Cambodia will begin repaying the principal on its $1.6 billion debt to the Asian Development Fund early next year, a massive undertaking to be financed through tax collection, Finance Ministry officials said earlier this week.
The government will pay
$4 million to $5 million—the equivalent of about 2 percent of total government spending—toward the principal and interest next year.
Within the next five to 10 years, that contribution could increase to $10 million to $15 million, said Vong Seyvisoth, deputy secretary-general for the ministry.
At that rate, excluding mounting interest, it will take more than 100 years to repay the loans.
To meet the payments, the government will need to work harder to collect taxes and use funds effectively, Vong Seyvisoth said. However, its ability to make the payments was “not a serious problem,” he said.
“We are able to pay them back. As the Minister [Keat Chhon] has said, if we use funds in a proper way for development, we could pay” lenders, he said.
Keat Chhon announced the government would start repaying the loan from the ADF—a financial body composed of the World Bank, the International Monetary Fund, the Asian Development Bank and the governments of Asian countries—at a seminar in Phnom Penh on Monday. Sponsored by the ADB, the 10-day seminar was intended to train Finance Ministry staff on fiscal responsibility and transparency in procurement.
If borrowed funds are not used properly, lenders “will grab us to pay them back,” Keat Chhon told ministry officials at the seminar.
“The character of our government is good, so that is the reason that the international community offers loans to us,” he said.
If the country’s economy continues to grow at a rate of 5 percent to 6 percent each year, repayment of the ADF loan should not threaten economic stability, said Chap Sotharith, an adviser to the Council of Ministers and to the World Bank’s program in Cambodia.
Despite the government deadlock, relative peace in the country and signs of economic growth seem to favor the government’s ability to repay—and repayment will be necessary for future economic strength, said Ok Serei Sopheak, an independent economic consultant.
“If we don’t pay back, we can’t borrow again. We are a poor country and we still want a lot more funds to develop the country,” Ok Serei Sopheak said.
According to a 2002 Far Eastern Economic Review report, Cambodia owed $1.6 billion to the former Soviet Union and
$500 million to the US. Repayment of those loans is still in negotiation, Vong Seyvisoth said.
“The interest rate and debt now is small. But in the future it will be a lot, when the time comes to pay debts to [Russia] and America,” he added.
Opposition leader and former finance minister Sam Rainsy balked Wednesday at the idea of repaying the massive debt.
He said that some of the debt should either be canceled or postponed “because the country is so poor.”
He said any debt incurred from the government of the former Soviet Union in the 1980s should be forgiven because the Cambodian government at that time was “illegal.”
“I think the upcoming new government should go [to donors] and explain the current situation,” he said.
