The government has borrowed $732.06 million in the form of concessional loans from development partners (DPs), amounting to 74.83 percent of the debt ceiling of Special Drawing Rights (SDR) approved by the National Assembly last year, according to the latest report on Cambodia’s public debt.
The report, released by the Ministry of Economy and Finance, shows that from 1993 to the first half of the present year, the government signed concessional loan agreements with DPs to the value of $9.295.26 billion, of which 87.12 percent was used for infrastructure development, while 12.88 percent went towards other priority sectors.
David Van, executive director of Deewee Management Consultants, said that as Cambodia’s economy matures economically, it will eventually shed its current LDC status, a transition that may happen as early as 2020.
“Therefore our privilege to obtain grants is rapidly evaporating and Cambodia would need to work out a way to obtain concession loans from development partners and financial institutions to invest in infrastructure, which is the backbone of attracting foreign direct investment,” Mr Van said.
“Until recently our debt to GDP ratio was only about 33 percent, but recently released figures estimate that it has gone up to about 40 percent, which is still relatively manageable for a small size economy as ours.
“The Ministry of Economy and Finance would have to ponder carefully on risks mitigation and our ability to repay such loans in the long-term perspective,” he added.
Kol Preap, Transparency International’s executive director in Cambodia, said it is normal for governments, especially those of developing nations, to borrow money in order to boost economic development and improve key infrastructure that promotes and supports economic growth.
However, he said it is crucial that borrowed money is used efficiently and with the right priorities in mind, and that it does not end up in the pockets of corrupt officials.
“To ensure this, there needs to be a mechanism to ensure transparency and accountability in the management of the money, including an effective oversight mechanism to independently scrutinize and audit all major projects,” he added.
“I think the three best choices of investment for Cambodia now would be in vocational training and skilled labour, agricultural production and market linkages. On top of this, we need to ensure good governance practices to prevent corruption,”Mr Kol added.
Mr Van said that the next step would be for the government to enact long overdue reforms while finding new ways to move forward. Given the poor infrastructure and high energy costs, the country can no longer rely solely on cheap labour to attract investors, he added.
“The government needs to find funding to boost our competitiveness. Infrastructure investment in any country is generally high risk and results are long-term, but it is highly critical.
“Bilateral and multilateral alternatives have been properly and carefully weighed by the government before they settle for the amount publicised,” he said.
“The public would welcome the government to be more effective and transparent in disbursing such loans in the implementation phase to gain further public confidence. Other Asian economies have three to four times our debt ratio, but it all bogs down to how effective they made use of the debt funding,” he added.
From 1993 to the first half of the year, the government has repaid $1.101.73 billion of its debt to development partners. Of this amount, 1.65 percent corresponds to public domestic debt and 98.35 percent is public external debt.