Logo of Phnom Penh Post newspaper Phnom Penh Post - Moody’s warns about impact of ‘shift in political relations’

Moody’s warns about impact of ‘shift in political relations’

Content image - Phnom Penh Post
Investment projects in the Kingdom are primarily related to developing the energy sector and infrastructure. Hong Menea

Moody’s warns about impact of ‘shift in political relations’

The government’s plan to take a new $2 billion loan for next year’s budget will increase the debt burden to 31.5 per cent of the GDP next year, an analyst from credit rating agency Moody’s said, adding that it remained at a moderate level compared to other sovereigns.

However, Cambodia has been warned about the potential loss of its preferential trade access to the EU.

If this should happen, Moody’s analyst said, it could affect the Kingdom’s sovereign credit profile, causing lower funding for the government and lower foreign direct investment inflows.

Moody’s Investors Service’s analyst Matthew Circosta told The Post that the highly concessional nature of the Kingdom’s borrowings will continue to limit interest costs and support high debt affordability.

He said reliance on concessional loans also protects Cambodia against the possibility of an abrupt market-driven spike in the cost of debt.

However, Matthew said there is a risk of an adverse shift in political relations with bilateral and multilateral development partners, such as EU (Aaa stable) and US (Aaa stable).

This could result in lost preferential trade access, lower funding for the government and lower foreign direct investment inflows.

“The materialisation of such risks would, in our view, have a high credit impact by weakening GDP growth and public finances and raising pressure on financing the current account deficits.”

According to the draft national budget, prepared by the Ministry of Economy and Finance, the government plans to borrow an additional SDR1.4 billion (Special Drawing Rights) or nearly US$2 billion, to meet its planned budget for next year.

The increase of SDR1.4 billion comes from 25 approved projects signed by the World Bank, Asian Development Bank (ADB), The International Fund for Agricultural Development (IFAD), China, Japan, South Korea, Thailand and India.

Developing infrastructure

The projects are primarily related to developing the Kingdom’s energy sector and infrastructure, irrigation, and some other priority areas including education and health.

The ministry’s data showed that Cambodia’s public debt at the end of September this year amount at $6.82 billion.

However, it did not detail the interest rate on the loan, although it stressed that the government only took loans with highly concessional conditions.

Centre for Policy Studies director Chan Sophal said yesterday that Cambodia’s current level of outstanding debt is manageable.

He said Cambodia really needs to build roads, bridges and irrigation systems for economic development and can borrow more money to do so. But it needs to ensure that the loans are used responsibly.

“I’m pleased to see a larger amount of resources are to be invested in infrastructure and human resource development as Cambodia needs to catch up and prepare the foundations for Industry Revolution 4.0,” he said.

MOST VIEWED

  • NY sisters inspired by Khmer heritage

    Growing up in Brooklyn, New York, Cambodian-American sisters Edo and Eyen Chorm have always felt a deep affinity for their Cambodian heritage and roots. When the pair launched their own EdoEyen namesake jewellery brand in June, 2020, they leaned heavily into designs inspired by ancient Khmer

  • Cambodia records first Omicron community case

    The Ministry of Health on January 9 reported 30 new Covid-19 cases, 29 of which were imported and all were confirmed to be the Omicron variant. The ministry also reported 11 recoveries and no new deaths. Earlier on January 9, the ministry also announced that it had detected the Kingdom's

  • The effects of the USD interest rate hike on Cambodian economy

    Experts weigh in on the effect of a potential interest rate expansion by the US Federal Reserve on a highly dollarised Cambodia Anticipation of the US Federal Reserve’s interest rate hike in March is putting developing economies on edge, a recent blog post by

  • PM eyes Myanmar peace troika

    Prime Minister Hun Sen has suggested that ASEAN member states establish a tripartite committee or diplomatic troika consisting of representatives from Cambodia, Brunei and Indonesia that would be tasked with mediating a ceasefire in Myanmar. The premier also requested that Nippon Foundation chairman Yohei Sasakawa

  • Kampot tourism quay ‘90% done’

    Construction on Kampot International Tourism Port – a 4ha quay in Teuk Chhou district about 6km west of Kampot town – has fallen off track, reaching 90 per cent completion, according to a senior Ministry of Tourism official last week. The project is now planned to be finished

  • Demining rat ‘hero’ Magawa dead at 8

    A landmine-hunting rat that was awarded a gold medal for heroism for clearing ordnance from the Cambodian countryside has died, his charity said on January 11. Magawa, a giant African pouched rat originally from Tanzania, helped clear mines from about 225,000sqm of land – the equivalent of 42