Moody’s: Cambodia’s rating constrained by narrow economic base, policy limitations

Global rating agency Moody’s Investors Service said Thursday that despite rapid growth, the small size and the narrow diversification of Cambodia’s economy constrained its B2 rating. The limited effectiveness of monetary policy due to a high rate of dollarization was also a rating constraint, the rating agency said. Cambodia’s B2 sovereign bond rating and stable outlook reflected Moody’s assessment of the country’s “very low” economic and institutional strengths, its “low” government financial strength, and its “low” susceptibility to risks from financial, economic and political events, it said in a statement. According to a just-released Moody’s report titled “Credit Analysis: Cambodia,” the country’s GDP per capita is one of the lowest amongst all Moody’s-rated countries. However, economic growth following the end of the civil conflict in 1991 has been rapid, supported by a shift to a more open economy and strong capital inflows. Moody’s expects the country’s GDP growth to remain at 7% through 2013 and 2014, aided by higher foreign direct investment, a recovery in exports, and an up tick in construction activity. At the same time, growth is increasingly supported by rapid private sector credit expansion. … Moody’s noted that 96 percent of Cambodia’s total deposits were foreign-currency denominated, which had rendered reserve requirements as the primary tool for influencing credit conditions, thus constraining the choice of policy instruments. The budget deficit had consolidated noticeably from the peak seen in 2009, but remained above the peer median, it said, adding that Cambodia financed its deficits mainly using aid flows. “This situation has in turn limited efforts to raise tax and resulted in some fragmenting of expenditure,” the statement said. …

 Xinhua News Staff
http://www.china.org.cn/world/Off_the_Wire/2013-08/22/content_29799938.htm