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