On financing,
while the NP-SNDD and PFMRP are supposed to complement each other in practice, they have not
always been well coordinated. The PFMRP, for instance, includes plans to further decentralize budget
authority (as indicated in the BSRS for 2018-2025), though still reflects the more centralized approach
to public financial management process as laid out in the Public Finance System Law (2008). The focus

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at the SNA level is therefore on ensuring compliance to the national PFM rules and regulations (and
primarily at the CP level) and not on facilitating the financing arrangements required to effectively
transfer functions to the DMK level.21 At times reforms have run at cross-purposes: the absorption of
civil servants into the SNA fiscal architecture, plus the increases in civil servants’ pay as part of PA
reforms have severely crimped the fiscal space for development spending within SNAs (World Bank,
2018b). One bright spot is that reform secretariats have met quarterly to plan, report upon and
harmonize their activities. while at the technical level, coordination between reforms has generally
been productive. Many many rounds of discussions have taken place between representatives of the
NCDD-S, MoI, MEF and other line ministries.
26. The large volume of legal and other instruments (e.g. sub-decrees and prakas and
guidelines) has not necessarily supported implementation and may have hindered progress. Key
aspects are missing from legislation; oftentimes awaiting more detailed instructions from higher
authorities which can take months if not years. Important instructions on implementation are left
unspecified and open to interpretation. This has created uncertainty and confusion around aspects of
the functional transfer process (e.g., interviews revealed confusion among SNAs over the application
of permissive functions because of the lack of clarity over the mandate of SNAs and the national level).
Critically, there have also been inconsistencies between sub-decrees on whether functions should be
assigned or delegated, especially concerning the transfer of resources and attendant PFM
requirements. The lack of clarity in the past on the transfer of finance has manifest in poorly funded
functions, e.g. solid waste management (assigned by MOE), monitoring of NGO-run child protection
and residential care institutions (assigned by MoSVY) and many delegated functions. It has also led to
an unclear process around conditional transfers (see Section 4.3.1).
27. Further, there has been an overemphasis on process, and not enough on providing LMs with
clear strategic guidance. An obvious example is a requirement in the Organic Law that LMs undertake
a detailed functional mapping and review as a prelude to transferring functions, which has been
expensive in terms of time and resources and has shown few signs of progress. What guidance there
is in the Organic Law and Sub-decree #68 (2012) appears nebulous and process-oriented – focused on
aligning the benefits area of a public service or investment with the jurisdiction of an SNA and on the
operational capacity of the SNA to deliver functions. No strategic policy guidance is provided, for
instance, on the types of functions that ought to be performed by SNAs, or assigned to the DMK level
as opposed to other SNA tiers (e.g. based on the principle of subsidiarity). Accordingly, decisions on
transfers have been tactical, not strategic, and largely shaped by political compromise and the
available resources at each tier of administration.
28. The lack of progress in implementing decentralization reforms has led to an increasingly top-
down approach. The tendency to resolve strategic and policy difficulties higher up has occurred
despite the constant effort to ensure consultation with key stakeholders, including SNAs, to resolve
differences and the early emphasis on “learning by doing”.22
The shift away from bottom-up processes
to top-down decision-making has limitations as it requires considerable discretion and careful
management of political capital (World Bank, 2018b). Redundant and conflicting decisions from above
have made their way into sub-decrees, prakas and circulars, or been left as de facto practices. It has
also allowed LMs to maneuver politically to overcome disagreements and protect their bureaucratic
interests.
29. Too little attention has been given to M&E and feedback mechanisms to ensure compliance
and timely adjustment to the rules. Despite voluminous data being generated by M&E systems, it is

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unclear how reporting and M&E requirements have been used to improve decision-making by relevant
actors. From fieldwork and key informant interviews, it appears the reporting and data collection
requirements have been increasing over time. This has created heavier paperwork, especially for
administrative directors, administration officers, finance officers, HR officers, and procurement
officers. Despite more computerization, the quality of facilities is uneven, and human resource
capacity is still far from sufficient, especially in rural areas.
