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Closing Remarks at the 3rd Policy Dialogue on “Belt and Road Initiative in Cambodia: Economic Diversification and Debt Management”

ISSUE 2019
No 03
Release 23 January 2019
By H.E. Hem Vanndy

Ms. Pauline Tamesis, UN Resident Coordinator; Dr. Sarah Zhou, Resident Representative, IMF; Distinguished panellists; Excellencies, ladies and gentlemen;

It is an honour and a pleasure for me to address the closing of this 3rd Policy Dialogue. Let me start by commending the United Nations in Cambodia for organising these dialogue series. They offer policymakers, researchers, and all stakeholders deep and meaningful insights into critical developments that will transform the region.

It is indeed hard for me to add anything more elaborate than those presented by our distinguished panellists. The discussion is educational and insightful. I therefore will not try to recap and rearticulate all the points which have been shared and exchanged.

Yet allow me to offer some perspectives and policy consideration with regard to the Belt and Road Initiative and the effects it has on Cambodia’s economy and development.

Yet allow me to offer some perspectives and policy consideration with regard to the Belt and Road Initiative and the effects it has on Cambodia’s economy and development.

UNDP describes the Belt and Road Initiative (BRI) as a:

“global and regional economic and development cooperation framework to increase connectivity between China and partner countries, based on the ancient land and maritime routes of the Silk Road. The BRI aims to link countries through infrastructure construction, transport and economic corridors and by bridging China with the rest of the world both physically, financially, digitally and socially.”

Cambodia would benefit from this initiative through increasing trade and investment with China and other countries, as well as access to substantial new financing for infrastructure development. As a small and liberal economy, we rely on external markets and full integration. We have been diversifying our industrial base and promoting domestic SMEs to ensure that we become part of the regional value chain and the Asian market force that will drive the global economy in the new paradigm. China will be a key market for Cambodia’s export diversification and investment programmes, so will many rising economies along the Belt and Road with fast-growing middle-class consumers. Together they represent a golden opportunity that we cannot afford to miss. As a founding and an active member of the initiative, we have pivoted on the enormous potential that regional cooperation of this scale will unleash.

The initiative would help China address industrial restructuring issues as it shifts to less labour-intensive and higher-technology industries. It will help China find new sources of growth abroad, especially for construction companies and industries seeking new markets. It is also a vehicle to promote the international expansion of the use of China’s technology, as part of a broader effort to upgrade China’s exports from low- to high-value capital goods.

While some view such outward expansion and advancement as threats, I see them as opportunities, especially for smaller economies. The prospect of shifting and relocating some of China’s industries and production base to countries along the Belt and Road can only be promising. It will be the duty and responsibility of the respective countries, Cambodia included, to ensure that we carefully and duly select those that serve our countries the most. With the unsettled trade war between the two economic superpowers, new opportunities brought by the Fourth Industrial Revolution, and China’s own industrial readjustment, companies are seriously reassessing their dependability on China as the world’s factory and low-cost production base. In this development, Thailand and Viet Nam are predicted as the two economies that can benefit, attract, and absorb such investment outflow and diversion the most.

With their embrace of technology and innovation, their ability to attract high-valued investments is even more pronounced. As Cambodia is strategically placed in between these two growth poles, it has the greatest chance of tapping the full potentials of their value chains and integrating itself into the global supply chain.

Since 2000, we have made substantial economic diversification. Eighteen years ago, industry accounted for only 22% of our economy compared to now 33%. Our trade volume increased nearly tenfold thanks to our openness and clear policy conviction that we have to be part of trade globalisation. While we have been achieving an average growth rate of 7% over the last ten years, we fully realise the need to diversify even more from the sectors which, have thus far, propelled the past growth trajectory. We are working to open up more market access both through multilateral and bilateral trade agreements. The Ministry of Economy and Finance under the leadership of H.E. Dr. Aun Pornmoniroth, Deputy Prime Minister and Minister of Economy and Finance, is intensely working on policy prescriptions and underpinning reform measures that will shift the gear of our economy and bring it to a new level of diversification and sophistication. Our SMEs are currently under their potential and we have been rolling out a number of support measures that will make them the new engine of growth. With our young labour force, favourable growth outlook, and strong digital appetite, I’m confident that we have a great deal to win from the BRI. It is just a matter of how well we prepare ourselves to reap the benefits of this windfall. For Cambodia, we will take part in any regional cooperation initiative that opens up our opportunities to grow and diversify our economy.

Ladies and gentlemen!

In my opinion, too much labelling is currently being placed on China as the only prime benefactor from the BRI. A fairer adjudication would be for us to look from other perspectives in terms of what participating countries are gaining in infrastructure relief, improved connectivity, reduced transport cost, increased trade volume, better trade facilitation, higher investment and tourism, better exchange of skills and development experiences, as well as greater access to finance to name a few.

Regional cooperation initiatives are shaped in different forms and substance to fulfil various aspirations. However, the BRI is perhaps the only one which is dedicated to infrastructure connectivity and economic integration by far. Most importantly, it is probably the most financially resourced initiative. Leaders of respective BRI members are determined to build comprehensive partnerships and reinvigorate international cooperation in all respects. BRI is going to complement other regional initiatives.

As you may be aware, a deal has just been closed to construct the Phnom Penh-Sihanoukville Expressway and ground was broken by our Prime Minister last month. This project is going to be a game changer that will address our connectivity, logistics and competitiveness issues. I’m glad to emphasise that it is made possible because of the BRI. For those of you who may be familiar or have some knowledge of the project structuring and negotiation, our Government managed to secure a deal that neither brings us financial burden, nor hefty price on the tolls. After all, it is up to us to work out and get the best deal for ourselves. It can be done and we have done it. As a sovereign nation, we have the right and the choice to take only what we want.

On this note, I shall address the issue of debt management, which has been raised and debated in many fora. For Cambodia, we are fortunate that we not only have one of the most conservative Debt Management Strategies in force, but also a very disciplined Government operating under one general commander, the Prime Minister, and a very prudent and centralised gatekeeper, the Ministry of Economy and Finance, to ensure that all our borrowings are in line with our development priorities and consistently compliant with the four key principles of debt management: i) borrow the amount that the budget and the economy can afford, ii) borrow only high concessional loans, iii) borrow for sectors that will support growth sustainability and productivity improvement, and iv) use those borrowings in a transparent and highly effective manner.

I believe a clear and strong debt management strategy helps countries ensure their ownership and leadership of project development, thereby managing their debt well. With a clear national development plan and strategy, and proper management framework to prioritise and sequence development projects, we are better placed in how we decide the kind of financing we need to implement those projects.

Among the many national accomplishments Cambodia has made over the last two decades, debt management is one we are proud of. We treat the debts we contract under the BRI like any other debts from multilateral and bilateral institutions in terms of the due process and the core underlying debt management principles that they shall adhere to. We seek the annual approval of the elected representatives of our people in the Parliament and report the borrowings to them on a regular basis. These are important checks and balances that promote good governance and management of public debt. BRI is not going to create a debt trap for Cambodia.

In closing, I want to thank the United Nations in Cambodia once again for giving me this opportunity. I thank our participants for your kind attention. I hope today’s discussion help us understand better the BRI and enhance future dialogue. I wish you all the best, and a Happy Khmer New Year!

Thank you!

The opinions expressed are the author’s own and do not reflect the views of the Asian Vision Institute.