King­dom’s pub­lic debt-to-GDP ra­tio re­mains low risk, says IMF

The Phnom Penh Post - - BUSINESS - Hor Kim­say

CAM­BO­DIA’S pub­lic debtto-GDP ra­tio re­mains low risk this year. This means the King­dom is able to af­ford more debt to main­tain eco­nomic growth while as­sur­ing good re­turns on its in­vest­ments, says Jarkko Tu­runen, a se­nior econ­o­mist at the In­ter­na­tional Mon­e­tary Fund (IMF).

Tu­runen, who leads the IMF team con­duct­ing the 2018 Ar­ti­cle IV con­sul­ta­tion with Cam­bo­dia, said the King­dom’s debt-to-GDP ra­tio re­mains at 30 per cent this year.

He said this al­lows it to bor­row more for eco­nomic growth and that the ceil­ing of pub­lic debt-to-GDP ra­tio could be as large as 40 per cent in the medium term.

There is a need for in­fra­struc­ture de­vel­op­ment in Cam­bo­dia, he said, and that some pub­lic fund­ing will come from bor­row­ings.

“Bor­row­ing for in­fra­struc­ture de­vel­op­ment in Cam­bo­dia at this mo­ment is [gen­er­ally] at favourable terms. As long as that is the case and the in­vest­ment is ef­fi­cient, I think there is room to bor­row more for in­fra­struc­ture.

“We have done an anal­y­sis that sug­gests that as a medium-term tar­get, some years out, a rea­son­able level or a ceil­ing for debt could be around 40 per cent [of GDP],” Tu­runen said.

How­ever, he said that fi­nanc­ing ad­di­tional in­fra­struc­ture spend­ing would also re­quire ad­dress­ing gaps through di­rect taxes, such as higher real es­tate taxes, as this would help boost growth while re­duc­ing in­come in­equal­ity.

He did not dis­close the present amount of the to­tal na­tional debt.

A draft of the 2018 na­tional bud­get re­leased late last year said the Cam­bo­dian govern­ment plans to bor­row an ad­di­tional one bil­lion in Spe­cial Draw­ing Rights (SDR), equal to $1.4 bil­lion, to meet its planned bud­get for this year. This will bring the to­tal na­tional debt to $7.6 bil­lion by the end of the year, com­pared to $6.2 bil­lion in June last year.

By June this year, the na­tional debt had been driven largely through bi­lat­eral and mul­ti­lat­eral con­ces­sional loans, prin­ci­pally from China. The King­dom owes China roughly $2.9 bil­lion – nearly half its to­tal debt.

Cen­tre for Pol­icy Stud­ies di­rec­tor Chan Sophal agreed on Wed­nes­day that Cam­bo­dia’s cur­rent level of out­stand­ing debt is man­age­able, given the King­dom’s coun­try sta­tus.

“Cam­bo­dia can and should bor­row more but only if loans are used re­spon­si­bly. Cam­bo­dia still badly needs roads, bridges and ir­ri­ga­tion sys­tems, but these have to be con­structed with [ac­cept­able] qual­ity,” he said.

Supreme Na­tional Eco­nomic Coun­cil se­nior ad­vi­sor Mey Kalyan said the govern­ment has been very cau­tious about con­trol­ling pub­lic debt. While the debt level is not an is­sue, he said re­ly­ing so much on for­eign bor­row­ing could pose a chal­lenge.

“If we rely so much on for­eign cur­rency bor­row­ing, when an un­pre­dictable event oc­curs ex­ter­nally, [it will be] dif­fi­cult to cur­tail the is­sue.

“We should find a way to [stim­u­late] lo­cal bor­row­ing, and I think is­su­ing govern­ment bonds in Kh­mer riel [is] a good op­tion,” he said.


‘Cam­bo­dia can and should bor­row more but only if loans are used re­spon­si­bly. Cam­bo­dia still badly needs roads, bridges and ir­ri­ga­tion sys­tems,’ says Cen­tre for Pol­icy Stud­ies di­rec­tor Chan Sophal.

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