This document presents the joint IMF-World Bank debt sustainability analysis (DSA)for Cambodia using the Debt Sustainability Framework for Low-Income Countries (LIC).2 It shows that external debt burden indicators do not breach the relevant policy-dependent indicative thresholds under the baseline scenario. However, given recent global developments and Cambodia’s vulnerability to external shocks, there are considerable downside risks to the baseline scenario. An assessment of the impact of various exogenous shocks on the sustainability of external and public sector debt shows Cambodia would face a moderate risk of debt distress.3
This DSA was prepared jointly by the IMF and World Bank. The staffs also consulted with the Asian Development Bank. The debt data underlying this exercise were provided by the Cambodian authorities and donor partners.
See “Debt Sustainability in Low-Income Countries: Proposal for an Operational Framework and Policy Implications” (http://www.imf.org/external/np/pdr/sustain/2004/020304.htm and IDA/SECM2004/0035, 2/3/04) and “Debt Sustainability in Low-Income Countries: Further Considerations on an Operational Framework, Policy Implications” (http://www.imf.org/external/np/pdr/sustain/2004/091004.htm and IDA/SECM2004/0629, 9/10/04) and “Applying the Debt Sustainability Framework for Low-Income Countries Post Debt Relief,” (www.imf.org/external/np/pp/eng/2006/110606.pdf and IDA/SecM2006–0564, 8/11/06).
The low income country debt sustainability framework (LIC DSF) recognizes that better policies and institutions allow countries to manage higher levels of debt, and thus the threshold levels are policy dependent. Cambodia’s policies and institutions, as measured by the World Bank’s Country Policy and Institutional Assessment (CPIA), averaged 3.17 percent over the past three years, placing it as a “weak performer.” The relevant indicative thresholds for this category are: 30 percent for the NPV of debt-to-GDP ratio, 100 percent for the NPV of debt-to-exports ratio, 200 percent for the NPV of debt-to-revenue ratio, 15 percent for the debt service-to-exports ratio, and 25 percent for the debt service-to-revenue ratio. These thresholds are applicable to public and publicly guaranteed external debt.
Cambodia received debt relief from the IMF under the Multilateral Debt Relief Initiative (MDRI) of SDR57 million (US$82 million) in January 2006, as outlined in the decision of the Executive Board.
See Cambodia—Staff Report for the 2007 Article IV Consultation, Joint IMF/World Bank Debt Sustainability Analysis 2007, IMF Country Report No. 07/290 (August 2007).
For this DSA, staffs continue to apply the standard 70 percent discount to the nominal value of debt owed to the Russian Federation.
Because of double-digit growth in recent years, the standard alternative scenarios and stress tests based on average past performance show a continued decline in debt and debt service levels. However, in view of the sharp downturn in global economic activity in the second half of 2008 and uncertain prospects about the degree and timing of a recovery, past performance may not be instructive of future trends.