Summary of policy options and recommendations to improve the management of the reform process
In the short term:
• Focus on improving the strategic orientation and implementation of the decentralization agenda in the next
phase of the NP-SNDD: For example:
• by providing more precise and consistent strategic guidance to key stakeholders, including,
the expected roles of each SNA tier, the types of functions that are best suited to each tier of
SNA and the criteria upon which transfers should be based (e.g., economic development
priorities, the realities of service delivery in Cambodia (especially in the post-COVID-19
period), accepted principles of equity and efficiency (such as subsidiarity), and best available
international practices).
• by providing greater clarity on the transfer process, including defining obligatory versus
permissive functions; articulating when functions are best assigned or delegated; and what
budgets should be used to finance different transfer arrangements, and how. A list of ‘de facto
functions’ could be used as a benchmark for the types of functions to be transferred to each
level of SNA.
• Align the objective of PFM reforms to be more responsive/supportive to improving service delivery at the
central and subnational levels (e.g., line ministries and SNAs).
• Improve specific aspects of coordination between MEF, NCDD and MOI to better coordinate cross-cutting
reforms starting with: i) consultation on the preparation of annual circulars, ii) sharing of data on planned and
executed budget; and iii) joint M&E exercises especially on the recent functional transfer in the health sector
and to DMK level.
• Introduce agreed fiscal decentralization action plans with LMs and SNAs including expenditure management,
revenue collection, and personnel administration (human resource management) with a clear timeline and
targets.
In the longer term:
• Begin implementing fiscal decentralization action plans; including, providing SNA with more control over
revenue collection and expenditure management. This could specifically involve coordination between MOI
and MEF on the amount of funds DMK administrations require and the source of those funds.
• Establish a mechanism for the resolution of disputes around decentralization.
Consider clarifying and promoting the roles of CS administration beyond just ‘implementing agencies’ of higher
administrations; this should include the CS’ role in local economic development, pandemic prevention and
recovery.

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3. Macro-Fiscal Challenges for Decentralization Associated with COVID-19
30. More recently, a separate, but significant, challenge for the implementation of
decentralizing reforms has been the COVID-19 pandemic. Cambodia’s fiscal decentralization has
generally occurred against a backdrop of strong and sustained economic expansion. Growth has
averaged more than 7 percent annually in the past decade, resulting in per-capita incomes more than
doubling over that time, from about US $760 to US $1,612. In addition to the favorable economic
climate, the RGC’s strong focus on improving revenue mobilization and administration has helped
considerably expand the size of the public purse. Over the four years to 2019, general government
revenue increased from 19.7 percent of GDP to 25.4 percent, which underpinned an increase in
expenditure from 20.7 percent of GDP to 24.8 percent over the same timeframe. Concurrently, a
greater share of the rising budget has been shifted to the subnational level. Between 2013 and 2019,
the subnational share of total government spending rose from 6.1 percent to 8.1 percent (see Section
4 for more details).
31. The pandemic, however, will hit the Cambodian economy hard in 2020, and create
considerable uncertainty over the macro-fiscal outlook. In December 2020, the World Bank projected
economic growth in 2020 to contract by 2.0 percent (a sharply downward revision from the pre-
pandemic forecast of 6.8 percent increase) (Figure 3). This reflects the combined effects of the
emergency measures to contain the outbreak as well as Cambodia’s acute exposure to the global
downturns in tourism, exports, and foreign direct investment (FDI). Additionally, government
revenues are expected to have peaked as a share of GDP in 2019, forecast to fall from 26.3 percent in
2019 to 17.4 percent in 2020 (Figure 4). Spending is expected to hold up, at least for the short term,
in part underpinned by the RGC’s prompt response to the COVID-19 outbreak.
