The government will spend $62.3 million to buy 623 shares of the China-led Asian Infrastructure Investment Bank (AIIB), paving the way for it to obtain funds from the bank for infrastructure development, Minister of Economy and Finance Aun Porn Moniroth confirmed during a meeting at the National Assembly on Monday.
The shares are equivalent to a 0.0063 percent stake in the $100 billion-funded AIIB. China is its major backer, followed by India, Russia, Germany, South Korea and Australia, according to reports by state-run media in China.
The AIIB is focused on supporting infrastructure construction in the Asia-Pacific region. It was proposed by China in 2013 and launched at a ceremony in Beijing in October 2014.
Cambodia, along with 49 other prospective founding members, signed the Articles of Agreement among on June 29 in Beijing.
Mr. Moniroth was quoted in local media as saying that Cambodia will begin paying registered capital to the AIIB of $12.46 million this year in 10 annual tranches of $1.246 million.
That amount is equal to the capital deposited at the Asian Development Bank (ADB), which will allow Cambodia to have a strong voice at the AIIB so that it can benefit from it, the minister was quoted as saying.
“The government has already drafted a law on the agreement to establish the AIIB to pave the way for a new source of funding for the development of infrastructure in Cambodia,” Mr. Moniroth said.
“The draft of law will allow Cambodia to have access to new medium and long-term sources of funding from development partners. The AIIB aims to fund further development of infrastructure and it will give Cambodia more ability to use funds for its economic development,” the minister added.
Prime Minister Hun Sen said in March that the establishment of AIIB would provide the world with another option for development. Along with the bank, China’s Silk Road Infrastructure Fund also has a very important role to play, he said.
“The establishment of the AIIB is a complementary financial institution to services provided by World Bank and the Asian Development Bank,” Mr. Hun Sen said at the time. “I think the AIIB is not in competition to other powers but [was created to] respond to countries in need of capital for development,” he said, adding that there is no need for austerity policies, which he also described as punitive.
Chheang Vannarith, chairman of the Cambodian Institute for Strategic Studies told Khmer Times that the AIIB will benefit connectivity among Asian countries, especially in the Mekong region. “Cambodia is interested in getting access to sources of infrastructure financing. The AIIB has great potential in infrastructure development and connectivity in Asia, particularly the Mekong region,” Mr.Vannarith said.
According to the Asian Development Bank, some $8 trillion in infrastructure investment is needed in the Asia and Pacific region over the next decade.
Son Chhay, a lawmaker from the opposition Cambodia National Rescue Party (CNRP), welcomed the new bank but said the government should carefully consider its ability to repay loans.
“What we borrow nowadays is from the ADB and World Bank, which set strict requirements and conditions on loans to various sectors. But for the AIIB it is mainly focused on infrastructure and they don’t have strict conditions,” he said.
Ear Sophal, associate professor of diplomacy and world affairs at Occidental College in Los Angeles and author of “Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy,” said Cambodia was rushing to engage with the AIIB. “I really don’t know why Cambodia is rushing. It could be to try to show China that it is loyal and wants to be part of the game,” Mr. Sophal said.
Cambodia will increase the amount of its foreign loans from about 700 million in special drawing rights (SDR) to SDR 800 million a year from next year to compensate for declines in foreign aid that will occur as Cambodia shifts to a lower middle-income country next year, Mr. Moniroth told the National Assembly in October.
Mr. Chhay said that the expansion in foreign borrowing raised concerns about the government’s ability to repay loans. “The Ministry of Economy and Finance will increase their borrowing more than $1.5 billion per year starting from 2018. That it is a big amount. My concern is that we are borrowing too much and I am afraid that we don’t have enough ability to repay,” he said.
Yong Sarah Zhou, Resident Representative of International Monetary Fund (IMF) for Cambodia, told Khmer Times in early December that a public debt level for Cambodia that is below 40 percent of GDP is “generally considered comfortable.”
The debt-to-GDP ratio for Cambodia was around 34 percent last year and is projected to follow a downward trend in the medium term, she said.
“That being said, Cambodia’s debt sustainability continues to be vulnerable to shocks to economic growth, exports, and fiscal performance. This calls for continued reforms to increase the economy’s resilience against external shocks, and to mobilize fiscal revenues,” Ms. Zhou said.
“We welcome that the government’s debt management unit conducts similar annual debt sustainability analyses as part of their budget process and use the results to propose ceilings of new borrowings and disbursements,” she added.