State borrowing may spike [-CPP's "Sarong, Krama & Bicheng" economic policy before the election]

Friday, 04 November 2011
Don Weinland
The Phnom Penh Post

Cambodia's draft budget law for 2012 will seek to increase concessional borrowing by about 75 per cent compared to 2011, according to a copy of the draft obtained by the Post.

A lack of aid commitment may have led to the increase in proposed borrowing, experts said yesterday.

The Cambodia Development Co-operation Forum, a group of international donors led by the World Bank, indefinitely postponed its annual meeting in August after the World Bank cancelled loans due to forced evictions at Boeung Kak Lake. “This year, the aid mechanism was cancelled. Now the government feels the need to borrow more than before,” Chheng Kimlong, a business and economics lecturer at the University of Cambodia, said yesterday.

The draft law, which is before the National Assembly, would allow the government to borrow 700 million special drawing rights in concessional loans, or about US$1.1 billion at the current exchange rate. Last year’s budget law allowed the government to borrow over $630 million.

The Cambodia Development Co-operation Forum pledged $1.1 billion in aid in 2010, the Post reported last year. Although the level of donor aid for 2012 remained unconfirmed, the jump in proposed borrowing was a precautionary measure if aid from the US, Europe and other countries fell short, Chea Kimsong, manager of development issues at the NGO Forum for Cambodia, said yesterday.

Economic crises in Western economies had led to uncertainty on aid to the Kingdom that would usually be spent on development projects, he said.

Cambodia’s debt to foreign countries and banks hit about $7 billion this year, according to Chheng Kimlong, or more than 60 per cent of the projected $12 billion GDP for 2011. An addit-ional $1.1 billion in loans would call Cambodia’s liquidity into question as debt growth far surpassed increases in annual GDP, he said.

“The threat is the rising debt-to-GDP ratio. Debt is growing faster than both GDP and revenues,” Chheng Kimlong said, adding that the government had not yet demonstrated the ability to pay off loans in the future.

This growing debt burden did not pose an immediate threat of default due to the long-term nature of the loans, he said.

Potential trouble with repaying loans would come at the end of grace periods in most concess-ional loans, he said. Government officials could not be reached yesterday for comment.

Cheam Yeap, chairman of the Commission on Economy, Finance, Banking and Audit of the National Assembly, said last week increased loans would go to rebuilding infrastructure destroyed during recent floods, as well as boosting rice exports.

Cheam Yeap declined to say from which countries the loans would come.

The actual level of debt Cambodia owed was unknown, as complete figures had yet to be revealed by the Ministry of Economy and Finance, Chea Kimsong said.