Cambodia: Staff Report for the 2022 Article IV Consultation—Debt Sustainability Analysis
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International Monetary Fund. Asia and Pacific Dept
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Publication Date:
18 Dec 2022
eISBN:
9798400228520
Language:
English
Keywords:
private sector debt growth; debt stock; PPG debt; dynamics equation; creating flow; Debt sustainability analysis; Debt sustainability; Global; Europe
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CAMBODIA

Abstract

CAMBODIA

Title Page

CAMBODIA

STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS

November 12, 2022

Approved By

Anne-Marie Gulde Wolf and Andrea Schaechter (IMF), and Marcello Estevão and Hassan Zaman (IDA).

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

Cambodia: Joint Bank-Fund Debt Sustainability Analysis

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Cambodia remains at low risk of external and overall debt distress under the Low-Income Countries Debt Sustainability Framework (LIC-DSF).1 The current debt-carrying capacity2 remains consistent with a medium classification. The baseline scenario assumes steady economic recovery, largely driven by exports of tourism services and, to a lesser extent, manufacturing goods, notwithstanding pressures on external demand in the near term. The total PPG debt-to-GDP ratio is projected to rise by around 4 percentage points during the next decade. The present value of the external debt-to-GDP ratio breaches its threshold in the exports stress test, which would imply a moderate risk rating. However, the breaches are small, short-lived (only four periods, the last barely), and driven by the exceptional volatility of exports in 2020 that has increased the sample volatility for the standardized shock. Moreover, other debt burden indicators are projected to remain well below their thresholds under the baseline and the shock scenarios. Given the expectation of a steady and solid recovery, and because the breaches for one of the tests are small, temporary, and driven by the exceptional volatility of exports in 2020, judgment has been applied that the external risk of debt distress remains low. Nonetheless, the analysis shows that debt sustainability remains vulnerable to shocks in exports and growth. These findings reinforce the importance of implementing reforms to increase the economy’s resilience to external shocks and to facilitate export and economic diversification. Efforts to mobilize fiscal revenue, strengthen the Public Investment Management Framework, and further enhance monitoring of Public-Private partnerships (PPP) and financial sector risks are needed to ensure debt sustainability over the medium term.

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 borrowing, and SOEs do not contract non-guaranteed 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.

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 debt is 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 to 0%.

2. The DSA includes contingent liability stress tests for PPPs and a financial market shock (text table 2).

  • The shock scenario for the SOE debt is set to 0 percent of GDP because, by law, SOEs do not engage in non-guaranteed external borrowing, and guarantees to SOEs are included in public debt. According to the IMF’s Investment and Capital Stock Dataset and information provided by the authorities, the capital stock of PPPs is estimated at 16.5 percent of GDP as end of 2021, corresponding to a contingent liability of 5.8 percent of GDP.

  • The standard financial market shock is intensified in this DSA. Specifically, the financial market shock assumes contingent liabilities from financial markets to be 10 percent of GDP, twice the default value of 5 percent of GDP. This change is included to account for the risks emerging from private sector debt that has grown steadily as a share of nominal GDP. Around 7 percent of the total stock of outstanding credit has been restructured (amounting to 13 percent of GDP; given the current stock of restructured loans, further losses may yet have to be recognized by banks.

Background on Debt

3. Cambodia’s external public debt amounted to around US$ 9.5 billion (36 percent of GDP) by end 2021. The external debt-to-GDP ratio increased slightly in 2021, by 1.5 percentage points, following a more sizable increase in 2020 and given slack in the economy and extended fiscal responses to the COVID-19 pandemic (text figure 1). Bilateral debt continues to account for around 70 percent of total external debt, with more than half owed to China (text table 3).3 External debt has been accrued on concessional terms, with a present value of around 24 percent of GDP at end-2021. The debt stock includes legacy arrears to the Russian Federation and the United States of about 2.4 percent of GDP. As the status of negotiations of these arrears remains unchanged compared to the previous DSA, this analysis assumes no debt restructuring.4 In addition, as the arrears reflect diplomatic disagreements, they do not trigger an “in debt distress” rating.

Text Figure 1.
Text Figure 1.

