Cambodia: Staff Report for the 2021 Article IV Consultation—Debt Sustainability Analysis




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November 10,2021

Approved By

Anne-Marie Guide Wolf and Bjorn Rother (IMF), and Hassan Zaman and Marcello Estevao (IDA)

Prepared by Staff of the International Monetary Fund and the International Development Association

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The Debt Sustainability Analysis1 indicates that Cambodia remains at low risk of external and overall debt distress. The current debt carrying capacity2 is consistent with a medium classification. The baseline macroeconomic scenario reflects fallouts from the COVID-19 shock on growth, exports (notably, the tourism sector), and revenues. The total PPG debt-to-GDP ratio is projected to rise by around 5 percentage points during the next decade. Under standard settings, one of the debt burden thresholds is breached, which would imply a moderate risk rating. On an exceptional basis owing to the largely temporary impact of the pandemic, 2020 was dropped from the calculations of historical average and variances, equivalent to multiplying the calculated standard deviation by a lower factor to align it with the pre-pandemic stress test parameters through a customized stress test, which has been used for the risk ratings through the application of judgment. On this basis, the sustainability threshold is not breached in the stress scenario. Overall, the analysis shows that the overall risk of debt distress is low, but debt sustainability is vulnerable to further shocks to exports and growth. These findings reinforce the importance of implementing reforms to increase the economy’s resilience to external shocks and encourage export and economic diversification, and efforts to mobilize fiscal revenue and further enhance public financial management.

Public Debt Coverage

1. The DSA covers central government debt and debt guaranteed by the central government to state-owned enterprises (SOEs). By law, state and local governments and the central bank do not engage in external borrowing, and SOEs do not contract non-guaranteed external loans. Currently, there are no extra budgetary funds, and the National Social Security Fund is funded by deposits and does not constitute a liability for the general government (text table 1). Consistent with the previous DSA, external debt is defined on a currency basis. The contingent liabilities stemming from PPPs (5.3 percent of GDP)3 and financial market (5 percent of GDP) are included in the stress test scenario (text table 2).

Text Table 1.

Public Sector Debt Coverage

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Text Table 2.

Design of Contingent Liability Stress Test

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The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debris not fully captured under the country’s public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE s debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to0%.

Background on Debt

2. Cambodia’s external public debt stood at around US$8.8 billion (35 percent of GDP) in 2020. The external debt-to-GDP ratio has remained stable around 30 percent of GDP since 2012 but increased by 7 percent of GDP in 2020, on the back of an economic contraction and fiscal responses amidst the COVID-19 shock. Bilateral debt continues to account for 69 percent of total external debt, with more than half of it owed to China (text table 3). External debt has been accrued on concessional terms, and the PV was around 24 percent of GDP at end-2020. The debt stock includes legacy arrears to the Russian Federation and the United States of about 2.5 percent of GDP4. As the status of negotiations of these arrears remains unchanged compared to the previous DSA, this analysis assumes no debt restructuring.

Text Table 3.

External Public Debt (2020)

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3. Public domestic debt remains negligible. Public domestic debt comprised only non-marketable bonds issued by SOEs, and the outstanding debt (about US$1.6 million as of end-2019) had been fully repaid in early 2020. To support financial market development; the authorities are planning to issue, for the first time, local-currency government bonds over the next few years5, while strengthening market infrastructure to manage the whole cycle of domestic securities (e.g., issuance, registration, and trading).

4. PPPs have been considered a useful option to finance needed investment projects, given expected diminished access to concessional financing and slow progress in developing domestic debt markets. The PPP stock grew more than twofold between 2010 and 2015, and was estimated at around 15 percent of GDP in 2020. In line with past Fund recommendations, the authorities have been taking welcome steps to strengthen the PPP framework, including a system for risk assessment and the necessary legal, regulatory, and institutional arrangement for PPP management6

5. The stock of private external debt in Cambodia is not published by the authorities and is excluded from this analysis. Staff estimates private external debt at about 35 percent of GDP in 20207. Risks emerging from excessive external borrowing by the private sector could increase the government’s exposure to contingent liabilities.

Background on Macro Forecasts

6. The Covid-19 pandemic has taken a deep toll on Cambodia’s economy. Despite a wide array of policy responses to support demand and liquidity8, a collapse in external demand put significant strain on Cambodia’s growth drivers, such as tourism and garment exports. Staff estimates a contraction of -3.1 percent in 2020, after previous years of 6–7 percent growth. With a gradual recovery starting from this year, economic activity is projected to return to pre-COVID levels over the medium term under the baseline scenario. Despite the near-term downturns, longer term projections remain broadly in line with the previous DSA (text table 4).

