Cambodia’s Debt: Prudent to Look for Diversified Sources
Photo Credit: Monipag
By Sovinda Po and Veasna Var

Cambodia’s Debt: Prudent to Look for Diversified Sources

May. 22, 2017  |     |  0 comments

Recently, Cambodia’s Ministry of Finance and Economy released its Cambodia Public Debt Statistical Bulletin, adumbrating the country’s debt situation. According to the bulletin, the concessional loan agreements Cambodia signed with its development partners — both bilateral and multilateral — added almost USD 8.3 billion from 1993 until the end of 2016. The report also notes that the bilateral loans of USD 5.3 billion consist of USD 3.59 billion from China, USD 900 million from Japan, USD 519 million from South Korea, USD 124 million from France, USD 86 million from Thailand, USD 75 million from India, USD 44.5 million from Vietnam, and USD 7.85 million from Malaysia. The Cambodian national debt is about one third of the total GDP. Notably, 86.6 percent of this aggregate loan goes towards infrastructure building.

In addition, the bulletin claimed, “Based on international best practice, therefore, Cambodia’s public debt remains sustainable and low risk of debt distress.” In tandem, as quoted in the report, Aun Pornmonirath, the Minister of Finance and Economy, stressed that the loans had to be for the most important sector fostering sustainable growth and augmenting productivity. He elaborated further that the loans had to enmesh transparency, accountability, efficiency, and high effectiveness. To note, the Royal Government of Cambodia has disbursed USD 546 million from its development partners — of which 69.85 percent, or USD 381.89 million, comes from bilateral partners and 30.15 percent, or USD 164.86 million, comes from multilateral partners.

The minister’s statement has been echoed by some Cambodian scholars, who comment that the Cambodian debt situation is manageable. Chan Sophal, director of the Centre for Policy Studies, states that “the level of debt currently is not a concern if compared to other countries in similar stages of development. With increasing revenue, mobilization and exports, Cambodia’s capacity to service debt has also increased significantly.” While encouraging Cambodia to borrow more loans which are effective and efficient to fuel future growth and development, he added that “Cambodia still needs a lot of more infrastructure in priority areas such as reservoirs and irrigation systems, roads and bridges.”

However, even with all the positive perceptions in place that the debt situation is not prone to turn the country backward both economically and politically, one should not fully subscribe to these notions without taking proactive measures to tackle the unpredictable backlash which could potentially derive from debt. One of the precarious issues swirling around the Cambodian debt situation is the substantial amount of debt — about USD 3.59 billion — that Cambodia owes to China, making it the largest creditor, nearly four times bigger in size than Japan.

Cambodia should consider borrowing from multilateral donors like the World Bank, the IMF, and the ADB.

When it comes to dealing with the Chinese loans, Cambodia should be very precautious and take other countries’ experiences into critical consideration before further borrowing from China. The perfect example is the Sri Lankan case. Given the slow economic growth and the massive pile of unresolved debt, the Sri Lankan government decided to convert state property into equity to pay off its debt owed to China — examples of which include the Hambantota port with a 99-year lease given to China, and Mattala Airport granted to Chinese firms to take control because of its expensive operation. Looking further afield, Venezuela has been struggling to service its debt to China and the way it has done so is to sell its oil to China even though the government desperately needs cash to run the country.

In the case of Cambodia, as many scholars have warned, China’s influence has grown as its loans have increased, leading the Cambodian government to make strategic decisions in favor of China. In this respect, some recent decisions the Cambodian government has made are seen as having been influenced by Chinese loans and especially growing Chinese aid in the kingdom. These include the blocking of the joint communiqué in the 2012 ASEAN Summit when Cambodia was the chairman of ASEAN Summit Meeting; the blocking of any reference to the South China Sea disputes in the joint communiqué of the 2016 ASEAN Summit; the postponement of the Angkor Sentinel, a joint military exercise with the US; the cancellation of the US Seabees aid program, known as the US Naval Mobile Construction Battalion; and the banning the Taiwanese flag from being hoisted in the Cambodia.

The prudent option for the Cambodian government to pursue is to diversify its sources of funding. While the interest rate of Chinese loans is high, Cambodia should consider borrowing from multilateral donors like the World Bank, the IMF, and the ADB. While the loans from these international institutions are attached with conditions like establishing the rule of law, accountability, and transparency; and that they have long waiting times for approval; they are worth waiting and going for. This is because the conditions attached with these loans are very helpful for combating the rampant corruption in the kingdom, and will give a new hope for the Cambodian people at the grassroots level that they will enjoy the fruits of these loans. Furthermore, the conditions also enable the people and non-governmental organizations (NGOs) to keep an eye on how these loans are being utilized, and consequently to provide feedback to the government on how effectively and efficiently these loans are being used. Such actions will contribute towards the country’s development.

In addition, there are several domestic issues that Cambodia should tackle to gain greater international support. These issues include the elimination of corruption, cronyism, and forced evictions; the protection of human rights; and free and fair elections. Moreover, Cambodia’s foreign policy has to be seen as neutral because it is important for Cambodia to balance the growing Chinese influence in the kingdom. The Cambodian government should be aware that the US has rejected its request to cancel its war debt of around USD 500 million — which most scholars have labelled as “dirty” and “blood stained” — because the US sees Cambodia’s foreign policy as not being independent. If Cambodia’s foreign policy is seen as independent and neutral, the US is likely to cancel the debt — this USD 500 million can help Cambodia further fuel its development.

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