The government plans to reduce its foreign debt and raise capital through the issuance of bonds, a representative of the Ministry of Economy and Finance has unveiled.
For in depth analysis of Cambodian Business, visit Capital Cambodia
“Increasing local borrowing instead of foreign borrowing will improve the country’s trade balance and current account,” said Vong Seyvisoth, Secretary of State at the Ministry of Economy and Finance, during a forum on the national budget for the year 2018 held yesterday.
It will also help the riel’s exchange rate remain stable, he said.
Decreasing foreign debt will help balance the expenditure budget, improving the country’s current account. Meanwhile, issuing bonds will complement the rise in revenue from tax collection, which has increased significantly in the last few years, he said.
“Cambodia’s is preparing to adopt a new policy. We will reduce foreign borrowing while strengthening local borrowing,” Mr Seyvisoth said.
“We are also developing the local bond market which will be online by 2019,” he said, adding that the government plans to issue bonds in the near future, and is now preparing the legal groundwork and infrastructures that would allow that to happen.
“Borrowing locally entails lower levels of risk than borrowing from abroad.
“When we borrow from abroad, we need to pay it back, which affects the current account and the balance of payments. When we borrow domestically, the money stays in the country.”
He noted, however, that Cambodia’s current debt-to-GDP ratio is 32 or 33 percent, which is a healthy level of indebtedness, and should not preclude the country from continued borrowing.
According to the Ministry of Economy and Finance, Cambodia’s foreign debt stood at $7.1 billion in 2017. In 2018, it will be $7.8 billion.
Public expenditure this year will amount to $6.4 billion, 18.75 percent of GDP, as indicated in the national budget for 2018. Government income is projected to reach $4.6 billion.
Chan Sophal, director of the Centre for Policy Studies, said the government’s new strategy was sound and will help increase public revenue, but added that the country can continue to borrow from abroad without putting the economy at risk.
“To ensure the efficiency of loans, we need to keep a closer eye on the projects that are being financed and make sure they are built according to plan and with the necessary quality standards.”
He also said that Cambodia is in a good position to increase its foreign debt without this posing a risk to the economy, adding that the country should continue to borrow from abroad to finance the construction of public infrastructure.
“We have been quite cautious with our borrowing,” he said. “Why don’t we just borrow a lot to help enrich the nation quickly? We don’t do this because we need space in case a crisis happens,” he said.
According to Ministry of Economy and Finance, the GDP will grow by 6.9 percent in 2018 due to robust performances of the agriculture, manufacturing, and service sectors. GDP per capita will be $1,569, according to official projections.
Due to robust economic growth, Cambodia is becoming less dependent on other countries in terms of raising capital, Mr Seyvisoth said, noting that the country can now “survive and fully control its economy.”
In December, the Securities and Exchange Commission of Cambodia (SECC), the stock market regulator, approved the rules that will regulate the local bond market, together with three new financial tools that aim to boost trading on the local bourse.