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Cambodia: Staff Report for the 2015 Article IV Consultation-Debt Sustainability Analysis

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
November 2015
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This Debt Sustainability Analysis (DSA) shows that Cambodia’s debt distress rating remains low with all debt burden indicators projected to remain below the respective thresholds. In line with last year’s DSA, the results also indicate that debt sustainability continues to be vulnerable to growth, exports, fiscal shocks, and the materialization of contingent liabilities, calling for continued structural reforms to increase the economy’s resilience against external shocks, and to mobilize fiscal revenues.

1. This DSA continues to assess the risk of debt distress as low. The indicative debt distress thresholds remain unchanged from the 2013 Article IV DSA. Under the baseline scenario, the external and the public debt distress indicators never breach the policy-dependent indicative thresholds, and the PV of external debt follows a downward trend in the medium term. Downside risks to the baseline scenario include external arrears, and the materialization of contingent liabilities. The macroeconomic assumptions underlying the baseline scenario remain broadly similar to last year’s DSA, with Cambodia assumed to issue domestic debt (e.g., government bonds) over the long term. The debt-to-GDP ratio at end-2014 was slightly higher than the previous estimate due to larger disbursement of bilateral debts, especially from China.1 Cambodia’s Country Policy and Institutional Assessment (CPIA) rating remained unchanged at “medium performer.”

Cambodia’s Public Debt

2. At end-2014, the stock of Cambodia’s external public debt, including arrears, stood at around US$5.5 billion or 33 percent of GDP (23.3 percent in NPV terms). The debt-to-GDP ratio has been steadily increasing since 2008, when it was 27 percent of GDP. Since 2010, the increase in external debt has been driven largely by disbursement of bilateral loans. The corresponding net present value (PV) of the external debt is 23.3 percent of GDP at end 2014, a significant increase from 19.0 percent of GDP at end-2012, primarily because the amortization schedule of existing debt assumes larger principal repayments in more recent years compared to the last DSA.

Cambodia: External Public Debt
U.S. dollarShare of totalIn percent
(millions)External Debtof GDP
Total5,483.5100.033.1
Multilateral1,696.830.910.3
Bilateral3,786.669.122.9
Sources: Cambodia authorities; and World Bank estimates.
Sources: Cambodia authorities; and World Bank estimates.

3. With greater disbursement of bilateral debt over the past five years, the share of multilateral creditor debt has continued to decline. The share of bilateral debt, including arrears, in total external public debt has increased from 50 percent in 2009 to 69 percent in 2014. China remains the largest bilateral creditor, contributing to 62 percent of the total bilateral debt stock and about 90 percent of bilateral debt disbursement during the past three years. Cambodia remains in arrears to the Russian Federation and the U.S. (nearly 15 percent of total debt or 5 percent of GDP), and the status of negotiations of these arrears has remained unchanged since the last DSA. Cambodia is not servicing its debt with these two creditors. The Cambodian authorities have been in contact with the Russian and U.S. authorities at least on an annual basis, but further efforts are needed to conclude agreements under the Paris Club framework. Since prospects for resolution remain unclear, this DSA continues to assume no debt restructuring, with arrears continuing to build up over the projection period.

4. The negligible level of domestic debt remains unchanged. Cambodia has virtually no domestic public debt at present. There is a small amount of bonds (US$4 million) issued in the early 2000s and some old claims on the government (the total equal to half percent of GDP, with no interest) that were carried over from the 1990s and remain to be recorded in the monetary survey.

5. While the authorities have made progress on the monitoring of contingent liabilities and debt management, the fiscal risks from contingent liabilities need continuous monitoring. The development of the debt management strategy and its submission to the parliament in conjunction with the budget and the establishment of the public private partnership (PPP) unit in the MEF to monitor future PPP approvals are welcome. Progress in measuring already assumed contingent liabilities is underway and receives technical assistance from the World Bank. Further strengthening the capacity of the MEF to deal with PPPs contracts, particularly on legal issues, would be recommended. Other recommendations include the adoption of an annual ceiling on PPP guarantees and the listing of all contingent liabilities in the annual budget law to enhance fiscal transparency. Although debt remains sustainable with a low risk of distress, closer monitoring of fiscal risks from contingent liabilities and further strengthening of capacity to analyze these risks is needed to safeguard the fiscal space.

