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Cambodia Poverty Assessment

Cambodia FY00 PA

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This first poverty assessment for Cambodia is based on the 1997 update of Cambodia's baseline poverty profile of 1993-94. Since the early 1990s Cambodia has made progress in rebuilding its economy following more than two decades of war. Trade and investment flows have risen to unprecedented levels, supporting average annual growth of 6 percent. In 1997 and 1998 reconstruction and recovery were set back by renewed political instability and by the East Asian crisis. With the assumption of office of a new reform-minded government in late 1998, and the virtual end of the Khmer Rouge movement in early 1999, there is renewed optimism that growth and recovery will resume.

Cambodia is nevertheless still a very poor country, with GDP per capita estimated at only $280 in 1998 and with other non-income indicators of poverty comparing poorly with those in other countries in the region, The 1997 poverty estimates confirm that poverty is pervasive in Cambodia--an estimated 36 percent of the population is poor--and rural households, especially those for whom agriculture is the primary source of income, account for almost 90 percent of all the poor.

The poor are more likely than the better-off to live in households that are larger, have a larger share of children, and have a head of household who is less educated than the average. They also have much less access to public services than the better off. For example, while 17 percent of people in the richest consumption quintile have access to piped water, only 4 percent in the poorest quintile do. In rural areas the poorest quintile has net primary school enrollment of 50 percent, considerably below the 75 percent for the richest quintile. Less than 5 percent of children ages 12-14 in the poorest quintile in rural areas are enrolled in lower secondary schools, but 25 percent in the richest quintile are. About 21 percent of people in the poorest quintile have to travel more than 5 kilometers to reach a health clinic; only 14 percent in the richest quintile have to travel that far. About 6 percent of the poorest two quintiles live more than 5 kilometers from the nearest road; only 1.4 percent in the richest quintile do. While almost 20 percent of the richest rural quintile have access to publicly provided electric lighting, under 1 percent in the poorest quintile receives the same service.

Differences in the design and coverage of the 1993-94 and the 1997 surveys mean that the two profiles are not directly comparable. Nevertheless, the modest decline in poverty during 1993-97 (from 39 percent to 36 percent) suggested by the profiles is corroborated by the estimated 3 percent increase in real per capita private consumption, as captured in the national accounts, and by broad improvements in other non-income indicators of poverty such as enrollment rates and maternal and infant mortality rates. The profiles also suggest that rural poverty declined less than urban poverty. This is plausible given the strongly urban bias in growth during the period. Growth was unbalanced, centered in Phnom Penh and other urban areas, driven by reconstruction efforts, and led by phenomenal increases in such activities as construction and tourism. In contrast, growth of rural activities, based primarily on agriculture, showed considerable variability and significantly lagged growth in the rest of the economy.

Despite its pervasiveness poverty in Cambodia is relatively shallow, suggesting great scope for poverty reduction through rapid growth. In fact, income poverty rates could be cut by as much as 50 percent by 2005 if Cambodia is able to resume and maintain average annual growth of 6 percent. But such gains in poverty reduction will depend strongly on the pattern of growth. If growth continues to be urban-focused, poverty reduction gains can be expected to be much less and rural poverty in particular will remain high--especially since the depth of poverty is greater in rural areas. In contrast, poverty in Phnom Penh would be almost eradicated.

This report recommends three components to a broad poverty reduction strategy for Cambodia:
  • Expanding economic opportunities through rapid growth--particularly growth of the rural sector.
  • Helping the poor build human assets.
  • Providing an adequate safety net to address the needs of vulnerable groups in society.

The government's Five-Year Socio-economic Plan (1996-2000) gives priority to poverty reduction and recognizes these three elements as critical to its antipoverty strategy. However, much greater attention to the growing HIV/AIDS epidemic is needed given the significant potential it holds for increased poverty--both new poverty as well as a deepening of existing poverty. Extensive public education on the epidemic and an prevention should figure prominently in the government's health and overall poverty reduction strategy.

