Publié sur janvier 5, 2022

The Rapidly Emerging Pathways for Government Debt Instruments in Cambodia

Since the outset of the global pandemic, the Cambodian economy, similar to some of its neighbors, has suffered considerably. Like other fast growing ASEAN nations, an export-oriented growth model that was reliant on several narrow value chains (such as tourism, construction, garments, etc) had been the mainstay of the country's 7 percent growth for the last decade. As the pandemic took hold globally, many of the value chains stalled, leading to the seizure of the domestic economy, resulting in a 3.1 percent contraction of GDP.

The Cambodian Ministry of Economy and Finance coined the phrase “…reducing foreign borrowing whilst strengthening local borrowing” as the rationale to issue government debt, which gained a new impetus as a policy directive in their post COVID recovery strategy.”

Observing regional trends and opportunities since last year, there are emerging reformations across the region on responding to the COVID-19 pandemic with new debt financing solutions. This evolutionary approach reflects the absolute realization of sovereign states' abilities to take on board responsibility and accountability to steer a new course of development through proactive and rapid action within the spheres of national public policy and legislation.

Emerging from the Immediate shock of the pandemic, Cambodian policy makers have been formulating and enacting a broad set of new legislations and socio-economic policies that are being implemented with minimal delay, ushering in what may be considered as a new era of highly responsive socio-economic governance. The speed at which solutions that have included a mix of new policy regulatory and fiscal responses to COVID-19 has been what can be considered as being phenomenal.  

Is Cambodia gearing up for Debt Finance Solutions?

The Royal Government of Cambodia (RGC) has, since 2018, been considering the debt financing instrument as a mechanism to further spur growth and simultaneously reduce external debts (Khmer Times, 01 2018). United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) underlined the need to address debt risks In the aftermath of the COVID-19 pandemic, by placing emphasis on cross-regional approach on financing the rising fiscal deficit and tackle debt sustainability concerns [1]. 

The Asian Development Bank (ADB) indicated that the time for the issuance of local currency bonds was fast approaching in the region [2]. The ADB report suggests that “the development of a new debt instrument market will help reduce companies’ reliance on bank credit while offering new channels for long-term financial intermediation. All these statements certainly raise attention in the post covid recovery efforts of the Royal Government that pushes for economic diversification through public and private sector initiatives. For example, a national credit guarantee facility supported by the United Nations joint programme has been established and capitalized by the Royal Government with the first guarantees being provided to domestic banks totaling US$ 7 million within a nine-month period from the passing of the Sub-Decree establishing the Credit Guarantee Corporation of Cambodia (CGCC).  It demonstrates how the United Nations In Cambodia was able to capitalize on emerging needs for financing the COVID-19 recovery efforts and provide timely support, with the support of the COVID-19 Fund.   

In December 2021, the Government Securities Law was adopted, that allows the RGC to issue debt securities either domestically or in external markets and in any currency denomination. This policy move coincides with the update of the securities exchange rules of business, opening the ways for a much more active financial sector and debt financing for the public and private sectors.

UNCDF within the Integrated National Financing Framework (INFF) has undertaken an analysis of the region’s Capital Market Appetites for Cambodian government debt and debt financing of projects. As Cambodia boasts one of the better and prudently managed public sectors in the region, the country, even after considering the impact of COVID-19 has a fair balanced budget and a quality reserve stock of foreign currency. Sound fiscal and macroeconomic management provides a set of robust indicators that indicate the country remains at low risk of external debt stress, which in turn is seen by the regions' capital markets as being highly favorable, driving the positive change of the emergence of Cambodian sovereign bonds.  

The Joint SDG Fund is supporting Implementation of the Integrated National Financing Framework (INFF) In Cambodia, led by UNDP and UNCDF. In partnership with UNDESA and National Bank of Cambodia (NBC), UNDP is completing a market sounding study on bond issuance and providing support on issuance plan of the first Government bond that is slated to be launched as a local currency bond on the Cambodian Stock Exchange (CSX) in 2022.  Simultaneously, UNCDF is entering into an agreement with the Royal Government, building on the work undertaken within the framework of INFF, to provide advisory, institutional capacity development and to facilitate consultations with credit ratings agencies as the RGC seeks its first sovereign rating, an essential ingredient that will open new channels of SDG finance.  



[2] ADB 2020 publication “Asia Development Outlook”