Macroeconomic Framework

6. The macroeconomic framework underlying the baseline scenario remains broadly in line with the previous DSA.

  • Growth and inflation: Economic activity remains strong driven by robust exports, real estate, and construction. GDP growth is expected at 7.0 percent in 2015 and is projected to gradually increase to 7.3 percent by 2018 assuming continued improvements in business climate, physical infrastructure, and human capital. Over the long term, growth is projected to moderate to 7 percent. Inflation dropped to 1.1 percent in 2014 led by lower energy and commodity prices. In the medium term, it is expected to average 3 percent, in line with the authorities’ informal target and partner countries’ medium-term inflation.

  • External stability: Despite lower garment export and tourism receipts, the current account deficit, including official transfers, is expected to stay flat at around 12 percent of GDP in 2014, partially due to the moderation in imports related to near completion of large power projects and lower garment materials imports, and to remain fully financed by FDI and official loans. For the medium-term, the current account deficit is projected to decline to 7 percent of GDP, as a result of further moderation in imports after the completion of large power generation projects and improved competitiveness and diversification spurred by the participation in the ASEAN Economic Community (AEC), which should support robust export growth. Gross official reserves are projected to remain at around 4 months of prospective imports through 2020. External debt disbursement is projected to average about US$550 million annually during 2015–20 (about 2½ percent of GDP on average), and with this, the debt to GDP ratio is projected to gradually decline to 30 percent by 2020.

  • Fiscal sustainability: Buoyant revenue collection efforts have improved revenue performance significantly in 2014 and stringent procurement measures have slowed the execution of non-wage current expenditure and locally financed capital expenditure, more than offsetting the continuous increase in the wage expenditure. As a result, the 2014 fiscal deficit narrowed to 1.3 percent of GDP (GFS 2001), compared to 3.1 percent implied by the budget, and government deposits are expected to increase temporarily to 7.1 percent of GDP, before declining to around 4 percent of GDP in the medium term. Effective implementation of the list of tax administration measures contained in the Revenue Mobilization Strategy (RMS) should continue to generate revenue gains, raising domestic revenue by ½ percent of GDP on average over the medium term, in line with the authorities’ goal under the Public Financial Management Reform Program. Budget pressure in recent years eased due to strong revenue collection, but large wage increases have limited space to enhance growth critical social and infrastructure spending. In this context, it is important to ensure that the domestic revenue expansion is used most efficiently and effectively. Medium-term fiscal consolidation is therefore anchored to safeguarding government deposits and ensuring long-term fiscal debt sustainability, while striking a careful balance to provide resources for Cambodia’s vast development needs against rising wage pressures and an expected gradual decline of concessional external funds. In view of this, domestically funded capital spending is projected to increase from 1.8 percent GDP in 2014 to 3.4 percent in 2020 to cushion the decline in externally funded capital spending, thereby ensuring that the overall capital spending is maintained at around 8 percent of GDP. With continued efforts to increase efficiency of public investment program and by containing the nonwage current spending in terms of GDP, the fiscal deficit, excluding grants, is projected to decline from about 6 percent of GDP in 2013 to 4.6 percent in 2020. Compared to the 2013 DSA, loans from the non-Paris Club official bilateral donors are assumed to be on less concessional terms. This difference in the loan terms increases external debt by 3 percent of GDP by 2033.

  • Domestic debt: As Cambodia’s financial sector continues to develop, it is expected that the government will start issuing domestic government bonds to provide additional fiscal financing. By issuing debt starting from ¼ ppt of GDP annually in 2021 and gradually increasing to about ½ ppt of GDP in 2035, the total stock of domestic debt would reach about 3.7 percent of GDP by 2035. This remains low compared to the average domestic debt in low-income countries (LICs) of about 15 percent of GDP. However, this conservative estimate is in line with the authorities’ intention of not issuing domestic debt over the medium term and to focus more on mobilizing domestic revenue and raising government deposits (i.e., savings, not borrowings).

External and Public Debt Sustainability

7. Under the baseline scenario, the external DSA shows that Cambodia’s risk of debt distress is low (Figure 1, Tables 1a and 1b). The PV of debt-to-GDP, debt-to-exports, and debt-to-revenue ratios never breach their respective policy-dependent indicative thresholds and are projected to decline over the projection period. Moreover, the debt service-to-exports and debt service-to-revenue ratios remain well below the thresholds throughout the projection period, partly due to the concessional nature of the debt.

Figure 1.Cambodia: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2015-2035 1/

Sources: Cambodia authorities; and IMF staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a Exports shock; in c. to a Exports shock; in d. to a Exports shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock.

