Moody’s Investors Service Inc retained Cambodia’s B2 sovereign rating with a “stable” outlook for next year, but warned of slowing global growth momentum against rising uncertainty over longer-term financial and economic stability.
It expects global growth to slow from its 2018 peak over the coming years, particularly in some of the more fragile emerging markets, Moody’s said in a statement on Tuesday.
“While the slowdown in 2019 will be gradual, the longer-term picture is more uncertain. Growth in recent years has provided global sovereigns with a benign window within which to begin addressing longstanding credit challenges including high stocks of public and private debt as well as longer-term secular trends related to ageing and inequality, and to avoid shocks to inward capital flows,” it added.
The base case scenario is that the window will remain open through 2019. However, that window is closing, and the risk of tail events causing sharp movements in the ratings of vulnerable sovereigns is rising, it said.
Moody’s Cambodia rating is among 75 percent of stable calls that the agency maintained for next year.
Although a number of risks could affect credit conditions over the next 12 to 18 months, three quarters of the 138 sovereigns that Moody’s rates currently have a stable outlook and 15 hold a positive outlook, whereas 19 have a negative outlook.
“Our stable outlook for sovereign ratings in 2019 balances the benefits of continued global growth against emerging domestic and geopolitical risks,” said Alastair Wilson, Moody’s managing director of global sovereign risk.
Last month, the International Monetary Fund (IMF) projected Cambodia’s economic growth to remain robust in the next two to three years at 7 percent before moderating to 6 percent in five or six years on subdued productivity growth, maturing credit and the real estate cycles.
Although its economic outlook is positive, there are downside risks, the fund said, adding that concerns about credit quality, external funding, rising focus in the real estate sector and unregulated lending by real estate developers, high credit growth and growing systemic importance of microfinance institutions continue to pose risks to financial and macroeconomic stability.
Meanwhile, Moody’s said high debt, falling growth and rising rates expose sovereigns to the risk of shocks that undermine debt affordability and sustainability.
A number of emerging and frontier markets are particularly exposed to tightening global financial conditions and rising US trade protectionism, it added.
“Around the world, the longer-run credit trajectory for sovereigns will depend on the success of reform efforts that address these vulnerabilities. As in previous years, the potential for disruptive domestic or geopolitical events poses the greatest tail risk,” Moody’s added.
Geopolitical risks could have implications beyond a particular country’s economic and fiscal fundamentals and affect cross-border capital flows and thus funding conditions for many sovereigns.
The risk is a broad category that encompasses US trade and foreign policy which poses an increasingly far-reaching threat to global confidence and growth, conflict on the Korean peninsula, regional conflict in the Middle East, and domestic political events including Brexit and Italy’s budget plan.