The Cambodia Securities Exchange head office located in central Phnom Penh. KT/Pann Rachana
The Royal Cambodian Government will issue a draft law allowing government bonds to be listed for the first time on the Cambodia Securities Exchange, according to the national meeting of cabinet ministers chaired by Prime Minister Hun Sen on Saturday.
The draft law, once approved by the legislative council, would allow the Royal Cambodian Government to issue bonds in either local or foreign currencies and would reduce Cambodia’s dependence on foreign debt and international aid programmes to raise capital.
A government bond is a debt security issued by a government to support government spending and obligations and can pay periodic interest payments called coupon payments. Government bonds issued by national governments are often considered low-risk investments because the issuing government backs them.
According to senior officials, government bonds will be an important tool for Cambodia to generate finances from both domestic and overseas investors for Cambodia’s social and economic development.
They added because of the current economic climate international development assistance has been reducing and interest rates on soft loans have been increasing over time.
Although Cambodia is still ranked a Least Developed Country (LDC) it will need to prepare now and be ready for the years ahead, they said.
It is also hoped that the law will enable Cambodia to maintain its sovereignty because international pressure is increasingly becoming tied to economic assistance, such as the recent partial withdrawal of the European Union’s “Everything but Arms” preferential trade deal.
The Ministry of Economy and Finance (MEF) would determine the appropriate coupon rate, maturity dates, currency listed and other technical details.
According to the official, the new law would not require a royal decree, however, directive could be issued by the MEF.
The Securities and Exchange Commission of Cambodia has previously invited the government to list on the Cambodia Securities Exchange, stating it would make the local exchange more attractive for investors.
The Asian Development Bank (ADB) has also been urging Cambodia to develop its local market for both corporate and government bonds while promoting the local currency, the riel.
In its twice-yearly Asian Development Outlook, the ADB recognised that Cambodian authorities were committed to developing financial services to support growth and ensure macroeconomic stability.
The bank said local government bond issues could help diversify the nonbank financial sector and deepen local capital markets which would help reduce reliance on bank credit and offer new channels for long-term financial intermediation.
In addition, to the draft law on government bonds, the national cabinet committee on Saturday also approved the draft law on the organisation and functioning of a non-bank financial services authority.
This authority is aimed at integrating the mechanisms of management and control over the non-bank financial sector.
This includes insurance and private pensions, the bond sector, social security, trustee industry, accounting and auditing.
