Kingdom of Cambodia
Nation Religion King
Opening Remarks
by
Sr. Minister KEAT CHHON,
Minister of Economy and Finance
At the
National Workshop
on Capacity-building for External Debt Management
in the Era of Rapid Globalization
Jointly Organised by
The Ministry of Economy and Finance and the UNESCAP
Phnom Penh, 20 February 2006
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1. Today, it is my great pleasure to address this Opening of National
Workshop on Capacity-building for External Debt Management in the Era of
Rapid Globalization.
2. First of all, may I welcome the experts and resource persons from UNESCAP
and other related institutions and all the participants to this important
workshop. I would also like to sincerely thank the UNESCAP for support in
organizing this event to help raise the capacity in external debt
management.
3. Cambodia has made significant progress in rehabilitating and
strengthening its economy. Prudent fiscal and monetary policies have played
an important role in delivering macroeconomic stability and robust growth in
recent years. However, Cambodia’s sustainable development and potential for
further growth will very much rely on our future strategic debt policy and
management.
4. For this reason, the Royal Government of Cambodia has adopted a policy of
not contracting loans on commercial terms and we are limiting ourselves to
concessional loans and grants. Moreover, we have clearly defined the use of
the loans for productive purposes, such as building physical, economic and
social infrastructures, irrigation facilities, where economic returns are
quick and high. We have deliberated avoiding using loans for technical
assistance.
5. Prudent debt management is critical for Cambodia to move forward in
achieving the MDG goals of poverty reduction. The problem does not come from
the recently contracted debts, but from the so-called historical heritage
and this issue has become a rising concern, as it will have important
implications on the economy in the next 40 years. Currently, 94 percent of
Cambodia’s public debt is external of which a huge proportion is owed to the
United States and the Russian Federation. Thus, the rescheduling of debts
with the two creditors will substantially change future scenario of our
fiscal position, subsequently impacting our development. Also the way we
will resolve the issue should give justice to the plight and sufferings of
the Cambodian people.
6. The implication of debt rescheduling will significantly impact on
investments in economic infrastructure and expenditures on such vital items
such as health, education and social development. Growth of public debt and
debt servicing can lead to the crowding out of private investments,
especially with increased government spending on amortization and interest
payments.
7. Increase in debt and deficits put pressure on financial system, through
its impact on interest rate, availability of credit and profitability of
financial institutions. The debt and deficits can also lead to increase in
trade deficits, currency overvaluation and foreign exchange crisis and
erosion of a country's creditworthiness.
8. Thus, an effective public debt and fiscal management are very crucial and
has not only domestic macroeconomic benefits, but also enhances the
country's image and credit standing in the eyes of private creditors. This
is because fiscal indicators through its impact on inflation and balance of
payments count a relatively high score in the credit rating framework
followed internationally. Better credit rating helps sustaining the flow of
external resources into the country and which can relieve fiscal constraint
to an extent.
9. Therefore, effective national strategies to monitor and manage external
liabilities are needed for sound macroeconomic policies and public resource
management in order to reduce the vulnerability that has risen with rapid
globalization in recent years. Indeed, improved debt management is one of
the priorities of our Public Financial Management (PFM) reform program.
10. In this sense, I hope this national workshop will help improve Cambodia
policy framework to manage external debt more effectively, by strengthening
local and national capacity to formulate and implement effective policies
and programmes in managing external resources.
11. Good debt management can help the Royal Government to introduce
government bonds, which will become an important instrument for the
development of life insurance industry in Cambodia. Improved debt management
will create public confidence in government bonds. As we have planed in our
road map to introduce capital market in 2007, improved capacity for debt
management is one of the prerequisites for further development of the
financial system.
12. The development of government bonds will create a benchmark yield curve
for corporate bond markets. Financing using domestic currency debt
instruments will diversify the sources of financing in Cambodia. Thus, there
is a need to promote domestic bond markets with efficient infrastructure and
then integrate them with the regional bond markets. Our recent efforts in
promoting intra-regional monetary cooperation along with trade integration
strategy are in the right direction. In this regard, I wish to highlight the
discussions of the Asian bond market initiative under the framework of
ASEAN+3 and the forthcoming first Finance Minister Meeting under the Asian
Cooperation Development (ACD).
13. Finally, I am looking forward to the workshop’s further deliberation and
rich discussion at this workshop.
Thank you !