Figure 3: Cambodia’s economic growth; percent Figure 4: Government finance; percent of GDP
Notes: e = estimates, p = projection
Source: World Bank (2020)
32. It is not yet clear what impacts the COVID-19 pandemic might have on the implementation
of the decentralization and related reforms. The pandemic has understandably shifted the RGC’s
budgetary priorities toward emergency management and economic relief. How this might play out for
SNAs is still not clear – while national governments tend to get capture the focus during emergencies,
there are good reasons why the proximity of local governments makes them well-positioned to
support (see Box 3). Already Cambodia’s SNAs have been playing a role in emergency response.
However, those roles have not been institutionalized and are instead on an ad hoc basis. The RGC has
continuously shown its commitment to proceed with the existing functional assignment process
7.1 7.0 6.9 7.0 7.5 7.1
-2.0
4.3
5.2
-4
-2
0
2
4
6
8
2014 2015 2016 2017 2018 2019 2020p 2021p 2022p
Agriculture Industry
Services Taxes less Subsidies
-1.8
-0.5 -0.2 -0.8
0.4 0.8
-9.0
-10
-5
0
5
10
15
20
25
30
2014 2015 2016 2017 2018 2019e 2020p
Total revenue Total expenditure Overall balance

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(NCDD, 2020b). Regardless, the severe fiscal contraction is likely to be transmitted into a smaller
resource envelope for the SNA level – in part because of policy choices and also because transfers are
determined by the size of total revenues (see Section 4.2.1). In the Circular on the BSP preparation for
2021-23, the RGC revised down its 2020 GDP forecasts to a 1.9 percent contraction (down from a pre-
pandemic estimate of a 6.5 percent rise) (RGC, 2020a). While the government appears to expect a V-
shaped economic recovery beyond 2020 (with the Bank forecasting a rise of 4 percent in 2021, with
risks tilted to the downside), a severe fiscal consolidation is nonetheless expected in 2021, with the
total state expenditure for 2021 likely to be reduced by 11.3 percent compared to the 2020 planned
budget. The fiscal contraction is likely to be even more severe at the SNA level, with expenditure in
2021 projected to be 29 percent lower than the 2020 planned budget.
Box 3: The role of local governments during a pandemic
In response to large-scale emergencies, such as the outbreak of the COVID-19 pandemic, considerable
attention is generally on the response of the central or national government. However, local government
officials, given their proximity to people, have important roles to play in ensuring the ensure efficiency and
accountability of the emergency response.
Depending on each country’s situation, the roles of a local government during a pandemic might fall under
the key main areas and sub-areas, as indicated in Table B1. Key principles include: i) the division of the roles
among different tiers of the government needs to reflect the situation of each country; ii) the central
government should be more responsible for determining redistribution policies; iii) local governments might
be better placed when it comes to implementing allocative functions whose benefits and costs accrue
primarily to households residing within their boundaries; and iv) inter-governmental coordination for
concurrent responsibilities is critical for effective responses.
Table B1: Key roles of SNAs during a pandemic situation
Main functions Sub-functions
Increasing the level of
curative local public health
service delivery
• Providing emergency care/curative health services
• Expanding or supplementing existing health facilities
• Increasing testing volumes
• Procuring medical and personal protection equipment
Preventing transmission
and epidemiological
investigations and tracking
• Production and dissemination of awareness-raising information
• Enforcing social distancing and other administrative measures
• Enforcing proper environmental and sanitation regulations
• Clinical investigation and identification of suspected cases
• Contact tracing, recording and reporting of contacts
• Isolation of suspected cases/managing quarantine sites
Mitigating the impact of
the pandemic on other
local public services
• Ensuring safe water supply
• Mitigating impact on education
Supporting social and
economic relief activities
• Establishing and operating food and non-food distribution centers
• Building and operating homeless shelters
Source: (Yilmaz & Boex, 2020)
On the financing front, responding to rapid onset emergencies such as COVID-19 can create major budget
volatility for local governments and generate significant fiscal risks. Declining own-source revenue collection
makes inter-government transfer even more important for lower levels. The timeliness and flexibility of
transfer are, therefore, key. In China, for instance, local governments also have access to emergency funding
to ensure continuity of pandemic response activities. Overly restrictive PFM rules that inhibit flexibility can
also be temporarily relaxed to allow local governments to quickly finance essential pandemic activities
without sacrificing accountability – for example “keeping the receipts” (see IMF, 2020).