Creating Economic Opportunities through Rapid Growth

Creating new economic opportunities through rapid and sustained growth, particularly in rural areas, must be the core of a successful poverty reduction strategy for Cambodia. Almost half of the poor in Cambodia would be lifted out of poverty within the next eight years if the economy grew at 6 percent annually. But this growth must be more broad based than in the recent past. This will require maintaining a stable macroeconomic environment and deepening reform in order to tackle the remaining impediments to growth. Fiscal policy will continue to play an important role in stabilization efforts, given the extensive dollarization of the Cambodian economy. The objective of policy should be to avoid levels of fiscal deficit that could be destabilizing because they lead to rapid growth of the money supply, to high levels of domestic borrowing that could crowd out the private sector, or to unsustainable levels of external debt. Cambodia has in the recent past successfully used fiscal policy to maintain macroeconomic stability. However, the quality of fiscal adjustment needs to be improved through greater reliance on revenue generation--especially by addressing governance issues related to forestry revenues--and less on expenditure cum particularly in the social sectors and in operations and maintenance. Success in the government's demobilization efforts will be important in achieving sustainable fiscal adjustment while meeting social sector objectives.

Cambodia has made impressive progress in its transition to a market economy. Further reforms are needed, however, to remove remaining distortions in the economy. This is especially important since most countries in the region have reinvigorated their reform efforts in order to speed their recovery from the regional crisis and improve their long-term competitiveness. Cambodia cannot afford to be left behind. The new government has already introduced fiscal reforms. Other key areas for policy attention include further public enterprise reform: private sector development, and banking sector reform. Public enterprise reforms should focus on commercializing enterprises remaining in the public portfolio in line with the law regulating public enterprises. Rehabilitation plans should be formulated for the six rubber plantations and a privatization plan outlined and implemented. Private sector development can be further fostered by adopting a comprehensive commercial code and by strengthening the rule of law through better enforcement of existing laws and modernization of the judiciary. Banking sector reforms should focus on strengthening the prudential and regulatory framework, including adequate regulations on provisioning for loans, legislation that facilitates the taking and enforcement of collateral, and enactment of a bankruptcy law. In addition, the supervisory capacity of the National Bank of Cambodia should be strengthened, particularly its capacity to enforce capital adequacy standards and force the exit of banks that cannot comply, especially the numerous weaker smaller banks.

But growth must also be more balanced than it has been in the recent past to ensure that economic opportunities are widespread. In particular, special emphasis must be placed on stimulating growth and opportunities in the rural economy, where the overwhelming majority of Cambodia's poor live. This will require both raising agricultural incomes and promoting diversification into other rural activities. Key areas for policy attention include increasing crop productivity through greater access to improved seed varieties; appropriate sail and pest management, and better water control through small-scale irrigation facilities. Increasing livestock and fisheries production is also important, and will require improved technical services for animal health, fisheries research, conservation, and management. Investments are needed to upgrade and maintain secondary and tertiary roads, to strengthen rural infrastructure and provide better access to input and output markets. Support for the development of formal rural finance institutions will be important for expanding access to rural credit. And easing the land constraint will require addressing the issue of military land holding and speeding up land titling efforts--particularly in rural areas--as part of the creation of a transparent and secure land market.

Government efforts to promote growth must be combined with efforts to increase the assets of the poor, thus allowing the poor to take full advantage of the economic opportunities created through growth. Increasing the physical assets--land, credit, rural infrastructure--of the poor is an integral part of promoting rapid growth of the rural sector and hence of the economy as a whole. Building the human assets of the poor, including education and health, is equally important for helping them access economic opportunities and for sustaining growth.

Expanding Access to Education for the Poor

Cambodia's achievements in education in the 1960s and early 1970s were systematically erased by the Khmer Rouge in the second half of the 1970s, when schools, equipment, and books were destroyed, effectively abolishing education. It is estimated that 75-80 percent of all teachers and secondary school students fled or were murdered in 1975-79 (Asian Development Bank 1996). Post-Khmer Rouge, Cambodia has made impressive progress in expanding schooling. There was a concerted effort to rebuild the education infrastructure, but this had to be done under tight budgetary constraints. The government made rehabilitation of primary education its main focus in the 1980s, but despite these best of intentions, primary school enrollments plateaued at around 1.3 million between 1985 and 1991, which actually meant declining enrollments given the rapidly expanding primary school-age population (Asian Development Bank 1996). Since then, however, enrollments have expanded more rapidly than population, and gross primary enrollments in 1997 increased to almost 95 percent, according to the Ministry of Education, Youth, and Sports. This is impressive by any standard. But problems remain.

