Public Expenditure Analysis

Country:

Cambodia

City/Locality:

Phnom Penh

Publication Date:

Jul 12, 2005

Deadline:

Jul 18, 2005

Funding Agency:

World Bank

Buyer:

Cambodia - Public Fin. Mgmt. & Accnt.

Original Language:

English

Address:

Robert Taliercio
World Bank
113 Norodom Blvd.
Phnom Penh
Cambodia

Telephone:

855-23-217-304

Fax:

855-23-210-504

Email:

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75130000 - Supporting services for the government

Introduction

The World Bank is currently preparing a Poverty Assessment (PA) and a study on the Sources of Growth (SOG) in Cambodia. These analytical and advisory services are in support of the Bank’s new Country Assistance Strategy (CAS), which focuses on growth and poverty reduction. The PA and the SOG would complement other recent analytical contributions to this agenda from the Bank, including the Integrated Fiduciary Assessment and Public Expenditure Review (IFAPER), trade diagnostics, the value chain analysis, the Investment Climate Assessment (ICA), and the rural sector strategy note (RSSN), as well work done by other donors, including the AsDB (agriculture review, SME development, and garment sector reform), the EU and MPDF (agri-business), JICA (infrastructure), and the UNDP (governance and poverty profile).

The first objective of the study is to identify the key binding constraints to higher and more pro-poor growth in Cambodia, and identify potential sources and estimate orders of magnitude of additional growth in selected sub-sectors of the economy that could be expected over the next few years from easing the binding constraints. The second objective is to engage senior policy makers in the Royal Cambodian Government (RCG) to ease the identified key binding constraints to growth and poverty reduction, including through policy interventions and public investment priorities being prepared for the next Socio-Economic Development Plan, 2006-2010 (SEDP III), scheduled to be presented to the National Assembly in December 2005. The third objective would to engage the other donors, key private sector representatives, and other stakeholders, in Phnom Penh and in key provinces, with a view to developing a consensus around potential growth and poverty reduction (narrow ranges, rather than point estimates) that could be achieved over the medium-term (five years).

Specific Component: Public Expenditure Policy

The background paper should provide a useful and frank piece of policy analysis and advice on what we can and cannot say at this point about the productivity of public expenditures and their overall impact on pro-poor economic growth. It should address a number of “big picture” issues, including:

• Allocation of expenditure between social and economic sectors: Should the RGC spend more on economic sectors (agriculture and infrastructure) and less on social? What would be the growth and poverty reduction effects of such a reallocation?
• Allocations in the context of the efficiency of spending: on the face of it sectoral spending (see IFAPER, 2003) on agriculture, transportation, and other types of infrastructure, seems low. But without a strategy/policy in place in those sectors, what can one recommend at this point in terms of allocation of spending? (returns may still be higher in social sectors, since they have policies and better management in place, e.g.).
• Regional issues: spending is largely concentrated in Phnom Penh and a few provinces. Would a regional spending strategy reallocate expenditure to lagging regions in order to boost growth and reduce poverty?

Methodological Considerations

The conceptual framework would need to look at efficiency as well as rate of return. For example,

Expected economic rate of return = (Ex)(Rx), where

Ex = efficiency of expenditure in sector x (i.e., rate of transformation
of public spending into physical or human capital), and

Rx = economic rate of return to investment in sector x.

The left hand side gives a sense of the gap between actual and potential returns. The simple framework captures both variables of interest: the economic rate of return in a sector as well as the efficiency of the sector.

The paper would need to estimate/quantify these variables in the following sectors: transportation (roads), energy, health, and education. In terms of the efficiency rate, there are two options. The preferred is the relatively new Free Disposal Hull (FDH) technique, which estimates a production possibility frontier based on best observed results (best practice) in a sample/region of countries, and then estimates efficiency of by looking at how far particular countries are from that frontier. The consultant would need to be familiar with this methodology and the cross-country work already done. This would allow for an estimate of relative inefficiency of those sectors in Cambodia. Data limitations would be an issue here, and the consultant would have to determine availability of data as well as feasibility by sector. Another means would be to compare Cambodia to several of its low income EAP neighbors on simple efficiency measures to estimate levels of inefficiency in the sectors (this could result in ordered categories: high, medium, or low efficiency, e.g.). One could also rely on qualitative data from the sectors, and could design an instrument to assess efficiency in qualitative terms (depending on data availability).

Estimating the other variable would mean relying on existing economic and financial appraisals of investment projects in the sectors (microlevel project investment). The consultant would need to consult project evaluations done by the MDBs (WB and ADB) and bilaterals (e.g., JICA, ADF). These rates would serve as proxies for marginal benefit of investing in those sectors.

Combining the two gives a sense of where it makes more sense to direct resources with obvious implications for expenditure policy.

At the same time the consultant should propose alternative methods that might also make sense.

Principal Consultant Outputs

The consultant will be responsible for delivery of the following outputs, to be summarized in an inception report and a background paper:

(a) a review of the proposed methodology in light of the academic literature as well as recent practical attempts to answer the same questions in other countries (for inception report);
(b) an assessment of returns to investment in the key sectors/sub-sectors: roads, energy, agriculture (irrigation and R&D; rural infrastructure), education, and health.
(c) an assessment of the efficiency of each sector, as described in the methodology section;
(d) historical trend analysis of the functional composition of Government expenditure in Cambodia from 1995-2004, building on the analysis in the IFAPER (2003) and PER (1999); key issue here is economic versus social sectors;
(e) historical trend analysis of the economic composition of expenditure in Cambodia from 1995-2004, building on the analysis in the IFAPER (2003) and PER (1999); key issues here are capital versus recurrent, given extremely low civil service wages levels and capital versus maintenance in infrastructure;
(f) historical trend analysis of the functional and economic composition of external assistance in Cambodia from 1995-2004, building on the analysis in the IFAPER (2003) and PER (1999); key issues here are capital vs. technical assistance, etc.
(g) provide a review of the literature, including the latest work on growth and infrastructure, particularly in EAP (for inception report);
(h) analysis, based on the work done in (a) through (g), with recommendations for public expenditure policy, including on inter- and intra-sectoral allocations in light of the Government’s growth and poverty reduction objectives.

The consultant will produce an inception report five working days after starting the assignment.

Assignment Duration, Timing, and Reporting

The consultant will work very closely with government officials, including the Supreme National Economic Council and the Ministry of Economy and Finance, and other relevant ministries. Counterparts will be assigned from each. The consultant will be responsible for familiarizing himself with existing reports, reform plans, etc., including the IFAPER and the PER. The consultant will work on a short term basis and he/she will report to Rob Taliercio (Senior Country Economist), EASPR.

The start date of the contract will be on or about July 25, 2005. The end date will be October 21, 2005. The consultant will work for 40 days during this period, which will include one mission to Cambodia. The consultant will be responsible for obtaining and maintaining such permissions, clearances and authorizations as may be necessary for him/her to undertake this assignment. Details of the fees and other issues will be stated in the contract.

Schedule of Consultancy and Deliverables

Start date: July 25, 2005
Inception report due: August 1, 2005
Draft of retrospective component,
including (d), (e), (f), and (g) September 9, 2005
Final report due: October 3, 2005

Public Expenditure Analysis

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