Greater Integration With ASEAN Would Support Cambodia's Development Plan

Greater integration with other members of the Association of Southeast Asian Nations, along with continued close ties with China, would support the goals of Cambodia's development plan for raising investment beyond 25% of GDP and sustaining 7% annual GDP growth, according to Moody's Investors Service.

Cambodia's real GDP growth has likely slowed slightly in 2014, owing to political uncertainty and labor unrest, after expanding 7.4% in 2013, powered by tourism revenues, garment exports and construction.

Moody's conclusions were contained in its just-released credit analysis "Cambodia" and which looks at the country's credit profile in terms of Economic Strength (assessed as "low (-)"); Institutional Strength ("very low (-)"); Fiscal Strength ("medium (-)"); and Susceptibility to Event Risk ("medium (-)"). Cambodia is rated B2 with a stable outlook.

With a nominal GDP of $15.2 billion, the size of Cambodia's economy offers little shock absorption capacity.

Although rapid strides have been made in reducing poverty, the country's low GDP per capita is also a constraint on the rating. In 2013, the PPP-adjusted per-capita income stood at $2,576, the ninth lowest amongst countries rated by Moody's.

The new Moody's report notes that rating challenges currently include the rapid expansion of domestic credit with net domestic claims by the banking system having increased 21.3% year on year as of June 2014, following a 28.8% rise at the end of 2013.

Although this trend is gradually moderating, it continues to outpace growth in nominal GDP, posing risks to the sustainability of economic expansion and to systemic stability. Inflation is also edging up, but is still moderate, at less than 5% year on year. However, the dollarized

nature of the economy limits the scope and effectiveness of monetary policy.

The Moody's report says that credit-positive developments would include: more prudent fiscal management that creates room to adapt to any future decline in concessionary aid; continued strong growth in foreign direct investment (FDI), much of which comes from China; and steps to address institutional and political weaknesses.

Moody's also says that a downward rating would be triggered by continued erosion in the competitiveness of the garment industry or a weakening in tourism revenues; a crystallization of contingent liabilities related to the power sector that derails fiscal consolidation; persistent strong credit growth; and political turmoil that undermines consumer and investor confidence.



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