Why Enrollment Rates Are So Low among the Poor. Enrollment rates vary considerably between the poor and the better-off in Cambodia. Only 55 percent of all children of primary school age in the poorest quintile of the population attend school, compared with 79 percent for the top quintile. These disparities increase at higher levels of education, with virtually no children from the poorest quintile enrolled beyond primary school. Both supply and demand factors are important in explaining low enrollment among the poor and the significant disparities in enrollment across income groups. Half of the rural population does not have a primary school in the village and more than 95 percent have no secondary school. Children in the poorest quintile also have to walk longer distances to school--on average almost 7 kilometers to the nearest lower-secondary school outside the village, compared with about 4 kilometers for children in the richest quintile. Limited and poor quality rural roads aggravates poor physical access to schools. Schooling is also extremely expensive for the poor; the cost of one child in primary school takes up a quarter of all nonfood spending per capita in the poorest quintile. Quality of schooling (as measured by such factors as availability of teachers and proportion of trained teachers) is another contributing factor. The probability of enrollment is also strongly associated with gender, with boys more likely than girls to be enrolled.

What Government Can Do to Raise Enrollment Rates among the Poor. Improving physical access to schools by constructing more schools in poorer--particularly rural--areas and by improving rural infrastructure will be critical to raising enrollments, but policy must also address issues of price and quality. In particular, the relative costs of schooling will have to be lowered for the poor. Fewer than 10 percent of the poorest students are exempted from school fees. Fee exemptions, coupled with a clearly established and transparent system of needs-based scholarships for the poorest students will be necessary to raise the enrollment rate of this group. Another option is for the government to provide (or to insure) loans to needy students to help them pay for education costs (as in Thailand and the United States, for example). The advantage of a loan program is that it relies mainly on private resources in a situation in which government funds are severely limited. The funds to finance both scholarships and loans can be obtained by reducing high levels of public subsidies to post-secondary education, a practice that benefits mainly the rich.

As well as reducing schooling costs, a pro-poor schooling policy should address school quality. The extraordinarily high pupil-teacher ratios in rural areas (80 and above) will need to be brought down at least to the national average (around 60)--and probably lower. This will require a more rational policy of deploying teachers across provinces and villages. One way to do this is to pay teachers a premium to work in underserved areas (a policy used with some success in Indonesia and elsewhere). Funds to finance these quality improvements could also be obtained, at least in the short run, from savings generated by reducing subsidies to post-secondary education.
Data on earnings suggest that women have higher returns to primary and lower-secondary schooling than do men, especially at younger ages. Yet female enrollments, especially at the lower-secondary level, lag behind those of men. This is not only inequitable but inefficient. Targeting at least some additional schooling subsidies to poor girls would boost efficiency and equity. Some countries (Bangladesh and India, for instance) have found scholarship and stipend programs targeted to girls an effective means of raising enrollments of girls.

Data also indicate that the private sector still has only a limited role in schooling in Cambodia. Fewer than 1 percent of students are enrolled in private institutions, most of them in post-secondary schools (typically vocational training). The support of the private sector will be needed to expand secondary school coverage in Cambodia. One strategy would be for the government to target its limited educational spending to providing basic and secondary education to poor students and to let the affluent turn to the emerging private sector for schooling needs. Alternatively, vouchers can be used to provide access to private schools for the poor. Indeed, broader use of vouchers might increase efficiency in education by fostering competition between public and private schools. Household survey data already show a strong shift of upper-income groups to private schools. This should be encouraged, so that the government can better target its expenditures to the poor. It would be useful, however, to identify constraints and problems, including any formal or hidden restrictions imposed by the government, that may put a brake on the private sector expanding its role in the provision of schooling in Cambodia.

Improving Access to Health Services for the Poor

Many health facilities around the country were completely destroyed. often deliberately during Cambodia's more than 30 years of war and conflict. Even today many parts of Cambodia still have no health facilities, and in other places facilities are too dilapidated to be of any use. Yet despite these handicaps, the government has taken concrete steps to reconstruct and revitalize the public health system. The Ministry of Health has also been instrumental in developing and expanding programs to tackle infectious diseases, such as the National Tuberculosis Program and the National Malarial Program, and in vastly expanding coverage of child immunization programs. In addition, since 1996 the Ministry of Finance has been implementing a health services plan to expand access to health facilities. This improved access to health services for the population could not have been achieved without the assistance of donors and nongovernmental organizations (NGOs).

