Moody’s Says Cambodia’s Credit Rating Remains Stable

Global credit research firm Moody’s said that Cambodia’s debt rating remained stable at B2, a level assigned to countries seen as competent in meeting financial commitments but at considerable risk in the event of unfavorable business, economic or financial conditions.

Cambodia had retained its B2 status despite recent political instability and disruptions to the country’s biggest earner—the garment export sector, Moody’s said.

“The stable outlook is premised on Cambodia’s healthy growth prospects and a stable external payments position, which balance structural weaknesses,” Moody’s said.

Those structural weaknesses, according to Moody’s, are “the country’s very low per capita income and reliance on foreign aid, poor governance and institutional strength, and the heavily dollarized nature of the economy, which limits the lender of last resort capabilities of the central bank.”

While the assessment suggests that the country survived six months of political turmoil with its international credit reputation intact, the B2 rating is still five notches below investment grade and the report says that Cambodia still has a “very low level of economic resilience.”

According to the report, foreign debt remains on the decline, touching 32 percent of GDP in 2013, continuing to drop down from 78 percent of GDP in 1998.

Liabilities to multilateral creditors such as the World Bank and Asian Development Bank make up 37 percent of total debt stocks, while bilateral creditors account for the remaining, with China contributing more than 31 percent of total external debt.

Real GDP growth fell slightly from 7.3 percent in 2012 to 7 percent in 2013, and could dip again in 2014 on the back of strikes and labor unrest, but remains far stronger than the projected 4 percent growth for other nations with a B-rating, the report says.

Moody’s gave three factors for maintaining Cambodia’s rating in the face of political uncertainty and labor disputes: a healthy outlook for economic growth; limited vulnerability to fiscal and external funding; and ongoing fiscal consolidation from fiscal stimulus originally in response to the global financial crisis.

Moody’s, however, warned of areas where minimal disruption could see a ratings drop, such as the erosion of the competitiveness of Cambodia’s low-wage garment industry, continued strong credit growth, or an intensification of political turmoil, any of which “could trigger a negative ratings action.”

Moody’s also singled out Cambodia’s reliance on the U.S. dollar.

“The country’s high level of dollarization hinders the National Bank of Cambodia’s lender of last resort function, while similarly constraining the government’s capacity to support any potential need for recapitalization.”

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