Previous Quarterly Editions
Expropriation Risk: 63 63 64 63 ▼Political Violence Risk:51 51 51 51 ►Terrorism Risk:23 21 21 21 ►Exchange Transfer and Trade Sanction Risk: 64 64 64 73 ▲Sovereign Default Risk:65 65 65 65 ►
TREND ▲
Protest intensity to date* 2022 2023 Low LowUnrest risk in 2024**Cost of living: HighAnti-austerity: Medium
Cambodia’s neighbor Laos, deep in “debt distress” and hovering on the edge of default, is a cautionary tale for poor Southeast Asian countries with close economic and political relations with China; however, the Cambodian government and most external economists do not believe that the country is on the verge of a debt crisis. According to the International Monetary Fund, at the end of 2022 Cambodian debt was 36.8% of GDP; the World Bank projects that the percentage is likely to rise by 0.5% each year in the coming decade and will stabilize at around 40%.
At the same time, Cambodia’s profound development needs — some of which will require large-scale infrastructure projects — makes rising debt inevitable. How well that is managed will depend on several factors: Cambodia’s relations with its foreign partners (according to the World Bank, 100% of the country’s debt is foreign); rising interest rates (43% of the debt is dollar-denominated and 14.5% yuan-denominated); and the soundness (or lack thereof) of the Cambodian government’s fiscal management. In the hope of reducing reliance on foreign lenders, in late 2022 the Cambodian central bank issued the country’s first-ever sovereign debt bonds.
In broad numbers, 68% of Cambodia’s debt is with bilateral lenders, and 43% of its total debt is with China; the remaining 32% is with multilateral lenders. The Kiel Institute ranks Cambodia as the sixth most-indebted country in terms of debt to China in a survey of 50 countries. China will play a major role in Cambodia’s proposed 10-year US$50 billion infrastructure master plan, but Japan and South Korea plan to pursue participation as well. Before he left office, however, Prime Minister Hun Sen’s first overtures for the plan were to Beijing, including for a US$4 billion high-speed rail linking Phnom Penh to the economic hub on the Cambodia-Thailand border.
Going forward, Phnom Penh may be more inclined to diversify its group of lenders. Hun Sen’s successor, his son Hun Manet, has stronger ties with the West than his father, as well as a doctorate in economics, and the new cabinet is more technocratic than any previous government.
At present, economic growth, more than debt, evokes response from the Cambodian public. The World Bank reports that Cambodia has made a strong recovery from the COVID-19 pandemic, with 5.2% growth in 2023 and 6% forecast for 2024. Only the Cambodian non-governmental organization sector — which is the conduit for multilateral economic assistance — has raised the issue of debt.
However, anti-Chinese sentiment is rising in the broader public, particularly because of internet scams perpetrated by Chinese criminal gangs that use Cambodian territory for their “scam campuses.” This trend will likely affect public attitudes toward any dramatic rise in Cambodian debt to China.
TREND ▼
Cambodia continues to seek foreign investment, and the risk of expropriation is low. Reliance on trade and investment with China will increase in the short- and mid-term as the Regional Comprehensive Economic Partnership takes hold. In addition, in early 2023, Beijing and the Association of Southeast Asian Nations (ASEAN) states renewed and upgraded the 2003 China-ASEAN Free Trade Agreement.
Phnom Penh has pressed the United States for entry into the Indo-Pacific Economic Framework, with no success as yet. Cambodia is also excluded from the Asia Pacific Economic Cooperation group, because of a long-standing moratorium on new members, and periodically appeals to the group to lift the hold.
TREND ►
Despite the fact that Cambodia underwent an historic transfer of power in August 2023 when Hun Manet was sworn in as his father’s successor as prime minister, the risk of political violence in Cambodia is low in the short- to mid-term. In reality, Hun Sen gave up little power when he vacated the prime ministership and arguably gained some. He has retained his position as leader of the Cambodian People’s Party and in January will become president of the Senate, which allows him to act as head of state if the king is not able to do so.
Equally important, Hun Sen has said that he will retake the prime minister position if Hun Manet “fails to live up to expectations.” The political opposition is severely hobbled, with most of its leadership in exile abroad, with little chance of influencing Cambodian politics. Although Hun Manet is Western educated, which may make him more appealing to the younger generation, his political heritage and his past role as army commander will incline him toward authoritarianism.
Cambodia has a small and assimilated Muslim population that has few ties to jihadist groups in maritime Southeast Asia, and they do not present a terrorism risk; however, the country’s high and unchecked levels of corruption and the growing presence of Chinese criminal gangs makes Cambodia a potential sanctuary for terrorist groups.
In August 2023, a report issued by the United Nations showed that roughly 100,000 captives who had been seized by criminal gangs and forced to operate internet scams were hidden in Cambodia, sometimes with the complicity of local businessmen and the Cambodian police. Western countries and Interpol are increasingly vocal about the dangers this poses to the international community.
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
TREND ▲ In August 2023, the Cambodian central bank announced that it would increase the reserve requirements for foreign currency, a percentage of deposits that all banks and financial institutions are required to keep, from 9% to 12.5%, beginning in 2024. Reserve requirements for the riel will remain at 7%, to encourage greater use of the national currency (Cambodia’s is a dollarized economy in many areas). The decision reflects Cambodia’s improved economic state, which has increased the demand for foreign currency.
Targeted U.S. and European sanctions remain on Cambodia because of human rights violations, but no significant new sanctions were added after the July 2023 election, despite the fact that Hun Sen had effectively quashed all political opposition. Western leaders have taken a wait-and-see approach to the Hun Manet government and may begin easing sanctions if they find it easier to work with him than they did with his father.
In the near term, Cambodia is not at risk of default in its sovereign debt, although the risk could rise appreciably in the mid- to long-term.
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