Cambodia to benefit from regional integration: Moody's
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Greater regional integration under the Asean Economic Community in 2015, along with continued close ties with China, would allow Cambodia to achieve its plan to raise investment beyond 25 per cent of gross domestic product and sustain 7 per cent annual GD
In a statement, the rating agency noted that Cambodia's real GDP growth has likely slowed slightly in 2014, owing to political uncertainty and labor unrest, after expanding 7.4% in 2013, powered by tourism revenues, garment exports and construction.
"With a nominal GDP of $15.2 billion, the size of Cambodia's economy offers little shock absorption capacity. Although rapid strides have been made in reducing poverty, the country's low GDP per capita is also a constraint on the rating. In 2013, the PPP-adjusted per-capita income stood at $2,576, the ninth lowest amongst countries rated by Moody's," it said.
Rated "B2", Cambodia faces a big challenge - the rapid expansion of domestic credit with net domestic claims by the banking system having increased 21.3 per cent year on year as of June 2014, following a 28.8 per cent rise at the end of 2013.
This outpaces economic growth, posing risks to the sustainability of economic expansion and to systemic stability. Inflation is also edging up, but is
still moderate, at less than 5 per cent year on year. However, the dollarised nature of the economy limits the scope and effectiveness of monetary policy, Moody's noted.
Cambodia's credit outlook would be brighter if the country can come up with more prudent fiscal management that creates room to adapt to any future decline in concessionary aid. Continued strong growth in foreign direct investment (FDI), much of which comes from China, would also help aside from steps to address institutional and political weaknesses.
Meanwhile, continued erosion in the competitiveness of the garment industry or a weakening in tourism revenues are among factors that would worsen the outlook.
