Moody’s Sees ‘Effective’ Response to COVID-19 in Cambodia

Moody’s Investors Service says Cambodia has responded effectively to the COVID-19 pandemic and expects more policy support in the wake of the Feb. 20 incident.
“The government’s proactive management of the coronavirus has been largely effective, at least over the course of 2020,” the U.S. rating agency said in an annual credit analysis released Wednesday.
“To shelter the economy, the government drew upon its fiscal resources to deliver sizeable stimulus measures,” it said.
At the same time, “the National Bank of Cambodia (NBC) has worked alongside the country’s financial sector to provide relief to vulnerable retail debtors.”
NBC monetary measures mainly targeted liquidity enhancements, it said.
These have included reducing interest rates on the central bank’s “liquidity providing collateralised operation facility” as well as certificates of deposit while cutting reserve requirements for commercial banks.
Moody’s noted that the NBC had also mandated banks and microfinance institutions to restructure loans to borrowers in affected sectors — such as tourism, garments, construction and transport — until mid-2021.
And to support financial stability, the central bank has asked private financial institutions to postpone dividend payouts in 2020.
Government fiscal measures have meanwhile included boosting public health and mitigating COVID-19 impacts with spending on social benefits, cash transfers for poor and vulnerable households, and a cash-for-work programme.
“For the garment, tourism and aviation sectors, the government has provided specific subsidies, as well as a skills-training programme,” the report said.
Moody’s pointed to a small and medium-sized enterprise (SME) recovery scheme in manufacturing and agriculture, a co-financing scheme by SME Bank, and other SME support measures in the agricultural and agro-processing sectors.
“Measures were well targeted, such that households who suffered a greater income shock received larger benefits,” the rating agency said.
With the surge in COVID-19 cases after the Feb. 20 incident, “we expect further support will be forthcoming,” Moody’s said.
“As such, there may be a continued extension of some expenditure measures, adding to the government’s financing needs and possibly entailing a greater drawdown in reserves than is already budgeted.”
Moody’s acknowledged that Cambodia’s debt would rise but said it would remain “moderate” compared with its peers.
“We expect the wider fiscal deficit to drive an increase in the debt burden to 33 percent of GDP in 2020, lower than suggested by the combined impact of the sharply wider fiscal deficit and contraction in GDP.
“The increase in debt is limited given that the deficit was mostly financed through a combination of a drawdown in savings and through concessional funding.
“We expect the debt burden to peak at 38.7 percent of GDP in 2022 but moderate thereafter as economic growth and the government’s fiscal position stabilises.”
That compares with the government’s projection for the debt burden to rise from 36.6 percent in 2022 to 38.7 percent 2025. This reflects “differences in underlying assumptions,” the rating agency said.
The annual credit analysis — which maintained Cambodia’s B-2 rating and “stable” outlook — was compiled by three analysts in Singapore and two in London.

Source: Agency Kampuchea Press