The government on Friday reiterated its intention of issuing sovereign bonds, and said they will become available to investors in the next four to five years.
Government securities will serve to support economic growth, reduce reliance on foreign currencies and risks associated with currency exchange rates, and will allow the Central Bank to take control of the country’s monetary policy, said Chou Vannak, deputy director general of the General Department of Financial Industry.
Speaking at a seminar Friday on the development of government securities, Mr Vannak said the bonds will play a crucial role when development funding dries out as Cambodia becomes a wealthier and more self-reliant nation. He said they will protect the country against external shocks affecting the government’s debt portfolio.
Additionally, these financial tools will mobilise domestic savings for investments, provide diversified investment products to investors, and support the interbank market and the development of the financial system, Mr Vannak said.
There is not an exact launch date for the bonds, though he said they should hit the market by 2022 or 2023, once the Public Debt Strategy for 2019-2023 is ready.
“We can launch a pilot mechanism for bond issuance by 2022 or 2023. When concessional loans dry out, we can continue with the bond market. This is what we have envisioned in the Public Debt Strategy for 2019-2023,” he said.
“We are working on the regulations needed to launch this tool, and studying the market,” he added.
Sim Dara, director and head of research of Yuanta Securities (Cambodia), said development funding is likely to gradually dry out once Cambodia becomes a middle-income economy, adding that it is necessary to find alternative sources of capital.
“Government bonds are safer than corporate bonds. It is a very interesting investment for companies like insurance firms, who are looking for long-term investments.
“It will give us a benchmark to measure the performance of other bonds,” he said.
Ros Seilava, Undersecretary of State at the Ministry of Economy and Finance, said the securities sector will support the economic growth of the country.
It will allow the government to raise capital in the local currency, and create a low-risk investment for institutional investors like commercial banks, insurance firms and pension funds.
“With sovereign bonds, the government will reduce exchange rate risks. It will give the Central Bank a benchmark for the implementation of the local monetary policy, support the financial sector and increase stability,” Mr Seilava said.
The regulations to create and implement the government’s bond strategy have been in place since 2000, Mr Seilava said, adding that it has not been implemented yet because the government still enjoys concessional loans from development partners at very low interest rates.
“We are now ready to begin the process of issuing government securities as we have prepared for it in the Public Debt Strategy for 2019-2023. Once the strategy is approved, we will be able to issue bonds which will help us collect capital to develop the country,” Mr Seilava said.
“To be successful in this endeavour, we have to spread the word among investors, as well as study the market to have a better idea of how many bonds to issue,” he added.
The national budget for 2019 is around $6.7 billion, which is 11.4 percent bigger than last year’s. Cambodia’s outstanding public debt stands at $6.8 billion.