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Debt Sustainability Framework Debt Sustainability Analysis
(Cambodia)
DMF Stakeholders’ Forum June 3-4, 2015, Manila, Philippines
Thirong PEN
Deputy Director General
General Department of Budget
Ministry of Economy and Finance
Kingdom of Cambodia
1
Outline
1. Legal Framework
2. Institutional and HR Development 2.1. Institutional Development
2.2. HR Development
3. DSA Exercise
4. Preliminary Results and Conclusions 4.1. Preliminary Results
4.2. Conclusions
5. Views on the DSF
2
1. Legal Framework
3
Law
• Law on Public Financial System
• Law on Government Securities
• Law on National Budget
Sub-decree
• Sub-decree on Public Debt Management
“The Sub-decree orders the Ministry of Economy and Finance (MEF) to conduct a debt sustainability analysis (DSA) at least every two years
and update as necessary.”
Cambodia receives only highly concessional loans.
2. Institutional and HR Development
4
2.1. Institutional Development
• Integration of Middle Office (MO) function into the Back
Office (BO) in 2010
• Merging MO and BO into a single office (ODAC) after
Ministry’s restructuring in late 2013 (Details in next slides)
• Expansion of MO team from 2 to 6 staff
5
Ministry of Economy and Finance (MEF) Structure
Minister
Secretary of State
Under Secretary of State
Cabinet Advisors
GD of Sub-national Finance
GD of State Property & Non-tax Revenue
GD of Internal Audit
GD of Economic & Public Finance Policy
GD of Customs & Excise
General Inspectorate General Secretariat
GD of Public Procurement
GD of National Treasury GD of Budget
GD of Taxation
GD of Financial Industry
6
General Department of Budget (GDB)
7
Debt Management Office
PPP Unit
Director General
Deputy Director General
3 Deputy Director Generals
Department of Cooperation and
Debt Management (DCDM)
Department of Investment
(DI)
Department of General Affairs
Department of Financial Affairs
Department of Budget
Formulation
DCDM Structure
8
Director
Deputy Director
Bilateral Cooperation 1
Office
Bilateral Cooperation 2
Office
Deputy Director
Multilateral Cooperation 1
Office
Multilateral Cooperation 2
Office
Deputy Director
Debt Management, Administration and Consolidation Office
Front Offices Back-Middle Offices
2.2. HR Development
Debt Sustainability Analysis (DSA):
• 1st Training by the ADB, IMF & WB, Manila, Philippines, 2007
• 2nd Training by the IMF & WB, Dhaka, Bangladesh, late 2010
• 3rd Training by the WB expert, Phnom Penh, August 2013
• 4th Training by the WB, Bangkok, Thailand, March 2014
• 5th Training by the WB, Shanghai, China, November 2014
Other Analysis Trainings:
• DPA Training by UNCTAD, September 2012
• Training on Contingent Liabilities Management, June 2013
• Other in-house trainings by ADB consultants
9
3. DSA Exercise
10
• Cambodia’s Vision 2020
• NSDP/PIP
• Macro Framework
• RMS 2014-2018
• DMFAS
• Consultations with the IMF and other experts
Key Inputs
• Baseline Scenario
• Stress Test Scenario
• Alternative Scenario
DSA • Debt Strategy
• Borrowing Limit
• Priority sectors (policy)
• Risk monitoring indicators/policies/ mechanisms
• Very concessional loan
• Key reform programs
• Institutional capacity
Key Outputs
3. DSA Exercise (Con’t)
Cambodia is using LICs template (Medium Policy Thresholds, 3.25 ≤ CPIA ≤ 3.75) since 2011.
The 5 key debt indicators to be monitored
11
Debt Ratio Thresholds (Medium Policy)
PV of external debt
% of GDP 40
% of Exports 150
% of Revenue 250
Debt service
% of Exports 20
% of Revenue 20
3. DSA Exercise (Con’t)
New borrowing for 2014-18: • Scenario 1: SDR 600 million – 700 million p.a.
• Scenario 2: SDR 800 million – 1,000 million p.a.