Table 1a.Cambodia: External Debt Sustainability Framework, Baseline Scenario, 2012–2035 1/(In percent of GDP, unless otherwise indicated)
ActualHistorical Average 6/Standard Deviation6/Projections
2012201320142015201620172018201920202015–2020 Average202520352021–2035 Average
External debt (nominal) 1/31.532.533.434.234.033.432.631.730.524.818.8
Of which: public and publicly guaranteed (PPG)31.532.533.434.234.033.432.631.730.524.818.8
Change in external debt1.81.00.90.7−0.2−0.6−0.8−0.9−1.2−1.0−0.4
Identified net debt-creating flows−3.7−2.3−0.2−0.4−0.4−1.1−2.3−3.1−4.7−4.1−0.7
Non-interest current account deficit10.711.911.97.04.111.311.210.59.18.46.76.89.97.6
Deficit in balance of goods and services9.39.610.79.99.38.67.97.35.85.38.1
Exports62.865.367.969.470.571.472.073.074.177.789.2
Imports72.174.978.679.279.880.079.880.380.083.097.2
Net current transfers (negative = inflow)−2.9−2.5−3.6−6.93.1−3.8−2.9−2.6−2.9−3.0−3.0−2.6−2.3−2.5
Of which: official−2.0−1.9−2.0−1.8−1.7−1.6−1.6−1.5−1.5−0.6−0.3
Other current account flows (negative = net inflow)4.34.84.85.34.84.64.14.03.94.14.1
Net FDI (negative = inflow)−12.1−11.9−10.1−8.82.7−9.8−9.7−9.7−9.6−9.7−9.8−9.7−9.8−9.7
Endogenous debt dynamics 2/−2.3−2.4−2.0−1.8−1.9−1.8−1.8−1.8−1.7−1.2−0.8
Contribution from nominal interest rate0.30.30.40.30.40.40.40.40.50.40.4
Contribution from real GDP growth−2.0−2.1−2.1−2.2−2.3−2.3−2.2−2.2−2.1−1.6−1.2
Contribution from price and exchange rate changes−0.6−0.5−0.2
Residual (3-4) 3/5.53.31.11.10.30.41.52.23.53.10.3
Of which: Exceptional financing−0.1−0.1−0.1−0.1−0.1−0.1−0.1−0.10.00.00.0
PV of external debt 4/23.324.224.424.123.623.022.218.314.2
In percent of exports34.334.934.633.732.831.630.023.516.0
PV of PPG external debt23.324.224.424.123.623.022.218.314.2
In percent of exports34.334.934.633.732.831.630.023.516.0
In percent of government revenues133.9136.4136.3133.5130.0126.2120.694.365.8
Debt service-to-exports ratio (in percent)1.01.11.31.41.51.71.81.92.11.71.1
PPG debt service-to-exports ratio (in percent)1.01.11.31.41.51.71.81.92.11.71.1
PPG debt service-to-revenue ratio (in percent)4.04.94.95.35.96.87.37.58.46.84.5
Total gross financing need (Billions of U.S. dollars)−0.10.10.40.40.50.40.20.0−0.4−0.61.0
Non-interest current account deficit that stabilizes debt ratio8.910.911.010.611.411.19.99.37.97.710.3
Key macroeconomic assumptions
Real GDP growth (in percent)7.37.47.07.63.57.07.27.27.37.37.37.27.06.96.9
GDP deflator in U.S. dollar terms (change in percent)2.21.70.74.23.7−0.40.51.21.71.71.71.01.71.91.8
Effective interest rate (percent) 5/1.01.11.20.90.21.11.21.31.41.41.61.31.82.42.0
Growth of exports of G&S (U.S. dollar terms, in percent)13.713.612.113.513.78.89.59.89.910.610.89.910.110.610.2
Growth of imports of G&S (U.S. dollar terms, in percent)12.013.513.113.611.27.48.58.78.99.88.68.610.010.710.3
Grant element of new public sector borrowing (in percent)30.932.433.333.733.832.632.830.326.428.9
Government revenues (excluding grants, in percent of GDP)15.215.017.417.817.918.018.218.318.419.421.620.0
Aid flows (in Billions of US dollars) 7/1.11.21.00.50.60.60.70.70.70.70.7
Of which: Grants0.40.60.50.30.30.40.40.40.50.40.5
Of which: Concessional loans0.70.60.50.20.20.30.30.30.30.20.2
Grant-equivalent financing (in percent of GDP) 8/2.92.82.82.82.72.61.70.91.5
Grant-equivalent financing (in percent of external financing) 8/56.457.959.759.460.360.755.443.351.7
Memorandum items:
Nominal GDP (Billions of US dollars)14.115.416.617.619.020.622.524.526.740.895.1
Nominal dollar GDP growth9.79.37.76.57.78.49.19.19.18.38.88.98.8
PV of PPG external debt (in Billions of US dollars)3.84.24.64.95.35.65.97.413.5
(PVt-PVt-1)/GDPt-1 (in percent)2.42.11.81.71.51.21.80.91.01.0
Gross workers’ remittances (Billions of US dollars)0.10.10.30.40.20.20.30.40.40.81.9
PV of PPG external debt (in percent of GDP + remittances)22.923.724.123.923.322.721.917.913.9
PV of PPG external debt (in percent of exports + remittances)33.533.934.033.332.230.929.422.915.6
Debt service of PPG external debt (in percent of exports + remittance1.21.31.51.71.81.82.11.71.1