External Public Debt (in percent of GDP)

Citation: IMF Staff Country Reports 2022, 371; 10.5089/9798400228520.002.A002

Sources: Cambodian authorities; and IMF estimates.
Text Table 3.

External Public Debt (2021)

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Sources: Cambodia authorities; and IMF estimates.

4. 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 by end 2019) had been fully repaid in early 2020. To support financial market development, the authorities started to issue local-currency government bonds in 2022,5 while strengthening market infrastructure to manage issuance, registration, and trading of domestic securities.

5. PPPs are assumed to continue to play an important role in financing investment projects, in expectation of diminishing access to concessional financing and slow progress in developing domestic debt markets. The PPP stock more than doubled between 2010 and 2015, and was estimated at around 16.5 percent of GDP by end-2021. The authorities have been taking welcome steps to strengthen the PPP framework in line with past Fund recommendations, including a system for risk assessment and the necessary legal, regulatory, and institutional arrangement for PPP management.6

6. Private external debts in Cambodia are excluded from this analysis. Staff estimates private external debt at about 39 percent of GDP in 2021, broadly unchanged since last year.7 Risks emerging from excessive external borrowing by the private sector could increase the government’s exposure to contingent liabilities.

Background on Macro Forecasts

7. The Cambodian economy was hit hard by the COVID-19 pandemic, but damage was mitigated by policy measures. Cambodia was hit first by external shocks, such as the loss of tourism from early 2020 and a collapse in demand for manufactured goods, and then community spread of the virus in in 2021. However, large fiscal buffers provided room for increased spending on health care, employment support, and cash transfers to households; and substantial foreign exchange reserves kept the exchange rate from coming under significant pressure.

8. From the second half of 2021, the Cambodian economy showed stronger signs of recovery from COVID-19 pandemic stresses. Growth was driven mainly by exports of goods, while growth in construction and real estate—large contributors to growth before the crisis—was relatively weak.

9. Credit growth has continued to be strong, and private sector indebtedness is now very high.

  • Credit growth averaged around 24 percent y/y from 2013 to 2019 and slowed only mildly during the pandemic. Private sector debt growth has consistently outstripped growth in nominal GDP; outstanding private sector credit reached 170 percent of GDP by end 2021, a ratio above those of other countries in the region, suggesting that the level cannot be safely dismissed as driven by financial deepening. Moreover, these numbers do not account for credit issued by unsupervised lenders (such as real estate developers and pawn shops), which could be sizeable. Restructured loans in June 2022 are estimated to be about 7 percent of lending (13 percent of GDP), and non-performing loans have risen to 2.8 percent of outstanding loans (nearly 4½ percent of GDP).

  • Credit growth has not been driven by only one or two sectors of the economy (e.g. overheating in real estate and construction) but has been strong across all sectors, with retail and wholesale trade accounting for the largest share of total debt outstanding, followed by commercial real estate and construction.8 Roughly two thirds of loans are corporate. A substantial portion of loans classified as to households might be personal borrowing for small businesses. The number of loans has increased but the number of borrowers has increased at a slower pace, suggesting that some borrowers are becoming more leveraged.

  • Credit growth was associated in 2020 and 2021 with growth in broad money that, although lower than that in 2019, was still stronger than growth in nominal GDP, driven in part by the expansion in the central bank’s balance sheet as the government drew down on deposits at the central bank to finance fiscal support during the pandemic. It was also supported by the steady inflow of FX deposits in commercial banks,9 and a steady increase in the loan-to-deposit ratio.

Text Figure 2.
Text Figure 2.

Contribution to Private Credit Growth

(In percent)

Citation: IMF Staff Country Reports 2022, 371; 10.5089/9798400228520.002.A002

Source: CambodJa authorities

10. There are signs of damage from the crisis. Lack of employment data make it difficult to assess scarring effects in the labor market. But test scores indicate that lost schooling hours during the COVID-19 pandemic has damaged human capital attainment. Approvals of large (foreign-financed) projects remain lower than before the crisis and falling lease yields indicate excess supply of commercial property; business registrations appear to be recovering, but liquidations are have been increasing.

11. 2022 has brought new stresses:

  • China is a significant source of foreign investment, particularly in real estate, and the major supplier of textiles to the garments industry. The slowdown in China and further lockdowns therefore have the potential to slow the Cambodian economy. Continued restrictions on movement mean that a quick return to pre-crisis tourist numbers is unlikely, given the importance of Chinese tourists to Cambodia.