  • Growth and inflation. Growth is expected to pick up to around 2 percent in 2021, supported mainly by stronger demand for manufactured goods. As domestic demand rebounds and transitory factors related to the COVID-19 shock recede, growth is projected to recover its potential of 6.5 percent from 2026 onward. GDP deflator inflation remained subdued at 2.9 percent last year due to low energy prices and a slowdown in economic activity and is expected to persist around 3 percent in line with the broadened recovery.

  • External sector. The current account deficit is expected to widen further to 27 percent of GDP in 2021 as tourism remains stagnant with travel restrictions and temporary improvement in goods trade in 2020 (e.g., gold exports) recedes. Over the medium term, the current account deficit is estimated to narrow as the tourism sector normalizes and the real estate and credit cycles mature. On the back of continued FDI inflows and substantial import compression, gross reserves increased in 2020 to US$21.3 billion (10 months of imports)9. In line with expected wider fiscal deficits, external debt disbursements are estimated to increase by 2027 before reducing gradually throughout the projection period. External debt is projected to reach 38.1 percent of GDP by 2028.

  • Fiscal sector. The primary fiscal balance turned into a deficit (3.1 percent of GDP) in 2020. It is projected to widen to 5.2 percent of GDP in 2021, led by continued spending demands and a slowdown in tax revenues. In the near term, staff assumes that the authorities prioritize healthcare and social assistance while restraining other current and capital spending in the context of the persistent impact of the COVID-19 shock. The fiscal deficit is expected to remain at around 3.5 percent through 2022–2023 before easing back. Accordingly, a gradual drawdown in government deposits (from around 24 percent of GDP at end-2020) is expected to partly meet rising financing needs over the medium term10.

Text Table 4.

Baseline Macroeconomic Assumptions (2020–2030)

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Sources: staff estimates and projections

7. Financing assumptions reflect the expected domestic debt issuance while external debt remains a dominant source. The level of external borrowing is set at around 4.2–4.4 percent of GDP over the medium term11, before declining to 3.9 percent of GDP by 2030 as the fiscal deficit narrows and domestic financing is facilitated. During the projection horizon, new external debt is expected to have an average maturity of 24 years and a nominal interest rate of around two percent. Consistent with the authorities’ plan, the analysis assumes that the authorities issue long-term domestic bonds from 2024 onward12, and the annual amount increases gradually, from 0.4 percent of GDP in 2024 to about 1 percent of GDP in 2041. The outstanding PPG domestic debt is therefore estimated to reach around 5 percent of GDP by 2041, accounting for about 13 percent of the total outstanding PPG debt.

8. The realism tools suggest that macroeconomic and fiscal assumptions are broadly reasonable (Figure 4). The baseline fiscal adjustment is feasible with a 0.5 percent point increase in the primary deficit-to-GDP ratio over the next 3-year period. The growth path projection is higher than suggested by fiscal multipliers, mainly reflecting the recovery from the COVID-19 shock (especially the recovery of external demand for manufactures). The contribution of public capital to GDP growth in the baseline scenario is broadly in line with historical values.

Figure 1.
Figure 1.

Cambodia: Indicators of Public and Publicly Guaranteed External Debt under

Citation: IMF Staff Country Reports 2021, 260; 10.5089/9781616355944.002.A003

Sources: Country authorities: and staff estimates and projections1/ The most extreme stress tea is the test that yields the highest ratio in or before 2031. The -stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 2.
Figure 2.

Cambodia: Indicators of Public Debt Under Alternative Scenarios, 2021–2031

Citation: IMF Staff Country Reports 2021, 260; 10.5089/9781616355944.002.A003

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2031. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Cambodia: Drivers of Debt Dynamics – Baseline Scenario

Citation: IMF Staff Country Reports 2021, 260; 10.5089/9781616355944.002.A003

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Cambodia: Realism Tools

Citation: IMF Staff Country Reports 2021, 260; 10.5089/9781616355944.002.A003

Country Classification and Determination of Scenario Stress Tests

9. Cambodia’s debt carrying capacity is classified as medium, changed from a strong rating of the previous DSA. Cambodia’s composite indicator (Cl)13 score based on the 2021 April WEO and 2019 CPIA data corresponds to a medium rating. Compared to the 2019 DSA, when classified as strong, the Cl score has briefly declined due to a relative economic slowdown and reduced remittance flows. The corresponding debt thresholds have been lowered from the previous DSA. For example, the PV of external debt-to-GDP benchmark decreased from 55 to 40 percent (text Table 5 and 6).

Text Table 5.

Cambodia Cl Index

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Text Table 6.

