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publicationMarch 18, 2024

Cambodia:Second-Generation Systematic Country Diagnostic Update

Systematic Country Diagnostic Update (SCD2)

This Systematic Country Diagnostic Update (SCD2) updates Cambodia's first Systematic Country Diagnostic (SCD1). The SCD2 Update will help inform the World Bank’s next Country Partnership Framework (CPF) 2025-2029 and contribute to the policy discussion in Cambodia. This SCD2 report summarizes the key findings from new World Bank analysis and extensive consultations to provide an updated set of desired outcomes, development areas and policy priorities to support Cambodia’s sustainable and inclusive development.

Since Cambodia’s first Systematic Country Diagnostic (SCD1), the country’s economy has continued to grow strongly, reduce poverty and boost shared prosperity. Growth continued to be driven largely by factor accumulation, with limited contributions from productivity, which is not sustainable over the long term. SCD2 finds that most pathways identified in SCD1 made moderate progress in the past five years, except for building human assets (Pathway II) which recorded only modest progress. Pathway I’s moderate progress was driven by strong export product diversification, driven by improved preferential trade access to the United States, and modest improvements in international competitiveness. A Pathway III’s moderate progress was driven by improved resilience to natural disasters as well as gains on environmental performance and urban development. , Cambodia made moderate progress on improving public sector governance and capacity (cross-cutting IV), but these improvements were off a low base, with deeper reform needed. In contrast, Pathway II’s only modest progress was driven by mixed developments across health, education, and social protection - with improvements in access not consistently delivering significantly better outcomes.

SCD2 outlines a refreshed set of outcomes, development areas and policy priorities to help ensure strong, inclusive, and sustainable growth over the next five years. Upgrading Cambodia's infrastructure and further improvements to the business environment are the highest priorities under High-Level Outcome (HLO) I: Improved access to high-quality formal jobs. Sustaining strong and high-quality economic, jobs and wages growth will require deeper reforms to increase the Cambodian economy's economic competitiveness, diversification, and productivity. Upgrading skills remains the highest priority under HLO II: Upgraded and better protected human capital. Upgrading, and better protecting the human capital of Cambodia’s people has become more urgent given the low starting point, only modest progress since the SCD1, growing skills shortages, and declining labor productivity growth. Conserving and strengthening the resilience of the natural environment remains the highest priority under HLO III: Enhanced livability and resilience. Enhancing the livability and resilience of Cambodia’s natural and urban environments remains critical for ensuring a sustainable pattern of growth, given the relatively high exposure to risk from natural disasters and poor performance on environmental management and urban development. Strengthening governance and public sector capacity remains a critical cross-cutting priority to support achieving the three high-level outcomes. Despite the progress since the SCD1, Cambodia continues to rank lowly compared to its structural peers and globally (bottom two quintiles) on most governance and public sector capacity measures.

SCD2 is divided into 3 chapters:

  •  Chapter 1 provides an update on Cambodia’s economic growth in the five years since the SCD1 (2017 to 2022) and assesses progress towards achieving the World Bank’s goals of ending extreme poverty and boosting shared prosperity on a livable planet (i.e., the World Bank’s “three P” mission of Poverty, Prosperity, and Planet).
  • Chapter 2 assesses progress on the development areas and policy priorities outlined in the SCD1, their drivers, and scrutinizes what has held back outcomes. This chapter also assesses progress against the key risks that the SCD1 identified as having the potential to undermine Cambodia’s development, namely, threats to: (i) growth, especially from a lack of economic diversification; (ii) macro-fiscal stability, especially from a credit boom; (iii) social sustainability, especially from an exclusion of vulnerable groups; and (iv) sustainable development, especially from a combination of degradation of natural capital, climate and disaster risks, and poor urban planning.
  • Chapter 3 outlines a refreshed set of outcomes, development areas and policy priorities to support Cambodia's continued strong, inclusive, and sustainable growth over the next five years.

In addition to the main report of SCD2, Cambodia SCD2 Update Background Paper is an accompanying compendium that compiles robust evidence and analysis on the progress assessment of each Pathway under SCD1 and an annex on knowledge gaps.