Opposition Wants Less Debt in 2013 Budget [because Cambodia's debt stands at $10 billion]

By Philip Heijmans
The Cambodia Daily
November 26, 2012

The opposition Sam Rainsy Party (SRP) has requested the National Assembly to reduce by 75 percent the amount of new debt the government is allowed to take on next year under the latest draft of the 2013 national budget.

Opposition lawmaker Son Chhay (pictured), who sent the request to the Ministry of Economy and Finance on Friday, said that the level of public debt in Cambodia was already too high at roughly $10 billion, or 77 percent of last year’s gross domestic product (GDP). To bring the amount of national debt down to a healthier level, the SRP said a maximum of $200 million should be taken on board next year, rather than the $800 million proposed in the draft budget.

“That amount is too much, so we want them to bring that down to $200 million due to the already high amount of debt the government owes to foreign countries,” Mr. Chhay said. “At about 80 percent of the GDP, we believe that it is not necessary for the government to increase the amount of new loans.”

The draft budget, which is currently awaiting approval in the National Assembly, calls for more than $3 billion in government spending in 2013, up from $2.6 billion in 2012.

With Cambodia’s debt growing by about $1 billion per year, economists and international organizations such as the World Bank and International Monetary Fund (IMF) have warned that although public debt levels are currently sustainable, there are still default risks in the country.

The World Bank and IMF said in February that an increase in government borrowing over the next 10 years could hinder the country’s ability to react to any economic crises that may occur in the future. They also said that the mismanagement of one of Cambodia’s large-scale build-operate-transfer projects such as a hydropower dam could result in a loss of investment equating to 5 percent of GDP, while a banking crisis could bring on losses representing 10 percent of GDP.

Reported debt levels in the country vary. While the SRP puts it at $10 billion, the ruling CPP and international organizations have placed the figure anywhere between $2 billion and $7 billion.

The IMF in February projected debt levels of $3.99 billion for 2012, while international ratings agency Moody’s put the figure at $5.2 billion at the end of 2010.

As well as reducing the debt provision for 2013, the SRP also called on the government to follow through with a promise to increase the minimum wage for civil servants and raise public revenues by imposing hefty taxes on casinos and the owners of economic land concessions. For example, the SRP is asking for a 50 percent tax on profits from the roughly 60 casinos currently operating in the country. Mr. Chhay said such a tax would earn the government somewhere in the region of $300 million.

The SRP also requested the existing $5-per-hectare annual tax on land concessions to increase to $17 per hectare. A further $200 million to $300 million in tax revenues could be added to the budget with such a tax increase, Mr. Chhay said, adding that cutting down on corruption within the government’s ministries and channeling those funds into state coffers would also add to the national budget.

Economists mostly say that  Cambodia’s debt level is at a sustainable level. However, large loans from China are said to come with much higher interest rates than other donors such as the ADB.

“I think that Cambodia’s debt levels are okay. In fact, it may be too low,” said Chan Sophal, president of the Cambodian Economic Association. “Cambodia needs a lot more infrastructural development and at this stage doesn’t have enough roads, bridges or energy sources, so we badly need capital to develop those fundamentals,” Mr. Sophal said.

“With regard to Chinese loans, there should be more transparency because we need to know more about how much is being borrowed and about the quality, terms and efficiency and use of these loans,” he added.

At an average rate of 2 percent a year, China offers the most unfavorable interest rate on its loans compared to Cambodia’s other primary lenders. The ADB charges an average of 1.23 percent on loans, while South Korea, the E.U. and Japan all provide loans at a rate of 0.5 percent or less.

In September, Chinese Premier Wen Jiabao announced seven unspecified loan agreements worth more than $500 million during a visit to Cambodia. And in February, Finance Minister Keat Chhon signed a three-year $302-million financing agreement with the Export-Import Bank of China to develop irrigation projects in Cambodia. Cambodia also took on $1.2 billion in interest free loans from China in late 2009.