  • Although Cambodia has limited export and financial exposure to Ukraine and Russia, Europe is a major market for its manufactures.

  • The tightening of monetary conditions in advanced economies will have mostly indirect effects, through external demand. However, although the financial system is mostly reliant on deposit funding, demand for wholesale funding by some institutions has been increasing. The plans to increase issuance of sovereign debt will face a more competitive environment for funding.

12. These new stresses have been associated with a surge in inflation. Cambodia’s reliance on imported fuel is higher than many other regional comparators; the recent increases in global fuel and fertilizer prices have resulted in historically high inflation rates. Headline inflation hit 7.8 percent y/y in June 2022 but has subsequently fallen to 4.9 percent y/y in August. The contribution of core items has increased, but remains muted so far.

13. The authorities’ have largely continued with crisis policy responses, such as loans and guarantees, tax breaks, and wage subsidies and retraining. The authorities plan to fold the system of cash transfers introduced in 2020 into a broader social protection program. The National Bank of Cambodia (NBC) has maintained reserve requirements and the capital conservation buffer at current levels but has issued instructions for the end of loan forbearance.

14. The recovery is assumed to continue in the baseline projections. The Cambodian economy is projected to grow at 5 percent in 2022, nearly 5½ percent in 2023, reflecting external pressures and some drag from real estate and construction. Growth is expected to increase to just over 6 percent in 2024, and to gradually return to trend growth rates of around 6½ percent over the medium term, in line with projections in the previous DSA (text table 4). The trend growth rate is somewhat below pre-COVID-19 rates of 7 to 7½ percent, but comparable with those seen in neighboring countries at similar stages of development, and reflects a judgment that, although the COVID-19 crisis will have some lingering effects, the authorities’ ongoing reforms (e.g. the new investment law) and new trade agreements (specifically, the RCEP and an FTA with China) will support growth over the medium term.

Text Table 4.

Baseline Macroeconomic Assumptions (2021–2030)

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Sources: staff estimates and projections

  • Growth and inflation. The baseline outlook is for stronger growth, notwithstanding external pressures and risks. Growth is supported by relatively moderate but nonetheless solid goods exports, continued recovery of tourism, and ongoing policy support. It is dampened by the impact of inflation on real disposal income and the slowdowns in external demand growth. Inflation is expected to peak this year, be lower in 2023, and then decline further, assuming it remains mostly confined to imported goods.

  • External sector. The current account deficit is expected to narrow in 2022 as energy prices and gold imports recede. Over the medium term, the current account deficit is estimated to narrow further as the tourism sector normalizes. Given the sizable current account deficit was partially offset by financial inflows, gross reserves decreased slightly in 2021, to US$ 21 billion. They are expected to remain at around 8 months of projected imports over the projection horizon.

  • Fiscal sector. Staff projects the fiscal deficit to narrow to 4 percent of GDP in 2022, from 7 percent in 2021, on the back of broad-based tax revenue rebound and lower spending, increase somewhat in 2023, and to decline steadily thereafter. Staff expects that fiscal support will be contained in 2022 because of winding back emergency COVID-19 healthcare spending. In 2023, current spending is expected to increase slightly, reflecting planned wage increases and some decompression of government operations (e.g., travel), and social protection and capital spending levels are to be maintained. The overall deficit is then expected to narrow and to stabilize at around 3 percent of GDP over the long run, consistent with debt stabilizing at 40 percent of GDP.

15. Uncertainty around the outlook is particularly high; risks are tilted to the downside.

  • Credit: The level of private debt raises concerns about the drag on the economy if borrowers struggle to meet repayments and large amounts of non-interest-paying assets in banks’ balance sheets.

  • Conditions in key large economies: Cambodia is highly export oriented. Further lockdowns in China could lead Cambodian manufacturers to suspend production for want of supplies, while a further slowdown could slow inward investment. Demand in advanced countries is vulnerable to tightening financial conditions; vulnerabilities in Europe are accentuated by energy supply risks.

