Growth Hinges on Foreign Investment, Report Says

Cambodia’s economy, a speculative and high-risk market, is likely to see a significant boost to capital injection when regional economic integration begins next year, according to a report released Monday by credit ratings agency Moody’s.

In March, Moody’s gave Cambodia a sovereign bond rating of B2—considered speculative and a high credit risk—balancing the country’s robust economic growth against low gross domestic product (GDP) per capita, a small economy and high dollarization.

“With a nominal GDP of $15.2 billion, the size of Cambodia’s economy offers little shock absorption capacity,” says the analysis released Monday. “Although rapid strides have been made in reducing poverty, the country’s low GDP per capita is also a constraint on the rating.”

Cambodia’s growth, the report adds, “hinges on greater investment,” which the Asean Economic Community (AEC), set to take effect at the end of 2015, promises to deliver.

“[The AEC] would seem to be a prerequisite for Cambodia to achieve its development plan of raising investment beyond 25 percent of GDP and sustaining 7 percent annual GDP growth,” Moody’s says.

Grant Knuckey, CEO of ANZ Royal bank, said Monday that Cambodia’s growth depends on increased foreign direct investment (FDI) to create jobs and boost incomes, but the government also needs to up its game if the country is to compete regionally.

“Whether AEC will be a catalyst for increased FDI remains to be seen, as it will be a competitive playing field, and as Moody’s points out, the institutions of Cambodia need to be strengthened to attract more investment,” Mr. Knuckey said via email.

One of the biggest threats to Cambodia’s rating and economy is an overheated credit sector that has drawn concerns from the World Bank and International Monetary Fund, and “could impose systematic risks” if there is unchecked growth, Moody’s says.

“[A]verage credit growth has significantly outpaced the rate of gain in nominal GDP over the last two years, signaling a credit boom risk according to Moody’s methodological assessment,” the report says.

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