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Cablegate: Cambodia Committed to Improved Fiscal Transparency

VZCZCXYZ0000
RR RUEHWEB

DE RUEHPF #0032/01 0191004
ZNR UUUUU ZZH
R 191004Z JAN 10
FM AMEMBASSY PHNOM PENH
TO SECSTATE WASHDC 1574

UNCLAS PHNOM PENH 000032

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, EEB/IFD/OMA BRIANA SAUNDERS

E.O. 12958: N/A
TAGS: EAID ECON AID EFIN PREL CB
SUBJECT: CAMBODIA COMMITTED TO IMPROVED FISCAL TRANSPARENCY

REF: A. STATE 01923
B. 09 PHNOM PENH 816

SENSITIVE BUT UNCLASSIFIED

1. (U) Per Ref A's request for information regarding fiscal
transparency, posts response is below.

Reforming the Public Financial Management System
--------------------------------------------- ---

2. (U) The Royal Government of Cambodia (RGC) is committed to
greater financial accountability and transparency. The RGC has
undertaken an ambitious and comprehensive Public Financial
Management Reform Program (PFMRP) to bring Cambodia's PFM system in
line with international standards. The PFMRP is supported by the
World Bank, Asia Development Bank, and International Monetary Fund,
as well as a number of development partners. The first stage of the
PFRM sought to bring greater credibility to the budget. The second
stage of PFMRP, begun in 2009, focuses on achieving greater
financial transparency and accountability. In 2009 the RGC
completed and issued a Public Expenditure Financial Accountability
Framework (PEFA) report, which provided an objective, factual
assessment of all PFM systems and demonstrated a willingness on the
part of the RGC to subject its PFM systems to outside scrutiny. The
PEFA report identified improvements in strengthening the credibility
of the budget (to ensure that the budget is realistic and
implemented as intended), but also identified deficiencies in both
the comprehensiveness of the budget and availability of information
to the public. Under the PFMRP, the MEF is adopting measures to
address these deficiencies.

Recipient of SFOAA
------------------

3. (U) The Royal Government of Cambodia is a recipient of U.S.
foreign assistance funded under FY 2010 SFOAA.

Publicly-Available Budget
-------------------------

4. (SBU) The PEFA report noted that greater transparency and
comprehensiveness of information available to the public could
induce better financial accountability. The Ministry of Economy and
Finance (MEF) makes publicly available the national budget.
However, only the Budget Speech is available to the public
(available on the MEF's website at www.mef.gov.kh) prior to the
submission of the national budget to the National Assembly for
approval. Once the budget is approved by the National Assembly,
Senate, and then promulgated by the King, the Budget Law and
supporting documentation (including a summary and the full budget)
are available to the public. Copies can be obtained directly from
the MEF. The budget is not yet available on the internet. (NOTE:
The budget for 2010 which was approved late 2009, will not be
published for the public until April 2010. END NOTE.) Monthly
in-year budget execution reports are available to the public and
published on the internet. These reports are available for
purchase, in both soft and hard copy, from the Department of
Economic and Public Finance Policy, MEF, and can be found at
www.mef.gov.kh/share.php. The IMF 2009 Article IV Staff Report
noted that the monthly fiscal reporting suffers from inconsistencies
as well as occasional delays and incompleteness.

5. (SBU) The annual Budget Settlement Report (BSR) is reviewed and
approved by the National Assembly and published in late January or
February for the previous year. However, there is a significant
delay in conducting audits of the BSR - the audit for the 2006 BSR
was completed in 2009 - and the audit reports are not currently
available to the public.

Credibility and Comprehensiveness of the Budget
--------------------------------------------- --

6. (SBU) The credibility of the budget has strengthened in recent
years due to progress achieved under the first stage of the PFMRP
which focused on improving budget credibility. Incomes and
expenditures are included in the publically-available budget.
However, the publically-available budget does not appear to include
all non-tax revenues (such as revenue from airlines, tourism,
telecommunications, TV/Radio licenses, visa fees, concessions, and
penalties), extra-budgetary public sector operations (including
government-owned public sector entities), and public institutes
(semi-autonomous agencies reporting to the line ministries). The
extra-budgetary organizations are required to submit an annual
budget to their supervisory organization (ministry), provide monthly
budget execution reports (financial statements), and conduct an
annual audit. The PEFA report confirmed that extra-budgetary
organizations are complying with these requirements. Also, the
subsidies provided by the government to public institutions are
included within the budget of the supervising ministry. However,
those institutions are not required to submit annual budgets for all
of their resources and requirements, nor do they appear to submit
in-year financial reports. Additionally, data on donor-financed
capital spending is not yet available at a sufficiently refined
level, according to the PEFA report.