  • Inflation: Global food and fuel price inflation could prove to be more persistent, and inflation expectations could de-anchor in advanced countries, incurring further and more rapid tightening of monetary conditions and borrowing costs, and lower growth in advanced economies. Imported food and fuel price increases could generate second-round effects in domestic inflation that would damage aggregate demand, which would be accentuated if the currency depreciated, given extensive dollarization.

Over the medium term, the economy faces ongoing risks from a resurgence of COVID-19 or other epidemics, and the country is especially vulnerable to natural disasters arising from drought, floods, and tropical storms.

16. Financing assumptions reflect growing domestic debt issuance, while external debt remains the dominant source. The level of external borrowing is set at around 3.5–4 percent of GDP over the medium term, before declining to 2.8 percent of GDP by 2030 as the fiscal deficit narrows and domestic financing increases. For the purposes of this DSA, new external debt is expected to remain largely concessional, with an average maturity of 24 years and a nominal interest rate of less than or equal to 2 percent. Consistent with the authorities’ plans, the analysis assumes that the authorities start to issue domestic debt from the second half of 2022 onward; the annual amount issued increases gradually, from 0.4 percent of GDP in 2022 to about 2 percent of GDP in 2042. Demand for domestic securities is supported by the growing insurance and pension industry.10 Outstanding domestic PPG debt is therefore estimated to reach around 10 percent of GDP by 2042, accounting for about 25 percent of the total outstanding PPG debt.

17. Macroeconomic and fiscal assumptions are broadly reasonable, although subject to uncertainty, especially about external balances (figure 4).

  • The projected growth path is higher than suggested by standard fiscal multipliers, mainly reflecting the recovery from the COVID-19 shock and growth convergence. The contribution of public capital to GDP growth in the baseline scenario is broadly in line with historical values. The primary deficit-to-GDP ratio improves by 3.5 percentage points over the next three years in the baseline projection—although this adjustment falls in the top quartile of the distribution for LICs, it is feasible, as the 2021 fiscal deficit was exceptionally large due to temporary measures taken to address the COVID-19 pandemic.

  • The current account deficit is assumed to steadily shrink in the baseline projection. The services balance is assumed to recover because of growth in tourism and other exports. Crucially, the surge in gold imports seen in 2021 is assumed to be temporary. The deficit remains mostly financed in the baseline, as in previous years—as a result, reserves are expected to remain high and stable, at about 8 months of imports throughout the projection period. There is high uncertainty about the prospects for gold imports and financing of the deficit. A large component of the inflows that have financed the current account deficits has been from unidentified other short-term inflows, rather than FDI (as reflected in the large residuals identified in Table 1).11 The large share of unidentified inflows in turn reflects measurement issues in the BoP data, which complicate the assessment of external sustainability.

Country Classification and Determination of Scenario Stress Tests

18. Cambodia’s debt-carrying capacity is classified as medium, same as that in the previous DSA. Cambodia’s composite indicator (CI)12 score based on the 2022 April WEO and 2020 CPIA data corresponds to a medium rating. There has not been further deterioration of debt-carrying capacity since the 2021 DSA (text tables 5 and 6).

Text Table 5.

Cambodia’s CI Index

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Text Table 6.

Debt Burden Thresholds

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19. Stress tests include additional tailored stress tests. 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. Hence, in addition to the six standardized stress tests, the analysis includes a natural disaster scenario, calibrated assuming a significant mitigation cost of 10 percent of GDP (around US$ 2.6 billion) and a fall in GDP growth and exports using interaction coefficients of 1.5 and 3.5, respectively. The contingent liability stress test is based on the quantification of potential risks stemming from PPPs (5.8 percent of GDP) and financial markets (10 percent of GDP).

External and Public Debt Sustainability

20. The external debt indicators show that Cambodia’s risk of debt distress remains low. External debt is projected to increase marginally by 2025, from 36 percent of GDP in 2022, falling to 33 percent by 2032 and 30 percent by 2042 (table 1). In present value terms, the external debt-to-GDP ratio also falls, from 24 percent to 21 percent over the same timeframe (table 1). The large share of concessional loans means the debt service-to-exports and debt service-to-revenue ratios remain far below their indicative benchmarks throughout the forecast horizon.