Sources: Cambodian authorities; and IMF staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - p(1+g)]/(1+g+p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Cambodian authorities; and IMF staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - p(1+g)]/(1+g+p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 1b.Cambodia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015–2035(In percent)
Projections
20152016201720182019202020252035
PV of debt-to GDP ratio
Baseline2424242423221814
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/2422201918192215
A2. New public sector loans on less favorable terms in 2015-2035 2/2425252626252321
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20172425252524231915
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/2429373635332717
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20172424242423221814
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/2426282726252115
B5. Combination of B1-B4 using one-half standard deviation shocks2425282726252115
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/2435343333312620
PV of debt-to-exports ratio
Baseline3535343332302416
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/3532282625252816
A2. New public sector loans on less favorable terms in 2015-2035 2/3536363636353024
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20173535343332302416
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/3545636158554323
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20173535343332302416
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/3538393836342717
B5. Combination of B1-B4 using one-half standard deviation shocks3537414038362918
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/3535343332302416
PV of debt-to-revenue ratio
Baseline1381381351311271229566
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/13812411110410010211268
A2. New public sector loans on less favorable terms in 2015-2035 2/13814114214214113812097
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-201713814114213813412810069
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/13816220619919218214278
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20171381371361321291239666
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/13814715414914413810769
B5. Combination of B1-B4 using one-half standard deviation shocks13814315415014513810869
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/13819419018518017213593
Sources: Cambodia authorities; and IMF staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Cambodia authorities; and IMF staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 1c.Cambodia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-2035 (continued)(In percent)
Debt service-to-exports ratio
Baseline11222221
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/11222221
A2. New public sector loans on less favorable terms in 2015-2035 2/11222222
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-201711222221
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/12233322
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-201711222221
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/11222221
B5. Combination of B1-B4 using one-half standard deviation shocks12222221
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/11222221
Debt service-to-revenue ratio
Baseline56777875
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/56666765
A2. New public sector loans on less favorable terms in 2015-2035 2/56778987
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-201756788976
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/56710101087
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-201756778975
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/56788976
B5. Combination of B1-B4 using one-half standard deviation shocks56788976
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/5810101112107
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/2828282828282828
Sources: Cambodia authorities; and IMF staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Cambodia authorities; and IMF staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

