Cambodia will graduate from a least-developed country to an upper middle-income country by 2027 or 2028, according to a United Nations Development Programme (UNDP) Development Finance Assessment.

The report estimated that financing to support development will double to approximately $23.4 billion by 2025 and account for 68.9 percent of the Kingdom’s gross domestic product (GDP). Official development assistance, including grants and loans are also expected to drop by 0.5 percent of GDP to 7.4 percent – indicating less reliance on concessional loans.

The UN body said that pre-pandemic the Kingdom had achieved annual GDP growth of 7 percent for two decades, resulting in poverty falling below 10 percent – “But the pandemic is likely to have profound consequences in both the economy and progress in reducing poverty.”

It recommended that issuing sovereign bonds would help to accelerate the development of the private capital market and provide funds to help generate income to help support urban development.

The UNDP recommended that engaging in green and climate change mechanisms such as Sustainable Development bonds would help in the development of “exclusively green projects that generate climate and other environmental benefits” and help in de-dollarisation.

The Climate Bonds Initiative reported that ASEAN had issued 13.4 billion green bonds by the end of 2019 worth $8.1 billion with six countries in the bloc having released them.

Cambodia’s bond market is still in its infancy with only seven corporate bonds listed.

In 2019, the Association of Banks in Cambodia came to an agreement with a US development agency to open the door for green bonds so they can access sustainable financing.

“The issuance of government bonds signals the dependence of the domestic capital market and the establishment of a risk-free benchmark for pricing locally issued corporate bonds,” the report said.

It warned that the absence of financial safety nets, a thin foreign exchange market, a weak interbank market, the lack of a government bond market and fast-growing fintech development coupled with traditional financial infrastructure increase “risks to financial sector stability”.

“Cambodia continues to demonstrate good economic performance with great strides towards sustained and rapid economic development. The level of economic development has been striking, accompanying progressive structural changes within the economy,” the report said.

“Nevertheless, there are many issues and challenges. Financing is a key constraint on future progress, not only in maintaining the high level of growth but also in improving the quality of national economic development in terms of its depth, inclusiveness and environmental sustainability,” it continued.

The report also explored the possibility of a “sin tax” for gambling ventures as casinos begin to play a bigger part in the economy.

“Every year, tens of thousands of foreigners, mostly from China, Thailand and Vietnam, visit 150 casinos in Cambodia, the largest number in any country in Southeast Asia,”  it said.

Increasing tax on domestic tobacco from 25 percent to 74 percent would result in $230 billion in additional revenue over the next five years.

• Tags: GDP, loans, UNDP