Moody’s Investors Service upgraded its outlook for the Royal Government of Cambodia from negative to stable on Thursday, citing a better external position amid smaller trade deficits and recoveries in tourism and foreign direct investment (FDI).
‘In particular, Cambodia’s current account deficit narrowed sharply over the past year owing to a significant reduction in non-monetary gold imports that distorted external metrics during the pandemic, and a robust recovery in tourism and moderating merchandise import growth,’ the U.S. credit rating agency said.
‘On the income and financing side, remittances and FDI inflows have recovered. Continued improvement in Cambodia’s external position will help stabilise the country’s reserve buffers, making it more resilient to the related downside risks than envisaged in 2022.
‘Against these positive developments, the stable outlook also captures downside risks to financial stability and the banking system stemming from the downturn in real-estate sector following a perio
d of sustained high credit growth.’
Moody’s also affirmed its long-term B2 rating for Cambodia. The rating ‘balances a weak institutional framework, low income level and political risks against strong growth prospects and highly affordable government debt burden,’ it said.
The rating agency noted that Cambodia’s current account balance shifted to a surplus from the second quarter of last year after ten consecutive quarters of deficits.
While garment exports remain weak, non-garment exports are expected to gradually expand including electrical and vehicle parts that accounted for about 13 percent of total exports in 2023 – up from 5 percent in 2019.
Service exports are also expected to continue to recover gradually after a surge in international tourist arrivals reaching 5.4 million in 2023, approaching 82 percent of pre-pandemic levels.
But ‘recovery in tourism receipts remain slow as the origin of tourists has changed, with a significant decline in Chinese tourists only partly offset by increased visito
rs from neighbouring countries.’
Moody’s noted that FDI remained stable at around 10 percent of GDP in 2022-23.
‘While the structural slowdown in China, the largest contributor to FDI inflows, and rising geopolitical risks could reduce FDI flows, the government’s efforts to foster diversification and streamline investment incentives partly mitigates this risk,’ it said.
Source: Agence Kampuchea Presse
