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