Debt Burden Thresholds

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10. The DSA includes standardized stress tests, a customized stress scenario on exports, contingent liability stress tests, and a tailored stress test for a natural disaster shock. In the case of the exports shock scenario, the shock is customized (If 12). The contingent liability stress test is based on the quantification of potential risks stemming from PPPs (5.3 percent of GDP) and the financial market (5 percent of GDP). A tailored stress test for a natural disaster shock is added to the standardized stress test scenarios. Cambodia is highly vulnerable to climate change and is likely to experience an increase in temperatures, as well as longer and more intense droughts and flooding. The cost of natural disasters is estimated at US$235 million per year (World Bank14). This analysis applies the default settings for this one-off shock in the template, including a significant mitigation cost of 10 percent of GDP (around US$2.7 billion) and a fall in GDP growth and exports using an interaction coefficient of 1.5 and 3.5, respectively.

External and Public Debt Sustainability

11. Under the baseline scenario, external debt remains well below thresholds. In line with a wider fiscal deficit over the medium term, external debt is projected to gradually rise from 36 percent of GDP in 2021 to 38.1 percent of GDP in 2028, before stabilizing at around 37 percent of GDP in early 2030s (text figure 1). In present value terms, the external debt-to-GDP ratio remains relatively flat, around 28 percent (below the threshold of 40 percent) over the medium term (Figure 1). On the back of a large share of concessional loans, the debt service-to-exports and debt service-to-revenue ratios remain far below their indicative benchmarks throughout the forecast horizon.

Text Figure 1.
Text Figure 1.

External and Total PPG Debt-to-GDP Ratio

(in percent, nominal, compared to the 2019 DSA)

Citation: IMF Staff Country Reports 2021, 260; 10.5089/9781616355944.002.A003

Sources: staff estimates and projections

12. Stress tests point to the vulnerability of the external debt dynamics to exports shock. A decline in export growth remains the main risk to debt sustainability, as in the Debt Sustainability Assessment for the 2019 Article IV consultation. As shown in Figure 1, the standard exports shock would breach the 40 percent threshold for the ratio of the present value of external debt to GDP from 2023 to 2032, by 4 percentage points on average. This mechanical breach of the threshold is, however, driven by transitory factors stemming from the Covid crisis: Cambodia’s exports fell by 8.3 percent in 2020, substantially due to travel restrictions15, compared with growth of 15.3 percent on average from 2011 to 2019. Staff believes the large shocks to tourism and exports during 2020 had an exceptional and sizable temporary element, such that lasting impact on the trend in economic activity is expected to be substantially smaller than the initial impact. Given this, staff used a customized stress scenario, based on the pre-pandemic stress test parameters by dropping 2020 from the calculations of historical average and variances. This is equivalent to multiplying the calculated standard deviation by a lower factor (0.7)16 to align it with the pre-pandemic stress test parameters and to maintain comparability across countries and standard stress tests. In this scenario, the ratio of the present value of debt to GDP remains slightly below the threshold (Text Figure 2). The other three external debt burden indicators remain below their thresholds over the projection period even without excluding the 2020 data.

Text Figure 2.
Text Figure 2.

the PV of External debt-to-GDP ratios

(in percent)

Citation: IMF Staff Country Reports 2021, 260; 10.5089/9781616355944.002.A003

Source: staff estimates

13. Public debt closely follows the external debt dynamics. Under the baseline, the total PPG debt level is expected to trend upward from 36 percent of GDP in 2021 to 40.1 percent of GDP in 2030, with an increased domestic financing mix (around 2.6 percent of GDP). The PV of total debt-to-GDP ratio is estimated to reach 31.1 percent in 2030 but remain well below the 55 percent benchmark. The debt service-to-revenue ratio is estimated to pick up briefly over the long term, along with a rising share of domestic debt (Figure 2). The stress tests indicate that PPG debt is vulnerable to shocks to growth. Under the growth shock scenario, the PV of total debt-to-GDP ratio rises to 47 percent by 2030 but does not breach the indicative threshold of 55 percent.

Risk Rating and Vulnerabilities

14. Cambodia remains at low risk of external and overall debt distress. External and total PPG debt levels are expected to increase by around 2 percent of GDP over the next 5-year period, driven by rising financing needs stemming from recovery supports and deteriorated external conditions amidst the pandemic. Stress tests indicate that Cambodia’s debt sustainability remains vulnerable to shocks to exports and growth. However, in the customized stress scenario, sustainability indicators do not exceed their thresholds.

15. The authorities should continue to maintain fiscal discipline and public debt management while promoting long-term growth. Given the risks from the pandemic and of increased poverty and labor market scarring, targeted and managed fiscal measures can help accelerate the near-term recovery. This reinforces the importance of preserving macroeconomic stability, diversifying the economy, and maximizing spending efficiency and the successful implementation of the revenue mobilization strategy. Finally, the authorities should focus on closing data gaps, in particular regarding data on external private debt and the PPP stock.

