Cambodia’s foreign currency reserves surpassed the $1 billion mark last year due to strong economic growth, Prime Minister Hun Sen said Tuesday.
Speaking at a government workshop at Chaktomuk Theater in Phnom Penh, Hun Sen said that foreign currency reserves had reached $1.097 billion by the end of 2006, 10 times the $100 million Cambodia had in reserves in 1994.
The prime minister spoke of this increase as one of many indicators that the country’s economy was booming—an expansion he attributed in part to government reforms.
“Administrative reform at all levels were implemented to ensure…transparency and credibility to fulfill the requirements of the people,” Hun Sen said.
“From 1994 to 2006, Cambodian economic growth was 8.3 percent per year,” he added.
Hun Sen said that in order to preserve the gains the country has made, further reforms must be put in place.
“The policy is good, but the implementation should be strict and we have more to do.”
Data presented by Finance Ministry Secretary-General Hang Chuon Naron at a conference Feb 23 showed that foreign reserves grew about 32 percent last year alone.
Foreign currency reserves, also called foreign exchange reserves, are held by most countries for a number of reasons such as providing a means to manipulate the foreign-exchange rate, paying off foreign creditors, or as a defense against emergencies or disasters.
Hang Chuon Naron said that Cambodia’s foreign reserves are not really needed to pay foreign creditors or importers because of the country’s dollarized economy.
The reserves, however, help stabilize the exchange rate of the riel. Should the exchange rate depreciate, the central bank will sell dollars to constrict the amount of riel in the economy.
Conversely, if the riel appreciates too rapidly, the bank will buy dollars with riel to stabilize the exchange rate.
Keith Carpenter, a research adviser with the Cambodia Development Resource Institute, said that current foreign reserve levels would be helpful in giving the government room to maneuver.
“It does mean that the government has some policy options open to them, and don’t have to look over their shoulders all the time to see if they can afford their imports,” he said.
John Nelmes, country representative for the International Monetary Fund, called Cambodia’s current foreign-reserves level a “positive achievement.”