Cambodia has made substantial progressin economic reconstruction since the 1993 elections helpedreturn peace to the war ravaged country. The report isorganized as: the remainder of chapter one presents thestrategic background, including macroeconomic and fiscaldevelopments. The chapter concludes with options forrestoring and expanding the government's fiscal space.Chapter two discusses the level and composition of publicspending. Chapters three, four and five discuss the level,composition and effectiveness of government spending onagriculture, health, and education, respectively. Theanalysis suggests that government spending in these areas islower relative to Gross Domestic Product (GDP) than incountries with similar levels of income per capita. Chaptersix discusses Cambodia's progress and challenges inreforming public expenditure policy and public finances. Thechapter underscores the key areas where additional attentionis needed to help advance the reform agenda.