21. Stress tests suggests that Cambodia’s external debt is vulnerable to shocks to exports. Compared to shocks to real growth, the fiscal balance, exchange rate depreciation, and external flows, the impact of an exports shock is the most severe—the present value of the external debt-to-GDP ratio13 increases sharply, from 24 percent of GDP in 2022 to just over the 40 percent threshold of GDP14, and gradually falls back to about 35 percent over the medium term (figure 1).15

22. Public debt broadly follows external debt. Under the baseline, the total PPG debt level increases from 36 percent of GDP in 2021 to 41 percent of GDP in 2032, with an increased domestic financing mix. The present value of the total debt-to-GDP ratio is estimated to reach 30 percent in 2032, but remains 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 debt16 (figure 2). The stress tests indicate that PPG debt is vulnerable to shocks to growth: under the growth shock scenario, the present value of the total debt-to-GDP ratio rises to 53 percent by 2032, but does not breach the indicative threshold of 55 percent. The contingent liability stress test is the most extreme shock for the debt service-to-revenue ratio, which results in a noticeable spike in 2025 (figure 2), as the stress from the financial market (10 percent of GDP) results in temporary borrowing needs, increasing debt servicing.

Risk Rating and Vulnerabilities

23. Cambodia overall remains at low risk of both external and overall debt distress. Public debt is projected to rise by around 4 percentage points during the next decade. The present value of the external debt-to-GDP ratio breaches its threshold in the exports stress test, which would imply a moderate risk rating. However, the breaches are small, short-lived (only four periods, the last barely) and driven by the exceptional volatility of exports through the COVID-19 pandemic that has increased the sample volatility for the standardized shock. Moreover, other debt burden indicators are projected to remain well below their thresholds under the baseline and the shock scenarios. Against the expectation of a steady and solid recovery, coupled with the small and temporary nature of the breaches, judgment has therefore been applied that the external risk of debt distress remains low. However, the analysis shows that debt sustainability remains vulnerable to shocks in exports and growth.

24. Potential vulnerabilities to growth and external shocks highlight the importance of maintaining fiscal discipline and public debt management while promoting long-term growth. In light of heightened global risks, targeted and managed fiscal measures are important to safeguard near-term recovery. This reinforces the need to preserve macroeconomic stability, diversify the economy and exports to increase resilience to external shocks, and improve spending efficiency and the successful implementation of the revenue mobilization strategy. Further efforts to implement sound public investment management and PPP frameworks and strengthen analysis of PPP risks are needed. Finally, the authorities should focus on closing data gaps, in particular regarding data on external private debt and the PPP stock.

Figure 1.
Figure 1.

Cambodia: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2022–2032

Citation: IMF Staff Country Reports 2022, 371; 10.5089/9798400228520.002.A002

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 2032. 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.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Cambodia: Indicators of Public Debt Under Alternative Scenarios, 2022–2032

Citation: IMF Staff Country Reports 2022, 371; 10.5089/9798400228520.002.A002

Sources: Country authorities; and staff estimates and projections1/ The most extreme stress test is the test that yields the highest ratio in or before 2032. 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 2022, 371; 10.5089/9798400228520.002.A002

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 2022, 371; 10.5089/9798400228520.002.A002

Table 1.

Cambodia: External Debt Sustainability Framework, Baseline Scenario, 2019–2042

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r – g – ρ(1+g)]/(1+g+ρ+gρ) 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. 3/ 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. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ 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). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ 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 2.

Cambodia: Public Sector Debt Sustainability Framework, Baseline Scenario, 2019–2042 (In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, central bank, government-guaranteed debt, non-guaranteed SOE debt . Definition of external debt is Currency-based. 2/ The under lying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange tales projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ GIOSS financing need is defined as the primary deficit plus debt service plus the stock of shalt-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, 2022–2032 (in percent)

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Sources: Source: Country authorities; and staff estimates and ptojections.

A bold value indicates a breach of the threshold.

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

Includes official and private transfers and FDI.

Table 4.

Cambodia: Sensitivity Analysis for Key Indicators of Public Debt, 2022–2032

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

2

Cambodia’s Composite Indicator (CI) index, based on the April 2022 WEO update and the World Bank’s 2020 CPIA, indicates that the country’s debt-carrying capacity remains medium (2.968), the same as in the 2021 DSA (in which the CI index was 2.966).