Why Health Service Use Is So Low among the Poor. High costs of health services, low house-hold incomes, limited education, and inadequate access to health facilities and to health personnel are all important factors in explaining the low use of health services by poor Cambodians. The cost of health care (measured by health spending per capita relative to household spending per capita on nonfood items) is much greater for the poor than for the non-poor. One outpatient visit to a commune clinic or district health center would use up half of all nonfood spending for someone in the poorest quintile. Moreover, there is no formal and transparent mechanism for exempting the poor from user fees. For them, health care is simply unaffordable. The poor also have less immediate physical access to health facilities than the non-poor. Better-off Cambodians have much greater local (within-village) access than the poor to the four most frequently used health providers: drug vendors, commune clinics, private clinics, and trained midwives. Moreover, the poor have to travel much longer distances to all types of health facilities than the better-off when no health provider is available in their home village.

But other factors, especially education, are also important in determining health services use. Immunization rates among children up to 24 months old are significantly lower for the poor than for better-off Cambodians even though more than 95 percent of the poor reported a child immunization campaign in their village in the previous 12 months. Indeed, since child immunization has such wide coverage and is free in Cambodia, it is difficult to explain the large disparities in immunization coverage based on differences in economic standing or affordability. Cambodians with more schooling are more likely to treat their illnesses than those with no schooling. Moreover, women with primary and post-primary schooling are much more likely than those with no schooling to use preventive health services such as immunization for their children.

While there is no hard data, anecdotal evidence suggests that health services to the poor are of much lower quality than those available to the better-off. The low quality of health services, combined with high relative cost, must act as a strong deterrent to the use of health services by the poor.

What Government Can Do to Improve the Health of the Poor. As with education, government efforts to increase use of health services by the poor should include both demand and supply measures. Reducing out-of-pocket costs of health services for the poor will be critical. Expanding and enforcing user fees, in parallel with a transparent mechanism for exempting the poor from such fees and providing a free supply of drugs targeted exclusively to Cambodia's poorest will be important in ensuring greater equity in access to health services while reducing affordability constraints for the poor. These measures need to be implemented in parallel with greater cost recovery in secondary and tertiary health facilities such as provincial and central hospitals.

Several of Cambodia's health facilities need rehabilitation, but in the long run additional primary health facilities are needed to increase access. Unlike most other developing countries, Cambodia does not have a nationwide network of primary health care facilities. The government's Health Coverage Plan aims to create a new network of 909 health centers, 65 referral hospitals, and 8 national hospitals in 72 operational districts. The location of the new facilities will have to be carefully selected, with an emphasis on providing facilities in remote and underserved regions, to meet the objective of providing equitable access to basic health and referral services for the entire population. In the shorter to medium term increased access in such areas could be provided through mobile health posts.

The low quality of health care in public facilities needs to be addressed. An important first step is to raise staffing standards so that commune clinics and district health centers used by the poor have trained medical workers. Better salaries and benefits for health workers could also provide increased incentives for higher quality service. In addition, stocks of drugs and medical supplies in commune clinics and district health centers need to be increased. The quality of health services could also be enhanced by allowing health facilities to retain a share of fees collected.

These efforts to raise health services utilization by the poor will entail a restructuring of public health expenditures to benefit the poor. Public expenditures need to be targeted more toward proving adequate funding for primary health facilities, a process that began in 1996 as spending was shifted from hospitals toward primary health care. This trend should continue, shifting more resources to preventive health interventions (such as communicable disease control programs) and curative services targeted to the poor. This shift also represents more efficient use of public resources, given the substantial positive externalities of preventive health care and private underspending on such care.

Private sector provision should be encouraged to complement government efforts and to ensure adequate access to health services as living standards improve with growth. Appropriate government regulation will be important in setting quality standards that ensure public safety. This is especially important in the case of private drug vendors who are mainly unregistered and used heavily by poorer groups for self treatment.

Providing an Adequate Program of Transfers and Safety Nets

Vulnerable groups in Cambodia can benefit from the protection offered by a well-functioning system of transfers and safety nets. NGO and other aid agencies are active in this area, but there is very little in the way of a functioning government system. A strategy for developing such a system should emphasize timely delivery of assistance and effective and efficient targeting to ensure that resources reach only the intended beneficiaries. Given Cambodia's largely rural population and low level of development, policies that are likely to work include well-designed rural public employment schemes that can provide insurance against agricultural uncertainties. For those unable to work options to consider include food-based interventions such as food distribution and feeding programs, special operations to provide basic food items to the poor in remote and other high risk areas during times of insecurity, and feeding programs and transfer schemes administered through the public health system. While the need for safety nets is great, the effectiveness and successful targeting of such a system in addressing poverty will depend on further progress in identifying indicators of poverty in Cambodia that have strong predictive ability.