Cambodia: Inequality rose in the mid-1990s, but then stabilized
Phnom Penh June 12, 2007 – Although the gap between rich and poor in Cambodia has widened since 1994, this occurred mainly before 1997, with little change from then till 2004, according to a new World Bank report. And if Cambodia can maintain high rates of growth while containing the rise in inequality, the report says the country should be able to sustain the rate of poverty reduction between 1994 and 2004, when the number of Cambodians living in poverty fell from 47 percent to 35 percent.
The report, Cambodia: Sharing Growth, was launched at a workshop opened by the Prime Minister, Samdech Hun Sen, and attended by over 200 members of Government, development partners, civil society, and news media. At the request of the Government, the World Bank undertook the research to follow up on the 2006 Poverty Assessment, which raised concerns about the rise in inequality in Cambodia. The Report seeks to provide Government, civil society and development partners with data and analysis to improve debate about what explains widening differences in the last decade and how to prevent further, potentially destabilizing rises in inequality.
Prime Minister Hun Sen welcomed the report’s findings and recommendations, and said rising inequality is expected during economic transition, but added that it was important “…not to allow this trend to gradually spread and become a negative factor which is capable of damaging the society in the future and destroying the achievements that we have made so far.” He outlined priorities to ensure better distribution of the benefits of growth, including broadening the base of economic growth; generating employment; linking rural and urban areas; providing secure land tenure; reducing vulnerability; and improving the Government’s abilities to manage equitable growth.
H.E. Kheat Chhon, Senior Minister of the Ministry of Economy and Finance (MEF), stressed the Government’s achievements and its commitment to ensure equitable distribution of economic growth. He said that “The Government budget is an important tool to narrow the gap between urban and rural areas and to ensure equity in the development process. Based on this concept, since 1999…the MEF has dramatically increased spending on economic and social infrastructure.”
Nisha Agrawal, World Bank Cambodia Country Manager, said the Report contained good news, particularly the finding that the level of inequality appeared to have stabilized after 1997. She said “there is nothing inherent in the current pattern of growth that would suggest that Cambodia could not also follow the same path in the future that has been taken in earlier decades by the East Asia Miracle economies—of high and equitable growth and rapid poverty reduction—provided, of course, that it also makes the same sound policy choices that its neighbors made in earlier decades.”
Panelists from NGOs and research institutes discussed the findings. Boua Chanthou, Director of Partnership of Development in Kampuchea (Padek), observed that “The World Bank report talks about inequity that is so severe that some observers caution that it could lead to social instability and upheaval” and said “there is a consensus among development partners, donors, Government and others, that this phenomenon took place because of the neglect of the rural poor and the agricultural sector.”
Rising inequality among rural households between 1993 and 1997 (which then stabilized between 1997 and 2004) drove up aggregate inequality in Cambodia. Intra-urban differences by contrast remained effectively unchanged. Better service delivery and rising incomes improved equality in non-monetary welfare indicators. Gaps remain pronounced (for example, a threefold difference in infant mortality rates between the richest and poorest groups), but most are narrowing over time: from the late 1990s disparities in access to infrastructure shrank and expanding primary education reduced male-female, rich-poor, and urban-rural gaps in enrolment and literacy.
Despite broadly optimistic conclusions, the Report also makes some caveats regarding the use of per capita consumption as the basis for inequality measures, and household surveys as a tool for collecting data on distributions. It suggests that although a radical shift of development strategy may not be required, better public policies and public spending could lock in the gains already made and strengthen pro-poor outcomes in the future.
The Report’s findings suggest the need for the following Government actions:
- First, there is a need for continued economic reform to create high and diversified growth and expand opportunities for young Cambodian men and women.
- Second, there needs to be a focus on the rural economy. Land management is a striking case in which equality supports economic efficiency: smallholder farmers are more productive. Systematic land titling should be extended and land policies should prioritize household farming, including by distributing idle plantation land to the landless poor.
- Third, the Government will need to further improve the quantity, quality and affordability of schooling and health services. Access for all to basic education and health care helps guarantee shared growth by ensuring that families don’t become stuck in poverty traps.
- Finally, service delivery reforms need to be underpinned with stronger and more responsive state institutions. In East Asia, leaders of successful developing countries have sustained their legitimacy through the principle of shared growth, ensuring that all groups in society benefited as the economy expanded. International experience suggests that state institutions that reflect the interests of the poor and promote equality of opportunity foster more stable politics and more sustainable long-term growth. Reforms in Cambodian public financial management and local governance support greater equity and need to be sustained; new reforms are now needed to tackle informal fees and build a meritocratic civil service.
(Source: The World Bank Cambodia Newsletter, Volume 5, Number 7, July 2007)