PM defends Cambodia’s loan strategy: No debt trap
IN AN effort to allay fears of a debt crisis, Prime Minister Hun Manet assured that Cambodia is safeguarded against any potential debt trap due to stringent annual budget laws that establish a clear debt ceiling. He emphasised that the Kingdom’s foreign loans are strictly utilised for economic development purposes, aiming to ensure a stable financial future for the nation.
“I wish to remind our citizens, the owners of our country, that managing debt and loans is a collective responsibility, vital for safeguarding our future generations. We are committed to prudent borrowing, well within the limits set by our annual budget laws, ensuring we never reach a debt trap while supporting our economic growth.
“Our approach to borrowing is strategic and targeted, ensuring that loans are allocated to development projects that yield tangible benefits for our economy. We are committed to transparency and judicious spending in every project we undertake,” Manet stated during the December 27 inauguration of the Choeung Ek Sewage Treatment Plant in Phnom Penh’s Meanchey district.
The prime minister made the remarks in response to criticisms from Khmer language foreign-based media regarding foreign loans and the construction of the Funan Techo Canal.
“The Funan Techo Canal represents a series of initiatives from countries such as Japan, alongside infrastructure support from China, the Asian Development Bank [ADB] and various other financial institutions,” he explained.
“Coupled with our own budgeted infrastructure developments, all these efforts converge to enhance the nation, uplift our people, bolster the national economy and create a lasting legacy for the generations to come,” he added.
Manet emphasised the necessity for diverse investments in various sectors, acknowledging that the national budget often falls short of covering all expenses.
“First, we seek grants, like for the sewage treatment plant. Secondly, we secure loans with appropriately low interest rates and thirdly, we encourage both local and foreign financers to invest in our country,” explained.
According to the budget law promulgated for 2024, the government is allowed to borrow
1.7 billion in Special Drawing Rights (SDR), equivalent to $2.258 billion, in concessional loans which are to be repaid as preferential loans.
The Ministry of Economy and Finance clarified that the loan will be spent on 24 development projects.
Cambodia signed 21 loan projects in 2023, accounting for 78 per cent of the debt ceiling permitted by the 2023 budget law.
Sok Touch, president of the Royal Academy of Cambodia, noted that many countries besides Cambodia take development loans, even in the first world.
He said the focus should be on whether or not the loan is used correctly, transparently and efficiently.
“[The] canal will bring many benefits to the country, especially for marine transportation, reducing … costs and facilitating trade. That said, debt must be transparent, efficient, of quality, targeted and not wasteful. We have seen examples of countries unable to repay their debts, resulting in confiscation of their ports or islands. So, the government must be clear about debt,” he said.
The ministry stated that the government consistently exercises a cautious approach when securing loans, guided by a clear management strategy and thorough analysis in line with international standards.
It emphasised that any loan acquired must adhere to five essential criteria: It must be of an appropriate amount, offer high preferential terms, be designated for high-priority initiatives that bolster economic growth, ensure efficient and transparent use, and be aimed at high-quality and standard projects.
It said the approach ensures accountability and effectiveness in the nation’s financial activities.
The ministry noted that the canal is not included in the state budget for 2023-24, as it is a public-private partnership investment project through a Build-Operate-Transfer (BOT) framework, a practice applied worldwide.
The 180km waterway link will connect Prek Takeo of the Mekong River System, to the Prek Ta Ek and Prek Ta Hing of the Bassac River System, and to Kep province, crossing Kandal, Takeo and Kampot provinces. Highlighted features include three watergates, 11 bridges and 208km of roads on either side of the waterway.
According to the ministry, the Phnom Penh-Sihanoukville Expressway is a testament to the government’s solid approach to debt management.