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In many developing countries, local governments are under-appreciated, under-staffed and under-resourced.
Local government planning and administrative capacity may be weak, and intergovernmental coordination is
often ineffective. The pandemic is also highlighting the obstacles standing in the way of local governments in
performing their functions effectively. Yet the pandemic is also an opportunity.
Many of the pre- and post-disaster actions involve local governments, such as strengthening physical
infrastructure, improving preparedness activities (such as arranging volunteer deployment, training volunteer
search and rescue, organizing transport and logistics systems for distributing supplies to field hospitals and
remote communities). Similarly, as countries begin to draw plans for a post-pandemic/post-disaster social
and economic recovery, local government can help countries ‘build back better’ by creating more sustainable,
resilient and inclusive societies.
Source: (Yilmaz & Boex, 2020)
Summary of policy options and recommendations to manage the effects of the COVID-19
pandemic and strengthen the RGC’s capacity to manage similar shocks in the future
In the short term:
• Ensure that the requirements of decentralization and other public sector reforms do not interfere with the
demands of the pandemic response. Consider aspects of policy and implementation that can be postponed
until a later time. Though care should be taken to ensure that high priority spending is not adversely
affected.
• Conversely, where possible, in the rush fund pandemic response, minimize disturbances to PFM systems
that may have lasting adverse effects of the SNA level (e.g., fragmented funding flows, additional reporting
requirements).
• Look for ways to widen the available fiscal space at the SNA level; potentially by reprioritizing spending and
identifying cost savings, where possible. For instance, cost savings and improved coordination may be
possible through the greater use of ICT in training.
In the longer term:
• Consider ways to leverage the strengths of the SNA levels to improve the efficiency and accountability of
the RGC’s emergency response during shocks. Current decision-making and spending roles, which are
presently implemented in an ad hoc way, could be institutionalized and strengthened.

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4. Fiscal Decentralization
33. This section provides essential context to the state of fiscal decentralization in Cambodia
and issues identified in fieldwork. It focuses on the broad allocation of expenditure between
Cambodia’s levels of administration, and the extent of deconcentration within central LMs before
delving into the specifics of public spending and revenue within the SNA level. Because of the general
fluidity of the near- to medium-term outlook, this section, and the rest of the note relies on the
realized revenue and expenditure outturns for 2018 and 2019 (as per the Budget Law) in subsequent
sections when discussing SNA finance (see Table A1-A3 in Annex 6 for full details).
34. Despite the progress made on decentralization and shifting resources to the subnational
level, Cambodia’s fiscal architecture remains highly centralized (Figure 5). Between 2013 and 2019,
the level of SNA expenditure (i.e. spending across for all the three tiers of SNA) increased nearly three-
fold, from 760 billion riel (US $190 million) to 2,200 billion riel (US $ 550 million). Despite this, the
subnational share of spending in Cambodia remains among the lowest in the world (OECD/UCLG,
2019) (Table 3). In 2019, around 8.1 percent of total general government expenditure was under the
control of the subnational level. This includes 5.7 percent of wages and salaries, 14.7 percent of non-
wage expenditure, and 10.6 percent of capital expenditures (for domestic funding only). In the
planned budget for 2020, the SNA budget was expected to jump considerably, to 3,329 billion riel
(US $832 million), which is 51 percent larger than the budget in 2019, with the SNA share rising to
10.0 percent of the total government expenditure, driven by a large rise in non-wage expenditures.