3

According to Cambodia Public Debt Statistical Bulletin, (see Table 3 “Debt Stock”), the multilateral debt in the text Table 3 is breakdown by the Asian Development Bank as US$ 1,943 million, the World Bank as US$ 730 million, and others. (Nothing is owed to the IMF.)

4

See Cambodia Public Debt Statistical Bulletin, Table 13 (“Old Debt Under Negotiation”). The data reflect principal amounts, i.e. excluding any accumulated interest. The arrears relate to obligations made by the then-government in the early 1970s, which have been refuted by subsequent governments. There has been no progress at resolving this issue during Paris Club negotiations.

5

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 the NBC as a fiscal agent and arranging the issuance operations. In September 2022, the authorities issued a local-currency bond for the first time, floating KHR 41.7 billion (around US$ 10 million) at a 2.2 percent yield with a tenor of 1 year. The authorities plan further issuances up to US$ 300 million during the rest of 2022, including at longer maturities.

6

For example, a central PPP unit had been established under the Ministry of Economy and Finance, and a new law on PPP was enacted in November 2021.

7

According to CEIC data, the total external debt amounted to US$ 20 billion in 2021, and private debt can be estimated at about US$ 11 billion after deducting PPG external debt.

8

The growth in credit is almost entirely to the private sector—that to government was less than one percent.

9

The expansion in the central bank’s balance sheet was only partially offset by reductions in FX reserves and liquidity operations.

10

Should demand for domestic issuance be less than expected, the government could choose to further draw down domestic deposits it holds at the central bank.

11

Table 1 shows that external debt increased by only 1.5 percentage points of GDP between 2020 and 2021, despite a non-interest current account deficit of 47.1 percent of GDP. Only 13.1 percentage points were financed by net FDI inflows.

12

The revised LIC-DSF determines the debt sustainability thresholds by calculating a Composite Indicator. The CI 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.

13

The baseline scenario’s results for this ratio deviate from the historical scenario because the baseline scenario treats the large current account deficit in 2021 as temporary, albeit with some persistence.

14

The breaches are 1.81 percentage points in 2024, 1.21 in 2025, 0.63 in 2026, and 0.08 in 2027.

15

This mechanical breach of the threshold is driven by transitory factors stemming from the COVID-19 crisis: Cambodia’s exports fell by over 8 percent in 2020, substantially due to travel restrictions, compared with growth of over 15 percent y/y on average from 2011 to 2019. As a result, the standard deviation of exports used to scale the standardized shock increases significantly. Tourism remained moribund in 2021, but has bounced back with the relaxation of travel restrictions in 2022. On this basis, the large shocks to exports during 2020 and 2021 are viewed as exceptional and temporary.

16

The stress test financing parameters have been customized to reflect domestic public debt issuing conditions (footnote 6) and the current tighter financing conditions than the DSA default.

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Cover IMF Staff Country Reports
Cambodia: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cambodia
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2022: Issue 371
Publisher:
International Monetary Fund
ISBN:
9798400228520
ISSN:
1934-7685
Pages:
122
DOI:
https://doi.org/10.5089/9798400228520.002
  • <sup>Text Figure 1.</sup>
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    Text Figure 1.

    External Public Debt (in percent of GDP)

  • <sup>Text Figure 2.</sup>
    View in gallery
    Text Figure 2.

    Contribution to Private Credit Growth

    (In percent)

  • <sup>Figure 1.</sup>
    View in gallery
    Figure 1.

    Cambodia: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2022–2032

  • <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Cambodia: Indicators of Public Debt Under Alternative Scenarios, 2022–2032

  • <sup>Figure 3.</sup>
    View in gallery
    Figure 3.

    Cambodia: Drivers of Debt Dynamics – Baseline Scenario

  • <sup>Figure 4.</sup>
    View in gallery
    Figure 4.

    Cambodia: Realism tools

Text Figure 1.

External Public Debt (in percent of GDP)
Text Figure 2.

Contribution to Private Credit Growth

(In percent)
Figure 1.

Cambodia: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2022–2032
Figure 2.

Cambodia: Indicators of Public Debt Under Alternative Scenarios, 2022–2032
Figure 3.

Cambodia: Drivers of Debt Dynamics – Baseline Scenario
Figure 4.

Cambodia: Realism tools