8. Even though standard debt stress tests do not indicate any major vulnerability, they highlight that large exchange rate or export shocks could potentially have a major impact on the debt dynamics. Change in export value growth remains the most important risk to sustainability. As shown in Figure 1, this shock would bring the PV of debt-to-GDP to 36 percent, just 4 percent under the indicative threshold. Similarly, a large one-off depreciation would bring the PV of debt-to-GDP to about 35 percent. While this highlights the importance of continuous monitoring of debt dynamics, the PV of external debt declines over the projection period and does not currently indicate any major vulnerability.

9. Given the minor role played by domestic debt, the public sector DSA closely tracks the external debt sustainability (Figure 2 and Tables 2a and 2b). In particular, the PV of public debt-to-GDP and the public debt service-to-revenue ratios would decline gradually over time, and the debt service-to-revenue ratio would remain low in most scenarios for the entire projection period. It is assumed that, with the development of the domestic bond market, the domestic financing sources will increase after 2020 and the domestic debt will reach about 3.7 percent of GDP over the long run.

Figure 2.Cambodia: Indicators of Public Debt Under Alternative Scenarios, 2015-2035 1/

Sources: Cambodia authorities; and IMF staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025.

2/ Revenues are defined inclusive of grants.

Table 2a.Cambodia: Public Sector Debt Sustainability Framework, Baseline Scenario, 2012–2035(In percent of GDP, unless otherwise indicated)
ActualEstimateProjections
Average 5/Standard 5/2015-202021-35
201220132014Deviation201520162017201820192020Average20252035Average
Public sector debt 1/32.133.033.934.634.433.732.931.930.727.423.2
of which: foreign-currency denominated31.532.533.434.234.033.432.631.730.524.818.8
Change in public sector debt1.81.00.90.7−0.2−0.7−0.8−0.9−1.2−0.1−0.3
Identified debt-creating flows0.8−0.2−0.7−0.2−0.2−0.10.10.10.00.61.2
Primary deficit3.32.20.81.71.71.42.02.22.52.42.22.12.42.62.5
Revenue and grants17.918.920.419.619.719.920.020.120.220.522.1
of which: grants2.83.93.01.91.81.81.81.81.81.10.5
Primary (noninterest) expenditure21.221.021.221.121.622.122.522.522.422.924.7
Automatic debt dynamics−2.5−2.4−1.5−1.6−2.2−2.3−2.4−2.3−2.2−1.8−1.5
Contribution from interest rate/growth differential−2.7−2.8−2.6−2.4−2.5−2.5−2.4−2.4−2.3−1.8−1.5
of which: contribution from average real interest rate−0.6−0.6−0.4−0.2−0.2−0.2−0.1−0.2−0.10.00.1
of which: contribution from real GDP growth−2.1−2.2−2.2−2.2−2.3−2.3−2.3−2.2−2.2−1.8−1.5
Contribution from real exchange rate depreciation0.20.41.10.70.30.10.00.10.1
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes1.01.11.50.90.0−0.6−0.9−1.0−1.2−0.7−1.5
Other Sustainability Indicators
PV of public sector debt23.724.624.724.423.923.322.520.918.6
of which: foreign-currency denominated23.324.224.424.123.623.022.218.314.2
of which: external23.324.224.424.123.623.022.218.314.2
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/4.43.32.12.83.43.74.14.14.04.24.4
PV of public sector debt-to-revenue and grants ratio (in percent)116.4125.4125.7122.8119.8116.2111.2101.984.3
PV of public sector debt-to-revenue ratio (in percent)136.4138.6138.4135.3131.7127.7121.9107.786.2
of which: external 3/133.9136.4136.3133.5130.0126.2120.694.365.8
Debt service-to-revenue and grants ratio (in percent) 4/3.63.94.24.85.56.16.76.87.76.64.9
Debt service-to-revenue ratio (in percent) 4/4.34.95.05.36.06.87.37.58.47.05.0
Primary deficit that stabilizes the debt-to-GDP ratio1.51.2−0.10.82.22.93.33.43.42.53.0
Key macroeconomic and fiscal assumptions
Nominal GDP (local currency)56681.661866.166825.172767.480043.588108.297273.4107275.4118333.3190740.3496328.0
Real GDP growth (in percent)7.37.47.07.63.57.07.27.27.37.37.37.27.06.96.9
Average nominal interest rate on forex debt (in percent)1.01.11.20.90.21.11.21.31.41.41.61.31.82.42.0
Average real interest rate on domestic debt (in percent)−1.2−1.3−0.7−3.73.0−1.6−2.3−2.4−2.5−2.5−2.5−2.3−0.8−0.5−0.9
Real exchange rate depreciation (in percent, + indicates depreciation0.71.53.6−1.73.52.3
Inflation rate (GDP deflator, in percent)1.41.60.94.23.41.82.62.72.92.82.82.62.93.02.9
Growth of real primary spending (deflated by GDP deflator, in percer11.76.67.92.74.36.310.09.59.17.47.08.28.08.07.6
Grant element of new external borrowing (in percent)30.932.433.333.733.832.632.830.326.4
Sources: Cambodian authorities; and IMF staff estimates and projections.

Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Cambodian authorities; and IMF staff estimates and projections.

Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 2b.Cambodia: Sensitivity Analysis for Key Indicators of Public Debt 2015-2035
Projections
20152016201720182019202020252026202720282029203020312032203320342035
PV of Debt-to-GDP Ratio
Baseline2525242423222121212020202019191919
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages2524242321201616161514141312121111
A2. Primary balance is unchanged from 2015252424222120161515141313121111109
A3. Permanently lower GDP growth 1/2525252525252729293031333435363840
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016-20172526272727272829292930303030303131
B2. Primary balance is at historical average minus one standard deviations in 2016-20172526262625242222222121212120202019
B3. Combination of B1-B2 using one half standard deviation shocks2525262525242425252424242424242424
B4. One-time 30 percent real depreciation in 20162535333231292525252424242323222222
B5. 10 percent of GDP increase in other debt-creating flows in 20162532313029282626252424232323222221
PV of Debt-to-Revenue Ratio 2/
Baseline1251261231201161111021021019896949290888684
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages1251241191131071008179757168646158555249
A2. Primary balance is unchanged from 2015125124118112105987775716663595652484542
A3. Permanently lower GDP growth 1/125127126125124121132138142144149153158162167172178
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016-2017125131135136135133138141142141141141141140140139139
B2. Primary balance is at historical average minus one standard deviations in 2016-2017125131132128124119108108106103101989694928987
B3. Combination of B1-B2 using one half standard deviation shocks125129128127124121117119118116115114113111110108108
B4. One-time 30 percent real depreciation in 201612517616816015214412412312011611411110810610310098
B5. 10 percent of GDP increase in other debt-creating flows in 20161251621571521471401251241211171141101081041019896
Debt Service-to-Revenue Ratio 2/
Baseline55677875565555555
A. Alternative scenarios
A1. RealGDPgrowth and primarybalanceare at historicalaverages55677764554444443
A2. Primary balance is unchanged from 201555677764544444443
A3. Permanently lower GDP growth 1/56677886777788999
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016-201756778986777778888
B2. Primary balance is at historical average minus one standard deviations in 2016-201755677875666666665
B3. Combination of B1-B2 using one half standard deviation shocks56677876666666676
B4. One-time 30 percent real depreciation in 2016579101011108898889998
B5. 10 percent of GDP increase in other debt-creating flows in 201655788976777777776
Sources: Cambodia authorities; and IMF staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Cambodia authorities; and IMF staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

10. Public debt is vulnerable to a large exchange rate depreciation shock and to a loose fiscal policy. Under a one-off real depreciation shock, the PV of public debt-to-GDP would reach 35 percent in the short-run, and then would decline over time. If the primary balance remains unchanged at the 2014 level, the PV of public debt-to-GDP would increase to about 27 percent in the medium term. However, public debt is projected to decline over the projection period under all scenarios and do not present any major vulnerability.

11. Potential contingent liabilities might threaten debt sustainability if they materialize. The investment in power generation and distribution projects under PPPs is large, and if for any reason problems arose potentially leading to a total loss of investment costs, substantial liabilities could be added to the debt stock. The World Bank has provided technical assistance to determine the size of contingent liabilities. Other potential contingent liabilities include the fiscal cost to support the financial sector during a banking crisis. Staff calculations suggest that support in the form of bank recapitalization and backstopping demand deposits would amount to around 15 percent of GDP.2

12. The authorities broadly agreed with the overall results of the DSA. The debt management unit at the Ministry of Economy and Finance conducts annual DSA analysis as part of their budget process. They use results of these analyses to propose annual ceilings of new net disbursements, which so far have been only external disbursements. The authorities use for their exercise the same terms for new loans, current account deficits, projected loans disbursement, but are more conservative than staff on the medium-term real GDP growth assumption. More generally, they reach the same conclusion of low risk of debt distress. The MEF showed concerned about the accumulation of contingent liabilities from PPPs and have imposed annual ceilings on PPP guarantees.

Conclusion

13. Cambodia remains at low risk of debt distress under the baseline scenario. The baseline projections and the standard stress tests show limited risk to external debt given that none of the indicators breach their thresholds. Downside risks to the baseline scenario include the materialization of contingent liabilities and issues arising from the external arrears. The most extreme stress tests indicate that Cambodia’s debt sustainability remains vulnerable to shocks to the exchange rate, growth, exports, and fiscal position. This suggests the importance of preserving macroeconomic stability and diversifying the economy and exports to increase the economy’s resilience to external shocks, and the necessity of the successful implementation of the revenue mobilization strategy.

Eighty percent of outstanding debt is owed to China.

The median direct fiscal cost of banking crisis in emerging market countries is estimated at 11.5 percent of GDP (Laeven and Valencia (2010), IMF Working Paper 10/146).

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