Authorities’ Views

16. The authorities broadly agreed with the findings of the DSA exercise. The Ministry of Economy and Finance noted that their internal DSA analysis had reached the same conclusion of low risk of debt distress. They viewed the medium-term macroeconomic dynamics as more optimistic, pointing to the Economic Recovery Plan (currently being established) and prospective benefits from the Regional Comprehensive Economic Partnership and bilateral FTAs. Also, the authorities expressed a strong commitment to debt sustainability and prudent debt management while emphasizing continued efforts to develop a domestic debt market.

Table 1.

Cambodia: External Debt Sustainability Framework, Baseline Scenario, 2018–2041

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Table 2.

Cambodia: Public Sector Debt Sustainability Framework, Baseline Scenario, 2018–2041

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Sources: Country authorities; and staff estimates and projections.1/ Coverage of debt: The central, state, and local governments, government-guaranteed debt. Definition of external debt is Residency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ 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 and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Cambodia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2021–2041 (In percent)

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Sources: Country authorities; and staff estimates and projections.1/ A bold value indicates a breach of the threshold.2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.3/ Includes official and private transfer s and FDI.
Table 4.

Cambodia: Sensitivity Analysis for Key Indicators of Public Debt, 2021–2031

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Sources; Country authorities; and staff estimates and projections.1/ A bold value indicates a breach of the benchmark.2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.3/ Includes official and private transfers and FDI.

This debt sustainability analysis was conducted using the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (LIC-DSF) approved in 2017.


Cambodia’s Composite Indicator (Cl) index, based on April 2021 WEO update and the World Bank’s 2019 CPIA, indicates that the county’s debt carrying capacity is medium (2.966). The country classification is downgraded from a strong rating (3.075) applied in the 2019 DSA.


The PPP stock is estimated at around 15 percent of GDP in 2020, using IMF’s Investment and Capital Stock Dataset and information provided by the authorities.


Based on Cambodia Public Debt Statistical Bulletin (see Table 13 “Old Debt Under Negotiation”). Data reflects principal amounts, i.e., excluding any accumulated interest. The arrears relate to obligations made by the government in the early 1970s, which have been refuted by subsequent governments. The issue is still before the Paris Club. As these arrears continue to be disputed, they do not trigger a determination of an ‘in debt distress’ risk rating.


The authorities drafted the preliminary “Policy Framework of Development on the Government Securities” in September 2021, which aimed at (i) the first securities issuance in 2022, (ii) setting principles for the usage of fund from government securities, and (iii) appointing NBC as a fiscal agent and arranging the issuance operations.


For example, a central PPP unit had been established under the Ministry of Economy and Finance, and a new law on PPP is expected to be approved and implemented in 2021.


According to CEIC data, the total external debt amounted to US$17.7 billion in 2020, and private debt can be estimated at about US$8.9 billion after deducting PPG external debt.


The measures included (i) improving liquidity in the banking system through lowering required reserves and cutting interest rates, (ii) facilitating bank loan restructuring, (iii) redirecting resources to healthcare, (iv) loans and guarantees to affected small businesses, (v) tax breaks, wage subsidies, and support for firms retaining workers, and (vi) cash transfers to vulnerable households.


Gross reserves stood at 84.7 percent of GDP in 2020 and are projected to rise to around 90 percent of GDP (about US$ 45 billion) at the end of the decade.


The analysis estimates that the government deposit decreases to around 13 percent of GDP by 2026 due to a drawdown to meet the financing gap and deceleration of government savings accumulation.


However, the amount of external debt disbursement in 2021 (around 3.3 percent of GDP) is expected to be lower than previously forecast, on the back of a large initial drawdown from government deposits (about US$ 1 billion in 2021) in response to heightened financing needs in the post-COVID phase.


Given the lack of bond market infrastructure and expected drawdowns of the government deposit by 2023, the analysis assumes a more gradual path of the government bond issuance than implied by the authorities’ preliminary plan (from 2022).


The revised LIC-DSF determines the debt sustainability thresholds by calculating a Cl. The Cl is a function of the World Bank’s Country Policy and Institutional Assessment (CPIA) score, international reserves, remittances, individual country and global economic growth. The calculation is based on 10-year averages of the variables, across 5 years of historical data and 5 years of projection.


See World Bank (2018), “Cambodia; Sustaining Strong Growth for the Benefit of AH”.


The 2020 data lowered the 10-year average exports growth by 2.4 percent while increasing one standard deviation by 3 percent. Accordingly, the magnitude of the shock (historical average minus one standard deviation) rose by 5.4 percent due to 2020 exports.


Given that the standard deviation based on 2011–2019 data (6.8 percent) is around 70 percent of the 10-year (2011–2020) based standard deviation (9.8 percent).

Cambodia: 2021 Article IV Consultation-Press Release; and Staff Report
Author: International Monetary Fund. Asia and Pacific Dept