Thailand
Cambodia: Moody’s projects 80% drop from 2019 tourism, gives ‘stable’ rating
Moody’s Investors Service upheld Cambodia’s B2 stable rating in its Inside ASEAN report.
“Cambodia’s credit profile balances its strong growth trajectory, robust fiscal metrics and low external vulnerabilities against financial stability risks stemming from sustained, high credit growth compounded by weak institutions and high dollarisation,” the credit opinion read.
The US-based rating agency determines a country’s credit profile by four key factors – economic strength (B1), institutions and governance strength (B3), fiscal strength (BAA2) and susceptibility to event risk (BA).
The report cautioned that the pandemic would continue to disrupt global commerce and travel for much of 2021 – “under our assumption, economic growth will not fully recover to pre-pandemic levels until at least 2022”.
Under strengths, Moody’s listed the Kingdom’s strong government revenue generation, high debt affordability and healthy growth potential, supported by garment exports, construction and tourism.
The nation’s challenges included: high credit growth and a large financial system that pose risks to financial stability, weak institutional framework, high dollarisation levels that limit policy flexibility and geopolitical risks that threaten financial and economic support from bilateral and multilateral development partners.
Moody’s forecasts Cambodia’s gross domestic product (GDP) to reach 4.7 percent this year and for inflation to decrease to 2.8 percent. General government debt to GDP is forecast to rise to 32 percent from 29.4 percent in 2020, according to the report.
“The concessional and long-term nature of Cambodia’s debt reduces the risk of near-term liquidity pressures,” the outlook said.
“We would consider upgrading the rating if reforms were likely to address the country’s institutional weaknesses and enhance policy effectiveness, such as the control of corruption and rule of law,” it added.
Moody’s believes that economic recovery in 2021 is also likely to be hampered by ongoing pandemic related weakness in the EU, which accounted for almost a third of Cambodia’s total goods exports and almost half of its exports of garment and footwear in 2019.
Current account deficits are also forecast to widen to approximately 20 percent following a sharp compression in 2020. Moody’s also recognised the trend that foreign direct investment approvals for projects are shifting away from the garment and tourism sector to construction and real estate, primarily from Chinese investors.
“The primary hit to growth is from a contraction in tourism, although this has been partly offset by growth in manufacturing exports and domestic tourism. Our baseline assumption is for 2021 visitor arrivals to be about 80 percent below 2019 levels, marking only a marginal recovery from 2020,” the report said.
The report also noted that non-performing loans in the microfinance sector, which were exposed to layoffs in the garment and tourism sector, doubled from the end of 2019 to around 3 percent in June 2020, before dipping to 2.3 percent by October.
Source: https://www.khmertimeskh.com/50832290/moodys-projects-80-drop-from-2019-tourism-gives-stable-rating/