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Economy ‘on track’, despite rising debt-to-GDP ratio

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Patrons shop at the Aeon Mall Sen Sok City in Phnom Penh Thmey commune’s Bayab village in the capital. Hong Menea

Economy ‘on track’, despite rising debt-to-GDP ratio

Economists and industry insiders claimed that Cambodia’s economic growth is on the right track, despite ongoing concerns about the Kingdom’s rising debt-to-GDP ratio.

Acleda Bank president and CEO In Channy told The Post on Sunday that larger productive loans are a sign of economic progress.

Cambodia’s credit volume is currently low compared to other countries in the region, with Japan’s credit loan to GDP ratio “about 200 per cent” according to Channy.

Channy added that the Kingdom’s debt-to-GDP ratio was about 90 per cent as of the end of last year.

He continued that there are two types of credit – consumer loans and productive loans.

“Most credit in Cambodia is in the form of productive loans, which creates new businesses and expands them. This is good debt, bringing great benefits and economic growth,” he said.

The total consumer credit outstanding balance in Cambodia reached $6.7 billion at the end of March – a 7.4 per cent increase from the end of December – the latest report from the Credit Bureau of Cambodia (CBC) said.

CBC said some 1.14 million Cambodians had applied for consumer credit by the end of March, an increase of 5.3 per cent from the end of December.

Emerging Markets Consulting senior adviser Ngeth Chou echoed Channy’s comments, but also urged caution.

“Cambodia’s domestic debt growth is a good thing, but its quality requires more attention,” he said. “If we retain a good quality of loans, it will not matter.”

The main sources of the Kingdom’s high credit growth are currently real estate and construction, Chou added.

However, Chou said the government should also enact laws relating to the banking sector and enforce them to avoid debt burden, adding that it should promote education and provide greater financial literacy for Cambodians.

“Because Cambodia is not a productive country, if debt for consumer goods increases, it will have a negative impact on the national economy,” he said.

The National Bank of Cambodia’s 2018 report stated that outstanding loans in the Kingdom’s financial industry – a combination of banks and microfinance institutions – grew 19 per cent to $24.5 billion by the end of last year.

Bank institution loans amounted to $19.4 billion, increasing 20 per cent from the end of 2017, while microfinance institution loans reached a total of $5.4 billion.

Cambodia’s economy remains “robust” even though economic growth is projected to slow slightly this year compared to last year, according to a World Bank report released in April.

The bank forecast that the Cambodian economy will grow seven per cent this year, slightly lower than the 7.5 per cent seen last year, as exports moderate in line with the deceleration of global demand.

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