Cambodia has not recorded any default history since 1983

Photo: The Institute of Financial Services Practitioners

Moody’s has said that Cambodia has recorded no history of having defaulted  events on bonds or loans since 1983.

It said that given the negative outlook, a rating upgrade is unlikely at this time, but Moody’s would likely revise the outlook to stable if pressures on Cambodia’s external position were to ease durably, for example due to a significant narrowing of the current account deficit back to levels covered by FDI flows that would allow for a rebuild of foreign exchange reserves.

Upward pressures on the rating would arise if, over time, reforms were likely to address the country’s institutional weaknesses and enhance policy effectiveness, such as control of corruption and rule of law; or if the implementation of structural reforms that support competitiveness and reduce hurdles to doing business, contributed to a material increase in economic diversification and incomes. Such an outcome would bolster the economy’s resilience to shocks.

Moody’s would likely consider a downgrade if larger external imbalances were likely to become structural, with increasing difficulties financing the wide current account deficit for example due to a moderation of FDI inflows, and increasing pressure on foreign exchange reserves.

Downward pressures on the rating would also arise if strains on asset prices were material and likely to be prolonged, leading to significant liquidity and solvency concerns in the domestic banking system, and raising macro-stability risks for the sovereign.

A sharp or sustained slowdown in growth beyond our baseline expectations, either owing to the impact of external conditions, pronounced repercussions from the withdrawal of preferential trade access or an unexpected and sharp unwinding of credit growth, would also present downward pressures on the rating.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Cambodia’s ESG Credit Impact Score is highly negative (CIS-4), reflecting its moderately negative exposure to environmental risks, highly negative exposure to social risks, and overall very weak governance profile and limited resilience.

Cambodia’s exposure to environmental risks is moderately negative (E-3 issuer profile score), driven by physical climate risks. The economy has been subject to droughts and floods, which pose disruptions to agricultural activity and can deter tourist activity, both major economic drivers. Water scarcity is also a consideration, since a large proportion of the rural population lacks access to safe drinking water.

Exposure to social risks is highly negative (S-4 issuer profile score). Despite a young and growing population, low per capita incomes and a poor provision of health and education services as well as weak access to other basic infrastructure have constrained human capital development.

The influence of governance on Cambodia’s credit profile is highly negative (G-4 issuer profile score), which reflects relatively weak institutional arrangements, a high incidence of corruption, generally weak rule of law, and transparency issues, which compound limited policy effectiveness.

  • GDP per capita (PPP basis, US$): 5,009 (2021) (also known as Per Capita Income)
  • Real GDP growth (% change): 3% (2021) (also known as GDP Growth)
  • Inflation Rate (CPI, % change Dec/Dec): 3.7% (2021)
  • Gov. Financial Balance/GDP: -10.3% (2021) (also known as Fiscal Balance)
  • Current Account Balance/GDP: -46.2% (2021) (also known as External Balance)
  • External debt/GDP: 67.2% (2021)
  • Economic resiliency: b2

On 10 November 2022, a rating committee was called by Moody’s to discuss the rating of the Cambodia.

The main points raised during the discussion were: The issuer’s economic fundamentals, including its economic strength, have materially decreased. The issuer’s institutions and governance strength, have not materially changed.

The issuer’s fiscal or financial strength, including its debt profile, has not materially changed. The issuer has become increasingly susceptible to event risks. An analysis of this issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate.

Source: Khmer Times / Moodys.com.research