Moody’s warns about impact of ‘shift in political relations’
Trade war and weak yuan affect Asian giant
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 marketdriven 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. CHINESE f ac tor y ac t iv it y slowed in October, official data showed on Wednesday, adding to a growing list of bad news for the Asian giant as it struggles to maintain economic momentum in the face of US tariffs and a weakening yuan.
The Purchasing Managers’ Index (PMI), a key gauge of factory conditions, came in at 50.2 for the month, down from 50.8 in September, t he Nationa l Bureau of Statistics said.
The figure was also below the 50.6 read i ng t ipped i n a Bloomberg News sur vey of economists, though it was still slight ly above t he 50-point mark that separates expansion from contraction.
The figures are the latest sign that the world’s second-largest economy is losing momentum as it faces challenges at both home and abroad – from a trade war with the US to a massive debt buildup.
“All the numbers from China’s PMI release today confirm a broad-based decline in economic activ it y,” ANZ’s Raymond Yeung said in a research note.
“Economic conditions facing China’s private sector are much worse than what the headline figure suggests,” he warned, noting that a closer analysis of the figures shows that manufacturing by small and medium-sized businesses actually contracted in October.
Chinese economic growth slowed to 6.5 per cent in the third quarter, down from a high of 6.8 per cent this year.
The number was in line with Beijing’s annual target. But more dow nwa rd pressu re could threaten the country’s key political goals of eliminating poverty by 2020 and building a “moderately prosperous society”.
US ta r if fs on v ir tually a l l Chinese imports have sapped confidence in Beijing’s ability to maintain current growth levels.
Analysts say that the country’s overleveraged companies and loca l governments are likely to put a further drag on expansion.
China’s ailing stock markets have made the concerns even more acute, Yeung said, noting t hat “risks related to stockpledged lending have escalated due to the fall in Chinese equities”.
Offering stock as collateral for loans is a common practice in China.
Furt her complicat ing t he picture is the falling price of the yuan against the dollar, with the unit at its lowest level in a decade.