Bangkok--1 Nov--Standard & Poor's
Cambodia's narrow economic profile, and limited fiscal and monetary flexibility are enduring vulnerabilities.
These constraining factors are weighed against the country's strong growth and close engagement with donors.
We are lowering the unsolicited long-term sovereign credit rating on Cambodia to 'B' from 'B+' and affirming the 'B' short-term rating.
The outlook is stable on our expectation that policy continuity and pragmatic macroeconomic planning will prevail.
Standard & Poor's Ratings Services today lowered its long-term sovereign credit rating on the Kingdom of Cambodia to 'B' from 'B+'. The outlook is stable. We also affirmed the 'B' short-term rating on the sovereign.
At the same time, we lowered the long-term ASEAN regional scale rating on Cambodia to 'axBB-' from 'axBB'. We affirmed the 'axB' short-term ASEAN rating. We also lowered our transfer and convertibility (T&C) assessment of Cambodia by one notch to 'B+'. The ratings are unsolicited.
"We lowered the rating on Cambodia by one notch to reflect our view of the country's low income, highly dollarized and narrow economic profile, and limited fiscal flexibility," said Standard & Poor's credit analyst Agost Benard. Our downgrade reflects the greater emphasis that Standard & Poor's places on political and economic fundamentals in our ratings methodology introduced in June 2011. (See "Sovereign Government Rating Methodology And Assumptions," published on RatingsDirect on the Global Credit Portal on June 30, 2011.)
"These constraints are weighed against strong growth prospects and substantial donor engagement, which enables Cambodia to maintain a low debt and interest burden," Mr. Benard said.
Standard & Poor's believes that Cambodia's low income level is indicative of very significant constraints on the political and fiscal flexibility needed to avoid default in the event of stress. At US$830 for 2010, per capita income is the second lowest among rated sovereigns in Asia. A high level of dollarization also hampers Cambodia's policy flexibility.
The government's low capacity to mobilize revenue constrains the rating, despite gradual improvement over the past decade. General government revenue has risen by about 1% of GDP over the past 10 years to a projected 13.4% of GDP in 2011 (including grants). Nevertheless, it remains one of the lowest among rated sovereigns, and necessitates ongoing budget support by donors.
On the other hand, the country's record of strong growth in the framework of improving macroeconomic policies supports the ratings. Political stability and a liberal economic and trade regime enabled the Cambodian economy to produce average real per capita GDP growth of 5.5% a year for 2005-2013.
The continued engagement of international donors anchors policy formulation and provides substantial fiscal and balance-of-payments support. This support is reflected in the concessional nature of nearly all of the sovereign's external debt stock, enabling Cambodia to maintain relatively low debt at an estimated 24% of GDP (2010) and an exceedingly low interest burden of 1.6% of general government revenues, Mr. Benard said.
The stable outlook reflects our expectation that policy continuity and pragmatic macroeconomic planning will prevail. The ratings could improve if the government implements measures to expand its low revenue base and improves collection efficiency, such that there is a sustained rise in the tax-to-GDP ratio. We may also raise the ratings if Cambodia increases efforts to materially boost investments by addressing the existing multitude of deterrents.
However, the ratings could be lowered if there is fiscal slippage or reduced donor support due to deviation from prudent macroeconomic policies or an adverse change in debt management strategy.
RELATED CRITERIA AND RESEARCH
Sovereign Government Rating Methodology And Assumptions, June 30, 2011
This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
John Piecuch, New York (1) 212 438.1579,
[email protected]
Analyst Contacts:
Agost Benard, Singapore (65) 6239-6347
YeeFarn Phua, Singapore (65) 6239-6341