Figure 5: Sub-national expenditure in Cambodia
US $ million and share of government expenditure
Source: MEF
Table 3: Subnational Expenditure in
Southeast Asia
Percent of total government expenditure
Country 2015–2018a
Cambodia 7
China 91
Indonesia 53
Lao PDR 31
Malaysia 8
Myanmar 12
Philippines 15
Thailand 19
Vietnam 54
OECD countries 40
Source: Bhatti and McDonald (2021)
a. Different years: for 2015–2018, data are for 2016 and sourced
from OECD/UCLG (2019), except Lao PDR (2015), Indonesia,
Malaysia, and Myanmar (each being 2017), and Cambodia
(2018) sourced from respective Treasury and Finance
departments.
4.1. Deconcentrated Expenditure of Central Line Ministries
35. The concentration of expenditure among central line ministries varies by sector (Figures 6
and 7). The Ministries of Education (MoEYS) and Health (MoH) – major service providers and two of
the three largest spending agencies in the Cambodian budget – are among the most deconcentrated.
In the MoEYS, 89 percent of recurrent sending is executed at the sub-national level, while in health it
is 40 percent. Smaller ministries, such as Land Management, Urban Planning and Construction,
0
2
4
6
8
10
12
14
16
18
20
0
100
200
300
400
500
600
700
800
900
1000
2018 2019 2020 2018 2019 2020
Non-wage
Wage
Capital (domestic)
Total
$ m %
Percent of total
government expenditure
Total SNA expenditure

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Environment, and Mines and Energy, are also relatively deconcentrated. On the flip side, the most
centralized ministries are relatively large: Public Works and Transportation; Social Affairs and
Veterans; and Rural Development.23
Overall, around three-quarters of LM budgets are executed at the
central level.
Figure 6: Budget allocation by line ministries; 2019,
USD millions
Figure 7: Central and Provincial shares of LM
recurrent budgets*; 2019
Source: MEF * Executed wage and non-wage expenditure
Source: MEF
36. In large part, fiscal deconcentration of centralized LMs matches the assignment of human
resources. Budget allocation patterns mean that the only available spending information below the
provincial level for LMs is wages and salaries (only line departments at the CP level are considered
separate budget entities; though salary budgets are explicitly and linked to each staff member the at
different ministry offices). Overall, the line offices at the DMK level absorbs around 60 percent of total
wage spending (including basic salary and other allowances), with the remaining share split evenly
between the central and CP levels. Information from MCS and MEF indicate that these relative shares
have been static for the past three years. Much of this reflects the sectors with large cadres of front-
line service providers, such as education and health, in which the subnational share of workers, and
thus of the wage bill, is considerably higher (97 percent for education and 80 percent for health) than
the average of other ministries (61 percent) (Figure 8). Education accounts for 69 percent of all
subnational staff, and 81 percent of staff working at the DMK level (and along with health these two
sectors account for more than nine out of ten workers at the DMK level). In both sectors, however,
deconcentration in recurrent wage spending is not matched by non-wage recurrent spending and
capital spending, with the difference most stark in health.
