Concern Over Cambodia’s Climbing Debt

NGO workers have voiced concerns about Cambodia’s mounting debt, claiming it is the public who foot the bill
Ministry of Economy and Finance, October 26, 2022. Kiripost/Siv Channa
Ministry of Economy and Finance, October 26, 2022. Kiripost/Siv Channa

The program manager of an NGO has raised concerns about the government's revenue spending management, claiming national debt remains huge and has not been repaid as new debt continues to climb

Mar Sophal, of NGO FORUM on Cambodia, said this is a cause for worry, and the obligation should be reconsidered for the future. He added that regardless of the new debt, there should be a small limited amount owed by the preceding generation that must be paid back.

He said public expenditure should also be examined due to the number of civil servants, adding efficiency still needs to be improved.

Pech Pisey, Director of Transparency International Cambodia, said that to manage national budgets properly, the government should monitor and review cash flow expenditures as much as possible.

He added that there are many public officials, yet work is often unproductive. He recommended that the government limit the number of staff or use resources more effectively.

“The government must exercise caution in making decisions on borrowing from foreign governments and involve the legislative body in consultations to ensure the loans do not compromise the country's sovereignty and prevent the country from falling into potential debt trap diplomacy, as seen in cases like Sri Lanka and Laos PDR,” he said.

He noted that government management of public debt is essential to avoid dangerous structures and strategies, and minimize risks in sovereign debt management. Transparency, accountability, and the integrity of public institutions responsible for public debt management are critical to reducing risks and maintaining public trust, he noted.

Pisey said independent external auditors should ensure the integrity of debt management. As a standard procedure, external auditors should audit debt management activities annually and present the findings and recommendations to relevant oversight institutions. Key debt management documents should also be accessible to the public.

He added that the government, acting on behalf of citizens, makes crucial decisions on foreign loans. Therefore, it has a responsibility to citizens to be accountable for managing public debt and avoiding any potential debt crisis.

With regard to the debt, it is citizens who ultimately repay the loans, regardless of government decision-making. To ensure public trust and accountability, the government must comply with certain requirements, including consulting key stakeholders before taking loans, establishing an accountability mechanism to prevent and address corruption, and increasing transparency by making key public debt management and expenditure documents publicly available.

Nget Chou, chairman of the board of directors for F.I Vision Capital, said that of the government’s total public expenditure of roughly $10 billion, only $2 billion a year is required to fulfil. In the context of economic expansion, he added that income from taxes and other collections are slated to soar, sustaining a sufficient national budget that will eventually enable the government to keep debt under control.

While other nations across the globe compare their debt to Gross Domestic Product (GDP) ratios that are high, such as 100 percent of GDP, such as Japan, Italy and Greece, Cambodia has a low-risk debt ratio of GDP.

“Even if the GDP debt ratio for new loans is not as high as it has ever been in comparison to other countries, emerging nations still want funding to build infrastructure that will boost economies,” Chou said.

He added that fast growth requires financial assistance, which should be used to develop important and priorities infrastructure. This will allow for the quicker growth of positive debts, meaning debt from foreign loans is not negative. However, he added it is key not to take on excessive debt.

South Korea has foreign loans and lends money to increase investment, create employment, and invest in infrastructure to strengthen the economy. Particularly, the Philippines has created and enhanced a large number of human resources, worked abroad, and supported the national economy by loans.

For 2023, Cambodia has planned to borrow 1.7 billion SDR, an international reserve asset, from development partners, an increase of 100 million SDR compared to the 2022 budget. The loan will not lead to a debt trap for Cambodia and its public debt status remains sustainable and low-risk, as shown by its major debt indicators ratios, according to the Ministry of Economy and Finance.

According to the International Monetary Fund (IMF), Cambodia recorded government debt to GDP of 36.80 percent of the country's GDP in 2022.

Government debt to GDP rose by 36.30 percent in the previous year, an increase of 0.5 percent compared to 2022. Generally, government debt as a percent of GDP is used by investors to measure a country's ability to make future payments of its debt, therefore affecting the country's borrowing costs and government bond yields.

According to the IMF data, Cambodia had a debt ratio of 28.6 percent in 2019, increasing to 36.3 percent in 2021. The lowest debt ratio is 27 percent and the highest is 43.10 percent of GDP.

According to the budget for the 2023 fiscal year, Cambodia's entire state debt by the end of 2022 was $9.9 billion, with China owning 40 percent and the Asia Development Bank (ADB) owning 21 percent.

Cambodia owes the World Bank nine percent of its debt and it holds 22 percent of other bilateral debt and two percent of international debt.