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Moody's changes Cambodia's outlook to negative, B2 ratings affirmed

19 Nov '22
2 min read
Pic: Shutterstock
Pic: Shutterstock

Moody's Investors Service recently changed Cambodia's outlook to negative from stable and affirmed the B2 local and foreign currency issuer ratings. The negative outlook reflects a deteriorating external position as illustrated by the severe widening of the current account deficit, which Moody's expects to remain wide over the next few years, raising financing concerns.

Although Moody's expects concessional funding to continue and foreign direct investment (FDI) to remain stable, other sources of financing remain opaque, highlighting the risk of a quicker erosion of foreign currency reserves than observed until now.

These risks are compounded by the lack of timely and transparent reporting, which complicates policy setting, indicating elevated credit risks stemming from weaknesses in governance, Moody’s said in a release.

The rating affirmation at B2 balances the government's highly affordable, concessional debt with a weak institutional framework, and elevated domestic political and geopolitical risks.

Cambodia's local and foreign currency country ceilings remain unchanged at Ba3 and B1, respectively. The two-notch gap between the local currency ceiling and the sovereign rating reflects low economic diversification, weak institutional strength and a modest government footprint and a rising external vulnerability risk.

The one-notch gap between the foreign currency ceiling and the local currency ceiling incorporates Moody's assessment of Cambodia's weak policy effectiveness, but relatively open capital account, as well as transfer and convertibility restrictions in times of stress.

ALCHEMPro News Desk (DS)

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