0 250 500 750 1,000
Ministry of Post and Telecommunication
Ministry of Environment
Ministry of Tourism
Ministry of Culture and Fine Arts
Ministry of Land Management, Urban…
Ministry of Commerce
Ministry of Labor and Vocational Training
Ministry of Industry and Handicrafts
Ministry of Agriculture, Forestry and…
Ministry of Mine and Energy
Ministry of Rural Development
Ministry of Social Affaire and Veteran
Ministry of Health
Ministry of Public Works and Transportation
Ministry of Education, Youth and Sports
Current Capital
76%
86%
57%
77%
86%
41%
86%
74%
61%
58%
70%
95%
60%
80%
11%
24%
14%
43%
23%
14%
59%
14%
26%
39%
42%
30%
5%
40%
20%
89%
0% 20% 40% 60% 80% 100%
National
Ministry of Post and Telecommunication
Ministry of Environment
Ministry of Tourism
Ministry of Culture and Fine Arts
Ministry of Land Management, Urban…
Ministry of Commerce
Ministry of Labor and Vocational Training
Ministry of Agriculture, Forestry and…
Ministry of Mine and Energy
Ministry of Rural Development
Ministry of Social Affaire and Veteran
Ministry of Health
Ministry of Public Works and…
Ministry of Education, Youth and Sports
Central Provincial

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Figure 8: Civil servants employed at different levels within selected LMs; Number and share of
the total, 2020
Source: MCS and MEF
37. On the face of it, further improvements in allocative efficiency may be possible with greater
deconcentration of human resource management functions and spending in other sectors
(Figure 9). A closer look at the wage allocation at the central and provincial level suggests that there
is still space for some ministries to allocate more budget for personnel spending to the provincial level
where services are needed. For instance, the wage allocations of the Ministries of Agriculture, Forestry
and Fishery (MAFF), Rural Development (MRD), and Social Affairs, Veterans and Youth Rehabilitation
(MoSVY) are all highly centralized, even though activities within these LMs mainly take place in rural
areas. This issue raises the question of wage spending allocation efficiency and deserves greater
attention.
Figure 9: Wage allocation at central and deconcentrated offices; Selected LMs, 2019
Source: MCS
45,619
3,696
4,383
2,867 947
688
40,730
11,955
5,467
2,806 838
853
132,372
107,800
13,291
866 364 301
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total MOEYS MoH MAFF MoSVY MRD
Central Provincial District
43% 39%
47%
20%
3%
18%
46%
41%
23%
9%
38%
15% 12%
57%
87%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
MoSVY MRD MAFF MOH MoEYS
Central Provincial District

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4.2. Expenditure of SNAs
38. Of decentralized spending (i.e. budgets of the three SNA levels), the capital/provinces
account for a clear majority, while the districts/municipalities/khan account for the smallest share
(Figure 10). Each SNA is allocated a recurrent and capital budget. Recurrent spending has four main
components: i) personnel wage (Ch 64 in the Chart of Accounts); ii) purchase of goods and services for
operation (Ch 60); iii) development expenditure (Ch 61); and iv) Social intervention (Ch 62). Capital
investment, both physical and non-physical, is included in Ch 21 and Ch 20, respectively. The CP level
(including Phnom Penh) accounted for 71 percent of the total expenditure by SNA in 2019. In contrast,
the DMK level – the SNA level upon which the NCDD is placing its greatest emphasis – has the smallest
fiscal footprint among the SNAs, with total spending dominated by wages. This illustrates the low base
upon which decentralization reforms are being built.
Figure 10: Expenditure by SNA; 2018 and 2019, USD millions
Source: MEF
39. Spending patterns within the SNAs are distinct, with the DMK level standing out for its low
share of development spending (Figure 11). Expenditures at the DMK and CS levels are dominated by
wages and development sending, with capital expenditure virtually non-existent. The DMK level, in
particular, has the largest wage bill as a share of total spending (53 percent in 2019 compared with
4 percent at the CP level and 46 percent at the CS level). Until 2013 it was a legal requirement that the
cost of administration did not exceed one-third of all total funding. By 2019, the cost of administration
reached 70 percent of total costs. As a corollary, the DMK also has the smallest development budget.
In addition to the risk of leaving sub-provincial levels of SNA with unfunded development mandates,
the high wage bill raises potential allocative efficiency issues, as the opportunity costs of high salaries
are reduced development spending, which can include construction and repairs of local infrastructure
(such as roads and irrigation) and, by extension, decreased effectiveness of SNAs.
-
50
100
150
200
250
300
350
2018 2019 2018 2019 2018 2019 2018 2019
Provincial (Exc. PNH) PNH DMK CS
Purchase of goods (Ch60) Development services (Ch61) Personnel wage (Ch64)
Social interventions (Ch62) Capital expenditure (Ch21/20)