Key macro assumptions: • GDP growth: average 7%
• Revenue growth: average 0.5% (2014-18) & 0.3%-0.4% (2019-34) (in % of GDP)
• Exports: average 10% to GDP
• Exchange rate: 1USD = 4,050 – 4,200 KHR
Alternative Scenario: • GDP growth: average 7% (2014-18), 6% (2019-22) & 5% (2023-34)
• Revenue growth: average 0.5% (2014-18) & 0.2%-0.3% (2019-34) (in % of GDP)
12
4.1. Preliminary Results (1/4)
13
Borrowing Scenario 1 (Excluding Old Debts)
e- Debt service-to-Revenue ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
b- PV of debt-to-Exports ratio
0
20
40
60
80
100
120
140
160
2015 2020 2025 2030 2035
a- PV of debt-to-GDP ratio
0
5
10
15
20
25
30
35
40
45
2015 2020 2025 2030 2035
c- PV of debt-to-Revenue ratio
0
50
100
150
200
250
300
2015 2020 2025 2030 2035
d- Debt service-to-Exports ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
Most extreme shock
(Exports shock)
Baseline
Historical scenario
Threshold
Alternative Scenario
4.1. Preliminary Results (2/4)
Borrowing Scenario 1 (Including Old Debts)
14
e- Debt service-to-Revenue ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
b- PV of debt-to-Exports ratio
0
20
40
60
80
100
120
140
160
2015 2020 2025 2030 2035
a- PV of debt-to-GDP ratio
0
5
10
15
20
25
30
35
40
45
2015 2020 2025 2030 2035
c- PV of debt-to-Revenue ratio
0
50
100
150
200
250
300
2015 2020 2025 2030 2035
d- Debt service-to-Exports ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
Most extreme shock
(Exports shock)
Baseline
Historical scenario
Threshold
Alternative Scenario
4.1. Preliminary Results (3/4)
Borrowing Scenario 2 (Excluding Old Debts)
15
e- Debt service-to-Revenue ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
b- PV of debt-to-Exports ratio
0
20
40
60
80
100
120
140
160
2015 2020 2025 2030 2035
a- PV of debt-to-GDP ratio
0
5
10
15
20
25
30
35
40
45
2015 2020 2025 2030 2035
c- PV of debt-to-Revenue ratio
0
50
100
150
200
250
300
2015 2020 2025 2030 2035
d- Debt service-to-Exports ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
Most extreme shock
(One-time depreciation shock for
figure a; Exports shock for figures
b, c, d & e)
Baseline
Historical scenario
Threshold
Alternative Scenario
4.1. Preliminary Results (4/4)
Borrowing Scenario 2 (Including Old Debts)
16
e- Debt service-to-Revenue ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
b- PV of debt-to-Exports ratio
0
20
40
60
80
100
120
140
160
2015 2020 2025 2030 2035
a- PV of debt-to-GDP ratio
0
5
10
15
20
25
30
35
40
45
2015 2020 2025 2030 2035
c- PV of debt-to-Revenue ratio
0
50
100
150
200
250
300
2015 2020 2025 2030 2035
d- Debt service-to-Exports ratio
0
5
10
15
20
25
2015 2020 2025 2030 2035
Most extreme shock
(Exports shock)
Baseline
Historical scenario
Threshold
Alternative Scenario
4.2 Conclusions
• Cambodia’s debt is “sustainable” and remains at “low risk” of debt
distress;
• Annual borrowing limit for 2014-18: max. of SDR 700 million;
• Priority sectors: infrastructure support growth and improved
productivity;
• Maintaining macroeconomic stability by key reform programs
• Maintaining concessionality of new loans
• Monitoring and managing contingent liabilities
• Institutional capacity
17
5. Views on the DSF
18
Pros Cons
- Cost-free tool for evaluating the
country’s debt distress and see the
future trend over the long run.
- Supporting tool to define the
country’s annual borrowing limit.
- Ensures the country meets
international best practices and
comparability across countries.
- A complicated tool with more than
40 worksheets (unused
worksheets should be hidden)
- Hard to find the input data since
the requirement is too long (21
years=1-year estimate + 20-year
projection) hence the results are
less accurate.
- No advanced training is provided.
19
Thank you!
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