* In past year, private credit rose by nearly a third
* National income expanded by 6.5 percent last year
WASHINGTON Jan 8 Cambodia's financial system
could be overheating, posing a risk to the country's strong
economic growth, International Monetary Fund staff reported
after their annual health check on the economy.
In the past year, private credit expanded by nearly a third
in Cambodia and reached 37 percent of national income, zooming
above levels seen in similar low-income countries in Southeast
Asia, IMF staff said in documents released on Tuesday.
The ratio between credit and national income is now much
higher than the long-term trend, which puts the economy at risk.
The National Bank of Cambodia should do more to cool down bank
lending beyond simply raising reserve requirements, as it did
recently, the IMF staff said.
While the staff views do not represent the official position
of the IMF, the Fund's executive board largely agreed with the
staff's conclusions, according to a separate document released
"While the recent increase in the reserve requirement for
foreign currency deposits is welcome, (the directors) considered
that further gradual increases may be needed to guard against
excessive risk-taking by banks," the IMF said after the board's
Easy financial conditions and demand for credit have helped
fuel the boom.
Cambodia has been a rare bright spot in the sluggish global
economic recovery, with national income expanding 6.5 percent
last year, buoyed by garment exports to Europe and a burgeoning
tourist industry. The IMF projects the economy will grow 7.5
percent by 2017, in line with its potential.
Cambodia is also attracting a small but growing share of
foreign investment in Southeast Asia as companies seek cheaper
alternatives to China and as Cambodia expands its electricity
It also helps that Cambodia is perhaps Asia's most open
place for investors, allowing 100 percent foreign ownership,
easy repatriation of profits and a dollarized economy that
minimizes currency risks.
Separately, Cambodia's executive director on the IMF's
board, Der Jiun Chia, defended the country's credit policies and
said most loans have been of good quality.
"Credit growth does not appear to be out of line with the
vast development needs in Cambodia nor with the need to
diversify the economic base," he said in a statement.
The IMF directors said Cambodia also faces risks from an
expansion of the euro area crisis, and from extreme weather such
as drought or floods that could hit the dominant agricultural
sector. They also called on the government to improve
infrastructure and the investment climate, and to promote rural
Cambodia has one of the lowest incomes per capita in
Southeast Asia, about $820 in 2011, according to the World Bank.
The government's land policies have also drawn increasing
scrutiny from the country's international donors, which supply
almost half the country's budget. The World Bank froze fresh aid
to Cambodia in 2010 over forced evictions of families.
(Reporting by Anna Yukhananov; Editing by Peter Galloway)