Since the government, through the Ministry of Economy and Finance, started issuing sovereign bonds in September 2022, they have emerged as a new financial instrument, enabling the government to augment domestic revenue, thereby reducing the need to borrow from foreign sources for infrastructure development.

The ministry announced on August 25, 2022, that Cambodia’s first issuance of a bond, valued at approximately $300 million, would commence in September that year. 

The debt security was specifically designed for institutional investors such as the National Social Security Fund (NSSF), insurance companies and banks.

The ministry said the 1.219 trillion riel ($299.2 million) sovereign bond would be issued with a par value of one million riel ($245.47) each. The bonds would include coupon payments every six months, with the National Bank of Cambodia (NBC), the country’s central bank, serving as the issuance agent.

“Investors will benefit from a 50% reduction in withholding tax on the interest earned from holding and trading the sovereign bonds, denominated in the local currency, and an exemption on capital gains tax on the purchase and trade of the securities for three years,” the ministry highlighted at the time.

Finance minister Aun Pornmoniroth said that sovereign securities would empower the state to secure funds for economic development, during a national conference on the Cambodia Securities Exchange (CSX) in May 2022. 

“Government bonds are expected to be popular on the CSX, providing benchmark data for corporate securities trading and financial analysis, as seen in countries with burgeoning securities sectors,” he stated.

Sou Socheat, director-general of the Securities and Exchange Commission of Cambodia (SERC), said the government has the sole discretion to decide the value and amount of the bond issued. 

“The CSX welcomes the issuance of government bonds as they are financial instruments facilitating the mobilisation of local funds for various needs,” he said.

Socheat pointed out that for the local bourse, it serves as a tool that could potentially be listed or traded as a secondary market on the exchange.

He emphasised that the development would require additional time, as CSX is not presently equipped for such an undertaking.

“However, it also serves as an effective benchmark, as the presence of a bond establishes a price for the local bond type. This is a beneficial option, providing an opportunity for the market to learn from these developments,” he added.

Sovereign bonds drive economic growth

Hong Sok Hour, CEO of CSX, said it is common for governments to have diverse funding sources to raise capital based on actual situations or needs.

Although the initial bond issuance was modest compared to other countries, he has observed steady growth, indicating its future significance as a key supply of funds for the government. 

“Capital sources through the securities market are viewed as inexhaustible, providing domestic [financing]. Once sufficiently developed, they will also attract foreign investors,” he said.

“The government bond must gain importance as our country continues to develop. So, reliance on financing options like loans from international financial institutions is likely to diminish and interest rates may rise as well,” he explained. 

“Therefore, such options will become less favourable, necessitating the government to seek new funding sources. This is essential as our country’s growth demands increased capital for ongoing development,” he added.

Ky Sereyvath, an economics researcher at the Royal Academy of Cambodia, emphasised the importance of public debt in developed countries. 

He noted that due to limited government revenue collection, especially in taxes, issuing public debt is akin to the people saving money with the government while it pays interest to them.

He explained that borrowing from the people finances expensive infrastructure projects like roads and bridges, noting that sovereign bonds help the government raise local capital for construction and reduce foreign borrowing . 

“This benefits everyone; the people receive interest from the state, while the government gets sufficient funds for infrastructure or other essential expenditures to stimulate economic growth. If the state bond issuance receives strong support, it signifies the state’s success in reducing external debt,” he added.

The finance ministry recently announced plans to issue a $100 million sovereign bond in 2024. 

According to the ministry, the initiative aims to raise additional funds through the capital market for public investment projects, while also repaying the principal and interest of previous issuances.