The rise in Cambodia’s international reserves reflects the confidence in Khmer riel, stability of the exchange rate, high liquidity and a sound economy that can withstand external shocks or crises, experts said.
According to National Bank of Cambodia (NBC), total international reserves as of June 30, 2023 rose 3.2 per cent to $18.4 billion from $17.8 billion at the end of 2022, despite global headwinds in the banking sector, including interest rate hikes.
In its latest bi-annual performance report, NBC said international reserves rose because of an increase in income from foreign investment, gold prices and deposits of the government and banking and financial institutions in the central bank.
“The high level of reserves indicates the ability to maintain a stable exchange rate, confidence in the national currency, the basis for foreign borrowing which provides adequate protection to meet liquidity needs against external crises,” it stated.
Chhay Bora, managing director of Bower Group Asia (BGA), a strategic advisory firm supporting foreign direct investment in the Indo-Pacific region, has noted an impressive surge in Foreign Exchange Reserves. They have more than doubled compared to the figures from a decade ago, showcasing the robust growth of Cambodia's economy. Averaging at a solid 7 percent, the economic expansion and a swift recovery in the post-Covid-19 era have boosted people's income and savings.
Bora elaborated that this growth in the nation's foreign reserves is an indicator of Cambodia's economic resilience against external threats, and underlines the country's capacity to weather global crises. It also upholds the nation's financial stability and the ability to sustain its import capabilities.
"The Foreign Exchange Reserve of a country holds significant importance. It is a testament to our stable and strong financial status, providing us with a lifeline during crises. In the event of a crisis, we can utilise these reserve funds to import goods, supplying the country's needs. This in turn allows the government ample time to effectively manage the crisis and to orchestrate economic recovery," Bora explained.
Anthony Galliano, group CEO of financial services firm Cambodian Investment Management Co Ltd, told The Post that Cambodia has maintained a higher level of reserves than what is generally mandated for developing countries.
This places the country in a strong financial condition, he said, sharing that the growth in reserves is “especially prudent given increased sovereign borrowing by the Kingdom”.
“A high level of foreign reserves reduces liquidity risk, avails short debt maturity, and facilitates lower interest rates. All very positive conditions for the recent issuance of sovereign debt,” he said.
Galliano explained that developing countries are generally shoring up their foreign currency reserves on an “unprecedented scale” in recent years, as a consequence of rising energy prices, supply chain issues and as a precaution and self-protection against a currency crisis.
For instance, Sri Lanka, which defaulted on its debt and is experiencing “rampant” inflation and currency depreciation, is “a lesson learned”, in terms of inadequate foreign reserves, which have dwindled by 99 per cent since 2019, he opined.
“Although the riel has weakened of late, it is still resilient, underpinned by the strongest the US Dollar has been in two decades, partially due to the level foreign reserves.
“As a result, the riel has not suffered depreciation [like how] other regional currencies experienced,” Galliano said.
Meanwhile, NBC said international reserve investments are carried out flexibly while ensuring that investment risks are carefully managed and monitored in accordance with its investment guidelines.
This is to ensure a safe, secure and accountable management of international reserves in order to gain an appropriate income.
Earlier this year, NBC updated its investment guidelines, adjusting the components of investment and monetary reserves to meet growing demand for liquidity and the ability to seize the opportunity for interest rate fluctuations on the market.
The central bank has also continued to focus on increasing investments in green bonds and environmental and social governance bonds issued by major international financial institutions in China, South Korea, Japan and Europe.