An
International Monetary Fund and World Bank report has questioned Cambodia’s
ability to deal with future financial crises if government borrowing increases.
While the report indicated that Cambodia was
at low risk for severe debt problems, it highlighted the need for effective
management of new debt and rapidly growing build-operate-transfer, or BOT,
projects, which include the hydropower dams and road reconstruction conducted
by Chinese companies.
This month alone, the Kingdom courted more
than US$800 million in Chinese loans for infrastructure projects.
In two different speeches in February, Prime
Minister Hun Sen said Cambodia would borrow $302 million from China for roads
and irrigation systems, and would apply for an additional $500 million for
similar construction.
The joint report estimated Cambodia’s debt to
countries at about 28 per cent of gross domestic product for both 2011 and
2012.
Although debt levels were projected to
increase from about $4 billion to $5.6 billion over the next four years, its
share of GDP will decrease by about a percentage point to near 27 per cent.
Threatening to increase this otherwise
sustainable share of GDP were the potential liabilities of BOT projects, should
investment in the large-scale works be lost.
An additional 5 per cent of GDP would be added
to the debt stock if investments in 10 per cent of the projects were lost,
according to the report.
“It comes down to the quality of the
infrastructure. If Cambodia gets a loan to build a road, and substandard
materials are used, it then has to be rebuilt in a year’s time,” former ANZ
Royal CEO Stephen Higgins told the Post this month.
The result is outstanding debt and further
building costs.
“And there have been a couple of examples
where the work hasn’t been up to the quality it should be,” he said, although
he declined to name the parties responsible.
Liabilities posed by BOT projects do not always
surface in the standard measures of an economy’s health, Olaf
Unteroberdoerster, deputy division chief of the IMF’s Asia and Pacific
Department, told reporters during a press conference in December.
Unlike public debt, the projects are most
often contracted to private companies and are not reflected in the national
budget, he said.
“The issue here is, because these projects are
undertaken by private-sector partners, these projects don’t directly go through
the budget and affect the fiscal indicators … We do not necessarily have the
full picture,” Unteroberdoerster said at the time.
Few statistics or studies have been conducted
on China’s BOT work in Cambodia, Chheang Vannarith, executive director of the
Cambodian Institute for Cooperation and Peace, said yesterday.
The lack of information has left the public in
the dark on the costs and liabilities of the projects.
“Transparency is the key issue here,” he said.
China holds the largest bilateral loans to
Cambodia, at 66 per cent at the end of 2010, the joint report showed.
In October, Cambodia owed more than $730
million to China at interest rates substantially higher than that owed to other
sovereign creditors, according to information compiled by the NGO Forum on
Cambodia.
Cambodia has proven its ability to weather
financial crises, and the country can expect continued growth for the next few
years, National Bank of Cambodia director general and spokeswoman Nguon Sokha
said yesterday.
Ongoing diversification of the country’s
economy has lessened its susceptibility to external shock, she said, adding
that the risks mentioned in the report were all contingent on a future
financial crisis.
“We are confident we will continue to grow in
the short term,” Nguon Sokha said.
Don Weinland
The Phnom Penh Post
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