The ratings on Cambodia reflect vulnerabilities to macroeconomic stability and external position, exacerbated by limited fiscal flexibility and ineffectiveness of monetary policy setting.
However, the country's strong growth potential and close engagement with donors provide support for the ratings.
Standard & Poor's Ratings Services affirmed the 'B+/B' sovereign credit ratings on Cambodia.
The outlook is stable on our expectations that policy continuity and pragmatic macroeconomic planning will prevail.
SINGAPORE, Oct. 15, 2010--Standard & Poor's Ratings Services today affirmed its 'B+' long-term and 'B' short-term sovereign credit ratings on the Kingdom of Cambodia. The outlook is stable. The transfer and convertibility (T&C) assessment is at 'BB-'. At the same time, Standard & Poor's affirmed the long-term ASEAN scale credit rating on Cambodia at 'axBB', and the short-term ASEAN scale credit rating at 'axB'.
The sovereign credit ratings on Cambodia balance a low-base dollarized economy and limited fiscal flexibility against good growth prospects and strong engagement with international donors. The stable outlook reflects our expectations that policy continuity, including market-oriented reforms, and a pragmatic macroeconomic setting will prevail.
"The Cambodian economy is marked by pockets of vulnerability in growth, and external liquidity owing to the country's underdeveloped and narrow economic profile," said Standard & Poor's credit analyst YeeFarn Phua.
"The ratings are also constrained by the government's low revenue mobilization capacity," he added. A large part of the economy remains outside the tax net. The narrow revenue base, combined with much-needed infrastructure investment, requires ongoing budget support from foreign donors.
Cambodia's highly-dollarized economy negates much of the effectiveness of monetary policy setting. That, along with Cambodia's open economy, means the economy will remain susceptible to imported inflation.
The ratings on Cambodia are, on the other hand, supported by the country's record of strong growth in a framework of improving macroeconomic policies. Medium-term growth prospects remain favorable as the tourism and garment export sectors emerge from the trough of the global recession. The economy could get an additional fillip in three to four years as the nascent hydrocarbon industry reaches production stage. The ratings are also underpinned by the continued engagement of international donors. This anchors policy formulation and provides substantial fiscal and balance-of-payments support.
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