RGC Reform Efforts
------------------

7. (U) Under the PFMRP, the RGC plans to improve the forms of
reporting and communicating with the public, and expects by the end
of 2010 to provide public access to budget documents, in-year budget
reports, year-end fiscal statements, and external audit reports,
among others.

8. (U) The RGC has initiated the following projects under the PFMRP
which will improve the comprehensiveness and transparency of the
budget: incorporation of all budget entities and extra-budgetary
operations into the annual budget and financial reports, development
of a new Chart of Accounts and Budget classification system;
introduction of a new IT-based Public Financial Management
Information System (PFMIS); and expansion of use and quality of
results-oriented program and strategic budgeting systems.

9. (U) The RGC has acknowledged these deficiencies and need for
improvement and has enacted laws requiring full budget and
expenditure disclosure for the government-owned public sector
entities and institutes. The PFMRF includes projects that address
this issue for the identification of all budget entities, including
those that are presently extra-budgetary organizations. The goal,
according to the PFMRP, is to "ensure that auxiliary budgets of
industrial and commercial enterprises and autonomous budgets of
public administrative institutions are included in the budget in
line with existing provisions of the Budget Law, which provides an
annual budget law to approve such budgets." Work is currently
underway to develop a sub-decree for the preparation of budgets and
financial reports for these entities. A mechanism to fully
incorporate expenditures and revenues into the annual budget will
also be developed.

USG Technical Assistance and Work Plan
--------------------------------------

10. (U) Through Post's engagement with the RGC to promote greater
fiscal transparency, the MEF requested technical assistance to
improve its budgeting process, and in October 2009, U.S. Department
of Treasury, Office of Technical Assistance (OTA) placed a full-time
Budget and Accountability Resident Advisor with the Budget
Department in the MEF, to assist with budgeting issues and support
needed reforms under the PFMRP. The Advisor and the MEF have
developed a Work Plan which includes several projects to address the
deficiencies outlined above and improve transparency and
accountability of the budget.

11. (SBU) One Treasury-assisted project will improve budget
comprehensiveness through the inclusion of extra-budget public
organizations as well as providing documentation of all budget
entities. This will include documenting current laws and systems
for these organizations and formulating guidelines for the
preparation and execution of budgets. Another project will assist
the development of a new budget classification that complies with
international standards which will significantly improve budget
information available to decision makers as well as to the public.
Additionally, the Advisor will work with the MEF to revise financial
management and budget frameworks to improve financial accountability
of all agencies and will assist the Budget Department in the
implementation of the PFMIS, which is an automated system to create
a uniform budgeting and financial reporting system for all
governmental operations, and thereby greatly enhancing the Budget
Department's ability to produce timely financial information. The
Advisor will also assist to improve results-oriented budgeting in
order to improve preparation and execution guidelines for al budget
systems. Through this Work Plan, the Advisor will also improve the
competency of Budget Department and spending agency staff to insure
successful implementation and execution of reforms.

Other USG Financial Reform Efforts
----------------------------------

12. (SBU) Other efforts to promote financial reform include U.S.
Treasury full-time resident advisory services to the National Bank
of Cambodia (NBC) focused on improving the capacity of the central
bank to conduct assessments and audits of the financial condition of
banks. Similarly, part-time intermittent U.S. Treasury advisors
are working within the General Department of Taxation, MEF, to
improve tax collection and auditing systems. Finally, U.S.
Treasury has assigned an intermittent advisor to work with the RGC
and the NBC on financial enforcement issues, such as counterfeiting
and money laundering.

13. (SBU) In addition to drawing on the expertise of the Budget
Advisor to assist the RGC undertake necessary reforms to improve
fiscal transparency, Post will continue to engage the RGC at the
highest levels to encourage the political commitment for the
adoption of policies and measures necessary to promote greater
fiscal transparency.

RODLEY

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