The government is preparing to take on $1.1 billion in new loans in 2012, 75 percent more than what it approved for 2011, according to a draft of next year’s proposed budget law.
A CPP lawmaker said the government would put the money toward increasing rice exports, recovering from this year’s devastating floods and improving the delivery of social services such as health care and education.
To cover those costs, the draft budget proposes taking on 700 million in Special Drawing Rights (SDR), a unit of currency used by the International Monetary Fund currently valued at about $1.60. It would mark a major jump from the 400 million SDR approved last year and the 200 million SDR approved before that.
The $1.1 billion in new loans amount to about one-tenth of the country’s gross domestic product and would be added on to the $7 billion the country owes already.
CPP lawmaker Cheam Yeap, chairman of the National Assembly’s Commission on Economics, Finance, Banking and Auditing, said the loans would be concessional, which can carry special interest rates of 1 percent or less.
“We will use it to recover from the effects of the floods, to build infrastructure such as irrigation, roads, schools, hospitals, etc,” Mr Yeap said. “Second, we will use it to encourage more export of rice and to improve rice production and quality.”
He said the money would further spur the economy—which the government expects to grow by at least 6 percent this year—and was based on the state’s current five-year development plan.
The draft budget also proposes another $58.8 million in loans to cover the government overspending this year.
Opposition SRP lawmaker and spokesman Yim Sovann warned that, taken together with what the government owes already, the new loans would put Cambodia in danger of experiencing the same sort of debt crisis currently plaguing the eurozone.
“It is getting close to the red line,” he said.
Mr Sovann urged the government to do more to raise government revenues rather than take on so many new loans.
“Seven hundred million is a huge amount,” he said. “We should try harder to raise the budget with more state revenue, which is now only 12 percent of GDP. If we try to increase our efforts in revenue collection, I believe we can get double the amount.”
Indeed, the IMF in February said borrowing for projects like hydropower dams—most of them being built by China—was posing a “major” risk to the country’s debt outlook.
A recent report by the NGO Forum also pointed out that at 2 percent, China’s concessional loans—nearly a third of all such loans to Cambodia—carry the highest interest rates among all the country’s lenders.
But the CPP’s Mr Yeap said the loans would be put to good use to help speed up the economy’s growth.
“We take on the loans to expand economic growth; we do not use the loans to share among our people,” he said.
According to a report signed by Prime Minister Hun Sen on Oct 19, the government expects the country’s economic sector to grow 8.5 percent this year, including 11.2 percent for garments, 6.7 percent for tourism, 6.3 percent for services and 3.6 percent for agriculture.
The 2012 draft budget proposes to increase government spending 9 percent, from $2.4 billion this year to $2.62 billion. It also proposes raising revenue more than 13 percent, from $2.3 billion, to match next year’s projected expenses.